Pakistan's tax base shrinks, only 40% NTN holders file returns

Despite winning massive concessions, lower number of traders files tax returns

Shahbaz Rana March 03, 2020
Representational image. PHOTO: REUTERS

ISLAMABAD: The government’s broadening of tax base campaign has fallen flat as only 2.5 million people have filed annual income tax returns against 6.2 million National Tax Number (NTN) holders that shows the weakening writ of the tax machinery.

The return filers were also 278,581 or 11% less than the last tax year despite Prime Minister Imran Khan’s government giving a tax amnesty scheme and conceding ground to traders in the hope of bringing them in the tax net.

Over one-tenth contraction in the tax base needs serious soul-searching on the part of the government, headed by Imran Khan, who is known for his financial integrity.

The tax base shrank under the watch of outgoing Federal Board of Revenue (FBR) Chairman Shabbar Zaidi, who had been brought in from the private sector to oversee reforms. The government has not been able to announce the successor of Zaidi despite holding numerous meetings in the twin cities.

Another worrisome aspect was that despite winning massive tax concessions from the government, the number of income tax returns filed by traders fell this year as compared to last year, according to the FBR’s statistics.

As compared to 415,624 returns filed by the traders in tax year 2018, this year only 399,534 traders filed returns, according to the FBR. About 16,100 traders escaped the FBR’s net this year.

The 2.5-million filers - to be precise - were just 40% of the people and entities registered with the FBR for income tax purposes, showing very poor enforcement. As many as 6.2 million people are registered with the FBR and hold the NTN.

The filing of income tax return is the legal obligation of every person, earning taxable income of more than Rs400,000 a year, has at least one 1,000cc car or owns a home.

The FBR has published the new Active Taxpayers List (ATL) for tax year 2019 and 2.53 million people have submitted income tax returns, said FBR Inland Revenue Policy member Dr Hamid Atiq Sarwar, who is also the official spokesman.

In tax year 2018, over 2.8 million people had filed returns, said Sarwar.

Instead of showing any increase in income tax returns, the tax base actually shrank by 279,000 or 11% in tax year 2019. To a question about traders escaping the tax net instead of coming in, Sarwar said increasing the number of traders from 400,000 to three million would be a gradual process. He said committees had been constituted that would resolve issues about the filing of returns by the traders.

In October last year, the traders got major concessions from the government on the intervention of PTI’s former secretary general Jahangir Khan Tareen. The government increased the exemption limit for sales tax registration of traders and allowed that only those paying up to Rs1.2 million annually in electricity bills and owning a 1,000-square-feet shop would be required to get registered.

Earlier, any shopkeeper whose annual electricity bill was above Rs600,000 was treated as a class-I trader and subjected to 17% sales tax.

The government had also reduced the minimum income tax rate from 1.5% to only 0.5% for the traders who had annual turnover of up to Rs100 million. All this had been done on the claim that 3.5 million to four million traders would get registered with the FBR.

It is not for the first time that the traders have deceived a sitting government. Earlier, they had made similar promises with Pakistan Muslim League-Nawaz (PML-N) government and got away with major tax concessions.

In tax year 2018, there were 401,807 individual traders who filed tax returns - a figure that has now slipped to 387,867 instead of increasing.

Similarly, there were 13,817 associations of persons owned by the traders that filed income tax returns in the last tax year. This figure too has slipped to 11,667 this year, a reduction of 15%. Under the Income Tax Rules of 2002, the FBR publishes the new Active Taxpayers List on March 1 every year and anybody that does not file return for the year is excluded from the list and is subject to double withholding tax.

Sarwar said the FBR would go after those 279,000 people who did not submit returns for this year.

The political compromise struck by the PTI government twice - first by giving amnesty and then by providing a safe passage to traders - also weakened the FBR’s writ.

In June 2013, the PML-N government had introduced the policy of charging higher tax rates from those who did not file income tax returns. Even that could not compel people to file returns.

Perpetual failure of the FBR to meet assigned targets is not something new but a large part of the blame goes to political masters who keep on giving amnesties, waivers and immunities, said Dr Ikramul Haq, an eminent tax lawyer and expert in FBR’s affairs.

Published in The Express Tribune, March 3rd, 2020.

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