Campaign against tax evaders misses targets by 93%

FBR officials only able to collect Rs356 million; most taxpayers claim to have earned incomes abroad.

ISLAMABAD:

The government’s much-vaunted campaign against tax evasion appears to have hit a snag, with officials at the Federal Board of Revenue (FBR) being able to collect only Rs356 million from alleged tax evaders against a target of Rs5 billion for the last quarter of the fiscal year, after most taxpayers claimed to have earned their incomes abroad.

Of the 71,000 individuals who had been served notices by the FBR, about 26,740 have filed their returns and paid Rs356 million in taxes, almost 93% less than the government’s target for the last quarter of the fiscal year ending June 30, 2011.

The government has compiled data on 2.3 million people as potential tax evaders and begun pursuing about  700,000 of them in the first phase. The campaign against tax evasion is a key element of Islamabad’s strategy to show the International Monetary Fund that it is serious about fiscal reform.

That its pool of potential tax evaders have managed to minimise their tax liabilities using legal loopholes comes as a disappointment to senior tax officials. Under current tax laws, income earned outside Pakistan is not subject to any taxes. Others have claimed agriculture as the source of their income, which is not taxable by the federal government.

FBR Chairman Salman Siddiqui said that the government would be investigating the veracity of the claims by those who filed their returns that stated their source of income as being outside the country.

The FBR claims that after scrutinising the returns of 17,134 individuals, it had raised provisional tax demands collectively worth Rs5.8 billion. If the provisional demand is not challenged within a specified time frame, it becomes the final tax liability.

While progress against individual tax evaders has been slow, the government seems to have had a little more success in detecting evasion at corporations, collecting Rs4.3 billion in taxes after auditing several leading commercial banks.

The FBR claims that Standard Chartered Bank deposited Rs1.4 billion in taxes with the tax authorities after admitting to short-filing – submitting less in taxes to the government than it collected from its counterparties as a tax withholding agent. The National Bank of Pakistan deposited Rs2.2 billion, Habib Bank Rs240 million, United Bank Rs170 million, Faysal Bank Rs150 million and Bank Alfalah Rs930,000.

The banks, however, claim that the government has been engaging in excessive pressure tactics to meet its revenue targets. The FBR had initially demanded up to Rs30 billion from the banks, of which Rs20 billion was from the state-owned National Bank alone. The FBR later revised that demand downward to Rs8.4 billion after NBP contested it.

Avoidance of double taxation

To avoid double taxation, the federal government on Friday withdrew the federal excise duty on 10 services after handing over the right to do so to the provinces. These services include advertising, travel agencies, shipping agencies, telecommunications, insurance, banking companies, property developers, construction, stock brokerages and terminal services.

These services will now be subject to a provincial sales tax, rather than the federal excise duty, effective July 1.

Published in The Express Tribune, July 2^nd, 2011.