The Federal Board of Revenue (FBR) has served 1.4 million tax notices to individuals and companies that either did not submit annual statement of income and expenditures or undertook business transactions without paying due taxes.
It is one of the largest enforcement exercises by the tax machinery in years that is struggling to improve its image, efficacy and stagnant revenues.
The tax notices have been served in three categories, non-filers of annual income tax returns, those who filed returns and concealed incomes and property seller and purchasers, a senior FBR official told The Express Tribune on Saturday. It has also issued tax notices to nearly 63,000 companies.
The FBR has directed these alleged violators of the law to discharge their statutory obligations to avoid penalties.
“The FBR has issued notices to nearly 1.4 million taxpayers, who were supposed to file return, or filed nil return, or mis-declared their assets to comply with their legal obligations,” according to a statement issued by the FBR on Saturday evening.
Majority of nearly 835,000 tax notices were served to those individuals and companies that did not submit their annual income tax returns for tax year 2020, which ended in June last year.
Out of 835,000, nearly 270,000 persons have submitted their tax returns and also deposited Rs1 billion in taxes, Special Assistant to Prime Minister on Revenue Dr Waqar Masood Khan told The Express Tribune.
Another 72,500 tax notices had been served to those who declared their income nil in tax year 2019. Against these notices, Dr Khan added, 20,000 people have revised their returns and paid Rs20 million in taxes.
The special assistant said that the FBR would chase the remaining nearly 50,000 people and if they did not review their statements, the FBR would make provisional tax assessments.
Under the Income Tax law of 2001, every individual who has a certain level of income and assets is liable to submit annual income tax statement. The FBR has warned that it would impose penalties, minimum Rs40,000, on those who would not fulfil their statutory obligations.
The FBR said that those who are not complying would be pursued diligently until compliance is achieved.
The official handout stated that as of end of January 2021, income tax returns filers number stood at 2.52 million compared to 2.31 million last year, showing an increase of 9%. The tax deposited with returns was Rs48.3 billion compared to only Rs29.6 billion, showing an increase of 63%.
However, the number of filers was still lower by nearly 500,000 as compared to total income tax returns submitted in tax year 2019.
Based on property record received from Punjab, the FBR has also served 175,000 tax notices. Out of these, roughly 92,000 notices were served to those buyers who did not declare these assets in tax year 2020 returns.
Similarly, another 83,000 tax notices were served on those who did not declare these sold properties as their purchased asset in previous years.
Masood said that a significant number of people who undertook property transactions have revised their returns, which not only improved their net wealth but also helped straighten their tax records.
Over a period, the FBR lost the audit capacity and deployed poor or weak human resource in the audit wing. Due to capacity constraints, it closed over 325,000 audit cases last year.
However, Masood said that the tax audit notices served to these people were against the principle of audit, as these persons had filed tax returns after the due date.
The senior FBR official said that over two-third of the FBR’s field workforce has been assigned to go after people who are either not in the tax net or not fully disclosing their actual incomes. According to the new administrative arrangement, the regional tax offices have been assigned to focus on these cases.
Collection of taxes is the responsibility of the Large Tax Offices.
According to the provisional information, FBR has collected net revenue of Rs2.57 trillion during the July-January period of this fiscal year, exceeding the target by 20 billion. This represents a growth of about 6.4% over the collection during the same period last year.
The net collection for the month of January was Rs364 billion against a target of Rs340 billion, representing an increase of 12.3% over last January and 107% of the target. This is the first double-digit monthly growth during the fiscal year.
The improved revenue performance is a reflection of growing economic activities in the country despite facing the challenge of second wave of Covid-19, said the FBR.
Going forward, it is expected that this revenue performance would be further strengthened as economic recovery gains more momentum, it added.
The 95% of the total tax collection is not because of the FBR people, said Syed Shabbar Zaidi, former FBR chairman while speaking at the Express News show on economy - The Review, on Saturday. He said that 95% tax collection was automatic and the FBR did not need a large workforce to perform the remaining 5% task.
Published in The Express Tribune, January 31st, 2021.
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