Number of active taxpayers falls 30%

In an alarming development, the number of active taxpayers has declined by 30% or 935,000 to just under 2.2 million, showed the new Active Taxpayers List that the Federal Board of Revenue (FBR) released on Monday.

The 2.2 million tax return filers were just one-third of those who have valid National Tax Numbers (NTNs) and are doing business in Pakistan but did not submit their tax returns, indicating the FBR’s failure to enforce laws.

It means that two out of every three persons who have a valid NTN and are doing business did not submit their annual income tax returns.

For tax year 2020, the names of 2.178 million individuals and companies have been included in the Active Taxpayers List (ATL) 2021, according to the list that the FBR released on Monday.

The ATL 2021 has replaced the ATL 2020 that carried names of 3.12 million individuals and companies. A comparison of both the lists showed that over 932,000 names were missing from the new list.

Under the tax laws, the persons and companies that are on the active list are entitled to the standard income tax rates and those who are not on the list have to pay double the standard rates on business transactions and various activities like buying a car.

It is a matter of concern that people are ready to pay 100% more tax on a business or personal economic activity but are not willing to become part of the tax system.

“Around 500,000 persons who filed returns last year did not file the tax returns this year,” said FBR spokesman Syed Nadeem Rizvi.

He said that another about 500,000 persons filed returns after due date but did not pay fines, thus, their names could not be included in the ATL.

The spokesman said that more than 75,000 were new filers this year.

Among the reasons why people are shying away from filing annual tax returns is that they are scared of FBR’s highhandedness, according to businessmen and various tax and legal consultants.

The FBR on Monday notified new guidelines to protect those taxpayers who lodged corruption complaints against FBR officers.

“In order to allay fears of the business community and citizen taxpayers, a convenient and protected mechanism of filing complaints against corruption is being devised whereby the complaints would be received by Member Inland Operations himself,” according to the FBR circular.

The circular also sets stringent parameters for lodging a complaint like a visual or text proof of the demand for bribe and an affidavit by the taxpayer. The government’s appeasement policy for traders and industrialists also discouraged the compliance culture in the country. The PTI government, which was against tax amnesty schemes before coming to power, has so far given two amnesty schemes besides giving in to the pressure from traders.

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

In October 2019, 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 FBR claimed on Saturday that its efforts to broaden the tax base were “expanding apace”. It added early signs suggested such efforts are bearing fruits. As on February 28, 2021, income tax returns for tax year 2020 have reached 2.62 million compared to 2.43 million last year, showing an increase of 8%.

However, the ATL 2021 showed only 2.18 million filers, which are about 17% less than what the FBR claimed in its handout. The FBR has again made a disputed claim that the tax deposited with returns was Rs49.6 billion compared to only Rs31.0 billion, showing an increase of 60%. But the FBR’s documents and publicly available reports showed that the tax paid was 1.3% less than the last year.

The FBR said that it issued notices to nearly 2.1 million taxpayers who were supposed to file return, or have filed a nil return, or mis-declared their assets or have not been filing return for sales tax to comply with their legal obligations. The exercise is eliciting encouraging response. However, those who are not complying would be pursued diligently until compliance is achieved.

The FBR is also going to miss its annual tax collection target by a wide margin and the International Monetary Fund (IMF) has agreed to reduce the target by about Rs263 billion, said the sources.

Published in The Express Tribune, March 2^nd, 2021.

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