Govt sends notices to big landlords for tax evasion

75% landlords gave false statements in annual returns as they did not pay tax

ISLAMABAD: The federal government has started sending tax notices to big landlords including politicians as it has come to know that three out of every four persons who declare agriculture as the source of income actually do not pay tax on agriculture income in provinces.

A former prime minister of Pakistan from Balochistan is among those who have been sent tax notices after he was apparently found making a false claim of paying provincial agriculture tax in order to claim exemption from the federal income tax, according to sources in the Federal Board of Revenue (FBR).

However, it was not the FBR that caught these landlords evading taxes. The job was done by the Office of Federal Tax Ombudsman (FTO).

In order to evade income tax, the landlords claimed tax exemptions from the FBR by declaring agriculture as the source of income, revealed a study conducted by the FTO office. However, 75% of them gave false statements in their annual income tax returns as they did not pay tax in the provinces, according to the FTO’s findings.

“All over Pakistan, 9,352 taxpayers have shown agriculture income and 6,668 people have not paid provincial agriculture tax,” according to a correspondence of the FTO with the FBR.

It added only 2,384 people - only one-fourth of the total declarations - actually paid provincial agriculture income tax during tax years 2016 and 2017.

The FTO’s findings are based on the data received from the FBR. There were about 55 cases where the source of income was forestry, fishing, poultry and dairy farming but these were declared as agriculture income, according to the FTO’s findings.

The FBR was taken off guard when the FTO sought replies on sheer negligence. The development took place in mid-November, according to the official correspondence between both the organisations. After that, the FBR started sending tax notices under Section 122(5) A of the Income Tax Ordinance, said the sources.

Among those who have declared agriculture income and also paid their taxes are a sitting federal minister, a former interior minister, a former Punjab governor and a former prime minister belonging to the Pakistan Peoples Party. Former president Asif Ali Zardari also paid agriculture income tax.

The share of agriculture in the economy is about one-fifth but its share in total revenues is less than 1%, indicating huge tax evasion in the sector.

In 2013, the FBR introduced an amendment in Section 111 of the Income Tax Ordinance 2001. The amendment was aimed at cracking down on those who evaded income tax by hiding behind agriculture income. However, the FBR did not take action against those landlords who claimed tax exemption on false statements that they had paid their due taxes in provinces.



Under the Constitution of Pakistan, the income from agriculture is a provincial subject - a lacuna that almost every influential landlord and industrialist exploits to evade taxes by claiming income from land.

According to the 2013 amendment, money or valuable articles owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.

The FTO’s findings showed that the FBR accepted the declarations of 9,352 people without any verification from the provincial authorities. The findings further showed that there was no liaison between the FBR and the provincial tax authorities.



The FTO’s observations were that the FBR badly failed in scrutinising income tax returns and allowed these people to claim tax exemptions in violation of the Income Tax Ordinance. All these people are at risk of heavy penalties, provided the FBR has the capacity to perform its job professionally.

About two years ago, the Punjab government had stopped collection of income-based component of agriculture tax through an executive order. It took the step under pressure from big landlords and politicians ahead of general elections.

The provincial governments collect two types of taxes from agriculture - income-based and land-based.

 

Published in The Express Tribune, December 12^th, 2018.

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