The government could bring slightly over 17,000 potential tax evaders into the tax net in the first phase against the target of 100,000, who paid a paltry Rs306 million in taxes.
According to the Federal Board of Revenue (FBR), under a tax base-broadening drive, they issued in the first phase 120,350 notices to people who had a lavish lifestyle but contributed nothing to the national exchequer.
The notices were sent in the last fiscal year that ended on June 30. Of those who received the notices, 17,314 filed income tax returns and paid Rs306 million in taxes.
The figures highlight the daunting task the government faces in widening the tax base. Its pro-business reputation and FBR’s inefficiency have made the task more difficult, according to tax experts.
The FBR got information about the potential tax evaders from multiple sources including urban property transactions, motor vehicle purchases and international travel.
Under its $6.7 billion bailout package, the International Monetary Fund (IMF) has imposed a condition that the country would expand the tax net. Initially, the lender set the target of catching tax evaders at 100,000 but later brought it down to 75,000.
According to the structural benchmark, Pakistan is required to issue first notice to 75,000 and serve second notice to three-fourth of those who do not respond satisfactorily to the first one within two months.
In the next step, the FBR is required to issue a provisional tax assessment to 75% of those who do not respond satisfactorily within two months of the second notice.
According to the FBR, in the last fiscal year it served second notices to 38,413 people. Of these, provisional assessment were issued to 28,690, who were asked to pay Rs11 billion.
Eventually, these 28,690 people would also be in the tax net, as under the law, they either had to pay the due amount or file income tax return if they disputed with the FBR’s assessment, said Shahid Husain Asad, Acting FBR Chairman, while talking to The Express Tribune.
He said the law barred those who received provisional tax assessment from appealing against the decision until they filed the tax return. Approximately 46,000 people would be considered added to the tax net in the last fiscal year, he said.
Asad boasted that the FBR had achieved a significant breakthrough in audit, which unearthed cases where taxpayers had understated their liabilities.
The IMF programme also envisages increasing the number of tax audits to 5% from 2.2% of the total filed income tax returns.
The FBR said new policy measures had also been undertaken from July to broaden the tax base including different rates of withholding tax for income tax return filers and non-filers on certain transactions.
These include 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 tax rates for non-filers would not only provide them an incentive to file returns and declare their income from all sources, but also provide a database to the FBR for identification of potential taxpayers, said the FBR.
According to the Memorandum of Economic and Finance Policies (MEFP) the government submitted to the IMF, the initiative to bring 300,000 new taxpayers into the income tax net is going ahead.
It added the government was strengthening its database by collecting information from multiple sources including urban property transactions, motor vehicle purchases and international travel.
It further said the government would issue 125,000 first notices by the end of September, which would be followed by second notices to at least 75% of those who would not respond satisfactorily to the first notice within 60 days.
Published in The Express Tribune, July 26th, 2014.
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