The National Database and Registration Authority (NADRA) has tracked expenses of 72 million individuals and heads of families for tax collection purposes through their national identity cards but turning this information into big money may remain a dream.
NADRA has shared the information about non-filers in two batches with the Federal Board of Revenue (FBR). It did not find many takers of it, some for the right reason due to gaps in the data, including Finance Minister Miftah Ismail.
In November last year, the FBR had provided third-party data and taxpayers’ data to NADRA for running the artificial intelligence models to gauge the true tax potential. NADRA ran the artificial intelligence algorithms and shared the first dataset of 43 million heads of family as potential taxpayers in March this year, according to the FBR and NADRA officials.
The family head-wise information was provided on the demand of the then FBR chairman Mohammad Ashfaq, a senior NADRA official said.
He added that subsequently the FBR asked to provide individual details and NADRA provided additional data of 29 million family members to the FBR, bringing the total number of potential taxpayers to 72 million. At present, there are hardly 3 million income tax return filers, although more than 100 million people pay taxes, including those who may also have been identified in the NADRA data.
A majority of Pakistanis do business transactions and pay withholding taxes but do not submit tax returns.
The NADRA official said that depending on the artificial intelligence model, the tax potential of the information was more than Rs100 billion a year. The FBR and the finance minister disagree.
Sources said that in a recent meeting held at the FBR headquarters, the finance minister said that the true tax potential of the NADRA information was not more than Rs6 billion to Rs7 billion.
The NADRA’s information is based on expenses tracking and it does not have access to the income information that is with the FBR.
The main problem is the source of income in Pakistan, as laws provide room not to pay any tax or a paltry sum, depending on the source of income.
For instance, a salaried person pays up to 35% of his gross income in taxes but a landlord pays peanuts and an exporter just 1% of his gross export proceeds in income tax that he too recovers in the cost.
The FBR has raised some concern about the validity of the data. One of the objections is that the NADRA data is focused on the head of family but income tax assessment is to be done for individuals as per law.
The NADRA official said that the family-based data had been provided on the demand of the FBR, so blaming NADRA for the FBR’s lack of understanding of its law would not be appropriate.
There are no addresses or contact numbers along with the NADRA data, according to the FBR. But this information is with the Pakistan Telecommunication Authority, which the FBR can get under its law. The FBR has raised objections that NADRA has provided only indicative tax without giving the indicative income.
The FBR’s objections may be valid but the tax machinery wants its job to be done by someone else, said the senior NADRA official.
He said that the purpose of the exercise was to build systems so that the FBR may run the numbers before the start of every fiscal year to make sure that people duly paid their taxes. The FBR has also objected that the data was grouped over multiple years but income tax is assessed tax-year wise.
There were also distortions in withholding taxes, bank deposits, and other related data. Similarly, NADRA has not considered the exempt property transfers as gifts or inheritance in its calculations.
There were issues with air travel data but the NADRA official said that the organisation has provided complete details and people who went abroad for Hajj or Umrah purposes have been excluded from the data. The previous PTI government had also given a legal cover to an “illegal act” of the past by the FBR when its officers shared information with NADRA without any legal basis. The FBR had discreetly handed over the tax record of income tax return filers for the period 2014 to 2018 to NADRA.
For the last almost a decade, NADRA had been claiming that it could help achieve the objectives of broadening the tax base and increase the tax collection through artificial intelligence-based mathematical models.
The issue of a narrow tax base is almost part of the agenda of every foreign multilateral organisation and the donor agency. Pakistan has been criticised for its low-to-GDP ratio that is described as a reason for the country’s indebtedness.
The current approach towards tax-to-GDP ratio is flawed and it has led to multiple taxes, huge distortions, an environment of suspicion – all of which have led to decelerating growth, productivity, and investment, according to the Pakistan Institute of Development Economics (PIDE) brief.
The government would be wise to call for a complete overhaul of tax policy with the goal of simplification and eliminating the multiple nuisance and distortive taxes, the PIDE suggested. It added there has been persistent pressure on successive Pakistani governments by policymakers, especially those affiliated with multilateral donor agencies, to increase the tax-to-GDP ratio.
It is true that the fiscal deficit continues to increase. However, the assumption that it is a tax shortfall that grows the deficit needs to be challenged, according to the brief note.
Published in The Express Tribune, July 31st, 2022.
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