Plans afoot to tighten noose on non-filers

ISLAMABAD:

In a radical move, the government has proposed to disconnect mobile phones, electricity and gas connections of non-filers of income tax returns and bar businessmen from using banking instruments like cheques in its desperate attempts to broaden a narrow tax base.

The proposal also includes slapping 35% additional income tax on electricity bills of lawyers, dentists, doctors, accountants and also to share all types of data of the existing taxpayers with the National Database Registration Authority (Nadra), sources told The Express Tribune. This will take their total income tax to 43% of the billed amount.

“The drastic steps will be enforced by promulgating an ordinance and in this regard a draft bill has been sent to the law ministry this week for vetting by the Federal Board of Revenue,” they added.

Read: Reforms underway to improve tax system: PM Imran

The steps are being taken to broaden the narrow tax base comprising only three million income tax return filers after all previous efforts and policy actions have failed to yield the desired results.

“The most drastic measure is the introduction of compulsory digital mode payment by the corporate sector,” the sources noted. They said the step is being recommended after businessmen and companies started trading bank cheques instead of en-cashing them to avoid full disclosure of their sales.

The FBR has proposed an amendment to Section 21 of the Income Tax Ordinance that says that no deduction shall be allowed in computing the income of a person under the head “Income from Business” by a taxpayer not being a company.

Similarly, any expenditure by a taxpayer being a company for a transaction, paid or payable under a single account head which, in aggregate, exceeds Rs250,000 made other than by digital means from business bank account of the taxpayer will be treated as income instead of expenditure.

The only exemption from the digital payment will be small payments of up to Rs25,000 and expenditures on account of utility bills, freight charges, travel fare and payment of taxes. If approved by the cabinet, this move will hugely benefit the digital payments service providers.

However, the government has decided to enforce digital mode of payments without first plugging loopholes that led to creation of black money like difference between market value and FBR values of properties, agriculture income tax exemption and tax-free foreign remittances.  

Disconnection of essential services

Sources said the FBR has proposed to include a new clause in the income tax law to get powers to suspend essential services being availed by those who do not file their income tax returns.

Through an Income Tax General Order, the FBR will first declare persons who are not appearing on the active taxpayers list liable to file return. If they do not file the returns, then the FBR will ask the concerned service providers to disable mobile phones service and disconnect electricity and gas connection, the sources said.

Read more: Govt to share tax record with NADRA

Giving NADRA access

Sources said the government has also proposed to include a new section 175 B in the Income Tax Ordinance to handover all data of existing as well as non-existing taxpayers to Nadra to broaden the tax base. Earlier, the powers were only limited to the extent of the unregistered persons.

Nadra will then develop a citizen’s portal to identify unregistered taxpayer for broadening of tax base and identify evasion or avoidance of tax by registered taxpayers.

It will also utilise information available with Nadra and data shared by the board for computing indicative income and tax liability of unregistered as well as registered person by using artificial intelligence and mathematical modeling, sources said.

The sources revealed that in 2019, FBR had discreetly handed over the tax record of income tax return filers for the period 2014 to 2018 to Nadra. Sources added that the FBR had already handed over withholding tax statements of unregistered persons to Nadra but was not willing to provide information of income tax return filers for 2019 and 2020.

There are hardly three million income tax return filers in Pakistan who often complain about undue harassment at the hands of FBR and Nadra now seems to be another entity to be added to the list.

The government was then hoping that Nadra would help the FBR enhance tax collection by analysing the information about income tax return filers. But nothing concrete could be achieved despite sharing the information with Nadra, apparently in violation of the income tax law.

For the last almost a decade, Nadra has been claiming that it can help achieve the objectives of broadening the tax base and increasing the tax collection through artificial intelligence-based mathematical models.

Additional tax

In yet another significant move, the FBR has proposed to slap up to 35% additional advance tax on professionals who are non-filers but are operating from residential premises having domestic electric connections. These professionals include accountants, lawyers, doctors, dentists, health professionals, engineers, architects, IT professionals, tutors, trainers and other persons engaged in the provision of services.

This will take the total tax on the electricity bill to 50% of the billed amount on the monthly bill of above Rs75,000, 45% on below Rs75,000 bill, 40% on Rs50,000 bill and 35% on Rs40,000 monthly bill, said the sources.

Identifying these professionals in residential areas will be a challenge for the FBR as it does not have such capabilities.