Tax collection on demand falls 41%

Field formations generated hardly Rs12.5 billion from July 1 to December 15

ISLAMABAD:

The income tax collection with taxmen’s own efforts has gone done by 41% and its share in total domestic income tax collection has shrunk to less than 2% in the current fiscal year, revealed statistics compiled by the Federal Board of Revenue (FBR).

Out of the roughly Rs710 billion domestic income tax collection from July 1 to December 15 of current fiscal year, the field formations generated hardly Rs12.5 billion through the “current collection on demand”, according to the FBR figures.

Its share in the total income tax collection at the domestic stage was dismally low at 1.8%.

The remaining nearly Rs700 billion was the result of advance income tax, taxes paid with income tax returns and withholding taxes, sources told The Express Tribune.

During the same period of previous fiscal year, the collection on demand was equal to Rs21.2 billion, which has now gone down by 41%. The collection of Rs21 billion was equal to nearly 4% of the income tax collection at the domestic stage in almost six months of the previous fiscal year.

Such a poor performance by the field formations gives credence to the International Monetary Fund’s (IMF) assessment that the current exceptionally good tax collection is not sustainable in the long run and it is the result of growth at the import stage.

Out of the Rs12.5 billion, nearly Rs5 billion was generated by the Large Taxpayer Office (LTO) Islamabad alone. In addition to that, the Corporate Tax Office, Islamabad collected Rs1.1 billion through tax on demand.

LTO Karachi was another such unit that collected Rs1.6 billion through its efforts. The performance of the 22 remaining field units was dismal, to say the least. Another Rs20 billion was collected on account of previous years’ demands. The FBR chairman has diverted a majority of human resources towards the creation of income tax demand but the workforce has not lived up to his expectations.

The response of the FBR chairman was awaited till the filing of the story.

Last month, Prime Minister Imran Khan had congratulated the FBR for achieving a 31% increase in income tax collection during the current fiscal year, but a deeper dive into the numbers revealed that just like the collection at the import stage, the income tax collection was also growing automatically.

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In its half-yearly tax analysis for the previous fiscal year, the FBR had acknowledged the importance of tax collection through taxmen’s efforts. “The collection on demand carries great importance as it reflects departmental efforts for revenue collection,” stated the FBR’s flagship biannual publication.

Last month, Pakistan’s tax chief expressed his inability to bring over 4 million willful law violators to the tax net due to the revenue authority’s lack of capacity.

“I cannot do anything about those 4 million people who are outside the tax net because the FBR does not have the capacity and there are legal issues as well,” FBR Chairman Dr Mohammad Ashfaq told a gathering.

In his presentation, Ashfaq showed that against the 7.1 million taxpayers registered with the FBR, only 3.1 million filed annual income tax returns. The FBR had also got the treasure trove of information in shape of data shared by the Organisation for Economic Cooperation and Development (OECD). However, this could not be fully exploited due to political expediency and the decision to give tax amnesty schemes.

Similarly, the government claimed that the National Database and Registration Authority (NADRA) had information about 7.2 million people, who enjoyed lavish lifestyles but did not pay taxes. Nothing could be done in this case too.

Source of income tax collection

Withholding taxes remained the largest source of income tax collection. This includes the collection on account of automatic deduction on conducting various transactions including payment of salaries, contracts and telephone bills.

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During the current fiscal year, the FBR collected roughly Rs480 billion on account of withholding taxes, up 13% over the same period of previous year.

The withholding tax collection was equal to 68% of the total income tax collection at the domestic stage. A major chunk - Rs145 billion - of withholding taxes was collected within the jurisdiction of LTO Karachi, followed by Rs77 billion by LTO Islamabad and Rs63 billion by LTO Lahore.

PM Imran had vowed to double the federal government’s tax collection to Rs8 trillion and increase the share of direct taxes to 45% of the total collection.

During first three years of the PTI government, the collection remained at Rs4.76 trillion but the share of direct taxes went down to around 34%. Instead of taking corrective administrative and policy measures, the government took a $400 million loan from the World Bank in the name of improving tax collection. Last month, the FBR chairman said that the entity was better off without the World Bank loan.

Numbers showed that taxpayers paid Rs57 billion along with annual tax returns, up by three-fourths or Rs24 billion. Its share in total income tax collection at the domestic stage was 8%.

However, a key reason behind the surge in collection under this head was the FBR’s right decision not to give any undue extension in the dates for filing tax returns.

Under the law, the FBR collects due taxes in advance from various organisations like banks. The advance income tax collection stood at Rs159 billion, up Rs60 billion or 61%, in the first five and a half months of current fiscal year.

Its share in total income tax collection at the domestic stage was one-fifth.

The FBR collected Rs129 billion worth of withholding taxes at the import stage, up 40% compared with the same period of previous fiscal year.

Total income tax collection - domestic and imports - went up to Rs840 billion during the first half of current fiscal year, up 26%, largely on the back of measures that had nothing to do with the FBR’s performance.

Published in The Express Tribune, December 19^th, 2021.

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