Dismal performance: Tax base shrinks by a third

Only 550,000 tax returns received by the final date of submission

ISLAMABAD: Contrary to the federal government’s claims of widening the tax net, the country’s already negligible tax base has shrunk by a third by the end of the ruling party’s first year in power.

According to officials of the Federal Board of Revenue (FBR), only 550,000 people filed income tax returns for fiscal year 2013-14 by November 21 (Friday), the last date of submission. As many as 835,000 people had filed tax returns the previous year.

Talking to The Express Tribune, FBR Chairman Tariq Bajwa said the number of tax returns was expected to increase as the government has waived off penalties on late filing till December 5.

However, the results so far suggest the government’s problems may mount further as it is already struggling to convince the International Monetary Fund (IMF) about its abilities to achieve this year’s tax target of Rs2.81 trillion.

The 550,000 figure is more depressing given the target set by FBR itself. The PML-N government had asked FBR to increase the tax base by 50% and bring in at least 1.25 million more people under the net by the end of its first year in power.

The desperate federal government said it will not charge any additional tax, penalties and surcharges, if the people file the returns till December 5 along with the due taxes, according to a handout issued by the FBR. The original date for filing the return was September 30, which was extended thrice.

For the last fiscal year, the PML-N government had set its target for increasing the tax-to-GDP ratio to 10.2%. But the ratio remained at 9.3% of GDP.

The latest results also put a big question mark over the government’s strategy to increase the base by increasing cost of living and doing business for those who prefer to remain outside the tax net. In its second budget that was passed by the National Assembly in June, the government set higher tax  rates on purchase of vehicles, cash withdrawal from banks, purchase of property and other such transaction for those who do not file the returns.

“The strategy to penalise non-filers without addressing structural weaknesses of the tax system has backfired,” said Dr Ikramul Haq, an expert in income tax policies and a Supreme Court lawyer. He said the figure of 550,000 returns suggests that even all the civil servants, officers of the armed forces and judiciary did not file the returns.

The officials in the FBR said the FBR’s decision to change the e-filing software without testing it also became a reason for dismal results. They added the taxpayers faced many difficulties in filing the returns through the FBR’s designed IRIS system. The Member Information Technology Miss Raana Ahmad also made changes in the return form without seeking formal input of the Inland Revenue Policy wing, they added.

Published in The Express Tribune, November 22^nd, 2014.