Govt may bring over 17,000 evaders under tax net

Authorities had issued 120,350 first tax notice, of which 17,314 filed income tax returns, totalling to Rs306 million.

Shahbaz Rana July 25, 2014

ISLAMABAD: The government could bring in slightly over 17,000 potential tax evaders, who paid a paltry sum of Rs306 million in taxes, under the tax net in its first year, against a target of over 100,000 people.

According to the Federal Board of Revenue (FBR), under the broadening of a tax base drive, authorities issued 120,350 first tax notices to people who have a lavish lifestyle but contribute nothing to the national exchequer. These notices were issued in the last fiscal year, which ended on June 30.

Out of those who received first notices, as many as 17,314 filed income tax returns, totalling to Rs306 million.

The figures highlight the daunting task that the government faces in broadening the tax base. The government’s pro-business reputation and FBR’s inefficiency has made the task of broadening the base more difficult, according to tax experts.

FBR was made aware of tax evaders from multiple sources including urban property transactions, motor vehicle procurement, and international travel.

Under its $6.7 billion bailout package, the International Monetary Fund had imposed a condition to broaden the tax net. Initially, the Washington-based lender had set the goal of bringing 100,000 people in the net but later lowered it to 75,000.

According to the structural benchmark, Pakistan was required to increase the issuance of first notices to 75,000 and serve a second notice within two months to three-fourth of those who failed to respond satisfactorily to the first notice.

In the next step, FBR was required to issue a provisional tax assessment to 75% of those who did not respond satisfactorily within two months of the second notice.

According to FBR, during the last fiscal year, it served second notices to as many as 38,413 people, of which they passed provisional assessments against 28,690 people and asked them to pay Rs11 billion.

Eventually, these 28,690 people will also be included the tax net, as under the law, these people either have to pay the amount or file an income tax return if they challenge the FBR’s tax assessment, Shahid Husain Asad, the FBR acting chairman, told The Express Tribune.

He said under the law, those who receive provisional tax assessment cannot appeal against the decision until they file a tax return.

Asad said FBR has achieved significant breakthrough in audit, which unearthed cases where taxpayers understated their liabilities.

The IMF programme also envisages increasing the number of tax audits from 2.2% to 5% of the total filed income tax returns.

FBR said that new policy measures have also been taken from this month to broaden the tax base, including a new regime wherein different rates of withholding of income tax for income tax return filers and non-filers on certain transactions have been introduced.

This includes sale and purchase of immovable property, purchase, registration and transfer of ownership of motor vehicles, cash withdrawal from banks, and payment of profit on debt and dividend income. The higher rates of tax for non-filers will not only provide an incentive to non-filers to file returns and declare their income from all sources, but also provide a database for FBR to identify potential taxpayers for the tax base initiative, according to FBR.

According to the Memorandum of Economic and Finance Policies (MEFP), which the government submitted to the IMF, the initiative to incorporate 300,000 new taxpayers into the income tax net was moving ahead. It added that the government was strengthening its database by collecting information from multiple sources.

It further stated that by end-September, the government would issue 125,000 first notices.