The rigmarole: Filing income tax returns...but how?
Complex forms and filing methods discourage first time taxpayers.
Complex forms and filing methods discourage first time taxpayers. ILLUSTRATION: JAMAL KHURSHID
KARACHI:
In its drive to widen the tax net, the cash-strapped government is pushing more and more people to file income tax returns, but it completely overlooked the difficulty first-time tax depositors face in navigating through the complicated process.
Even though the taxpayer facilitation portal − the Federal Board of Revenue’s (FBR) website− offers details in a step-by-step manner, it is only after trial and error that most people realise what they are supposed to do.
Getting the pass and activation codes and a user login to access the portal is not the issue. The problems start once a taxpayer somehow reaches the electronic IT-2 form for individual filers.
Normally an employee would get a certificate of collection and deduction of income tax from the employer that has basic details like total annual salary, deducted tax, name of bank involved, addresses and phone numbers.
The IT-2 form has 52 sections, which require information ranging from opening stock, salary income, share from AOP, worker welfare fund, zakat, taxable income, exempt income and questions like “do you fall under PTR regime”?
Asked to explain how a layman was supposed to understand all this, an FBR spokesperson, Shahid Hussain Asad, said: “Try and see the return forms in the United States and India. They are more complicated.”
Tens of thousands of salaried employees who draw more than Rs400,000 a year work in factories and services companies like architectural firms. According to some estimates, the number of these people exceeds five million. But just 1.5 million actually file returns.
This doesn’t mean they don’t pay income tax, which is duly deducted from their salaries by their employers and passed on to the FBR.
Without filing the returns, they actually forgo the opportunity to earn refunds against withholding tax deducted from utility and phone bills, school tuition fees, cash withdrawal from banks and other expenses.
In any case, why is the government interested in returns when the employer has already deducted it from the employee’s pay and deposited it with the tax collector?
“The employer doesn’t know about other sources of your income. Maybe you have a flat that has been rented out. We want people to tell us about that as well,” said Asad.
From 2013 onwards, return filers are also supposed to submit a wealth statement, unlike previous years when just an undertaking from employer on tax deductions was enough.
“Enforcement has been weak. But this doesn’t mean we should stop. We have decided to confront all those who are not filing the returns,” said Asad. And apparently the FBR has done its homework.
“We have already collected real estate data and frequent flier details (from airlines) to identify the people who are supposed to file returns,” he said.
Asrar Rauf, CEO of a tax services company, said in many cases employers were collecting income tax from their employees but not passing it on to FBR.
“All the unrest that we are seeing among manufacturers is because now the FBR will go after employees, questioning why returns haven’t been filed. In turn this will add pressure on the employer when worker raises hue and cry,” he said.
Rauf, who held senior positions in the FBR before opening his own consultancy, said filing returns was part of a self-assessment scheme, which allowed people to calculate their earning and tax themselves.
“Unfortunately that didn’t work really well because tax officials haven’t been able to carry out audits for some years now.”
He said that tax collection in Pakistan hasn’t been a problem. “As a matter of fact we almost doubled revenues to Rs1,946 billion in 12 years.” The issue, he says, is the low tax to GDP ratio, which remains at a miserable 9.1%.
Published in The Express Tribune, November 1st, 2013.
In its drive to widen the tax net, the cash-strapped government is pushing more and more people to file income tax returns, but it completely overlooked the difficulty first-time tax depositors face in navigating through the complicated process.
Even though the taxpayer facilitation portal − the Federal Board of Revenue’s (FBR) website− offers details in a step-by-step manner, it is only after trial and error that most people realise what they are supposed to do.
Getting the pass and activation codes and a user login to access the portal is not the issue. The problems start once a taxpayer somehow reaches the electronic IT-2 form for individual filers.
Normally an employee would get a certificate of collection and deduction of income tax from the employer that has basic details like total annual salary, deducted tax, name of bank involved, addresses and phone numbers.
The IT-2 form has 52 sections, which require information ranging from opening stock, salary income, share from AOP, worker welfare fund, zakat, taxable income, exempt income and questions like “do you fall under PTR regime”?
Asked to explain how a layman was supposed to understand all this, an FBR spokesperson, Shahid Hussain Asad, said: “Try and see the return forms in the United States and India. They are more complicated.”
Tens of thousands of salaried employees who draw more than Rs400,000 a year work in factories and services companies like architectural firms. According to some estimates, the number of these people exceeds five million. But just 1.5 million actually file returns.
This doesn’t mean they don’t pay income tax, which is duly deducted from their salaries by their employers and passed on to the FBR.
Without filing the returns, they actually forgo the opportunity to earn refunds against withholding tax deducted from utility and phone bills, school tuition fees, cash withdrawal from banks and other expenses.
In any case, why is the government interested in returns when the employer has already deducted it from the employee’s pay and deposited it with the tax collector?
“The employer doesn’t know about other sources of your income. Maybe you have a flat that has been rented out. We want people to tell us about that as well,” said Asad.
From 2013 onwards, return filers are also supposed to submit a wealth statement, unlike previous years when just an undertaking from employer on tax deductions was enough.
“Enforcement has been weak. But this doesn’t mean we should stop. We have decided to confront all those who are not filing the returns,” said Asad. And apparently the FBR has done its homework.
“We have already collected real estate data and frequent flier details (from airlines) to identify the people who are supposed to file returns,” he said.
Asrar Rauf, CEO of a tax services company, said in many cases employers were collecting income tax from their employees but not passing it on to FBR.
“All the unrest that we are seeing among manufacturers is because now the FBR will go after employees, questioning why returns haven’t been filed. In turn this will add pressure on the employer when worker raises hue and cry,” he said.
Rauf, who held senior positions in the FBR before opening his own consultancy, said filing returns was part of a self-assessment scheme, which allowed people to calculate their earning and tax themselves.
“Unfortunately that didn’t work really well because tax officials haven’t been able to carry out audits for some years now.”
He said that tax collection in Pakistan hasn’t been a problem. “As a matter of fact we almost doubled revenues to Rs1,946 billion in 12 years.” The issue, he says, is the low tax to GDP ratio, which remains at a miserable 9.1%.
Published in The Express Tribune, November 1st, 2013.