Shrinking tax base

Of the 6.2 million citizens holding the national tax number, only 2.53 million — or a little over 40% — have filed their annual income tax returns for the outgoing fiscal year i.e. FY19 despite several extensions made in the deadline in a bid to make up for the tax gap. Not just that, the number of income tax return filers fell to 2.53 million for FY19 from 2.8 million for FY18 — a difference of 278,581 or 11%. Even more worrisome is the fact that despite massive tax concessions granted by the government, the number of income tax returns filed by traders has also suffered a fall. As compared to 415,624 returns filed by traders concerning FY18, only 399,534 traders filed returns related to FY19. This shows that 16,090 traders escaped the tax net during the outgoing tax year, with non-compliance standing at 3.87%.

The numbers above clearly manifest the weakening writ of the tax machinery that has been working without a boss for the last couple of months, and belie the much-trumpeted claims of adopting foolproof strategies to broaden the tax net and double the tax revenue. What this 11% fall in the number of return filers means in terms of money is not yet known though, it is bound to take the FBR further away from meeting a challenging tax collection target agreed with the IMF. Government’s failures to meet the quarterly targets have added to the financial burden on the masses in the shape of repeated increases in gas and power tariffs. More recently, the government did not pass on the full impact of the cut in global oil prices to the people, and instead jacked up the petroleum levy for pocketing an estimated Rs4-5 billion.

Pakistan’s tax-to-GDP ratio for the previous fiscal year was 13.9% which, according to World Bank, can reach 26% even if tax compliance is raised to 75%. This means that just half of the country’s revenue potential is being realised currently. To plug leakages, full automation of the tax machinery is a must.

Published in The Express Tribune, March 5^th, 2020.

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