LAHORE: The Federal Board of Revenue (FBR) takes around 577 hours per annum to complete the tax payment process compared to the world average of 108 hours, said sources.
The sources added that the current documentation drive would prove ineffective and rather counterproductive in the presence of the high cost of compliance. This cost consists of the number of hours required for record-keeping, tax planning, and forms completion and submission.
They said some 47 types of payments increase the average tax burden tremendously in the country. An intriguing example of a high compliance cost for meeting the documentary requirements can be observed in customs. To complete an international trade transaction, we require more than 400 hours (17 days). India and Korea, on the other hand, required 270 and 194 hours, respectively, they added.
Also, they said, 66 withholding taxes furnished almost 3/4th of direct tax revenues. However, 45 of these withholding taxes provide only 2 percent of the revenues. About 70 percent of tax revenue is collected through withholding tax agents such as banks, utilities, and telecoms, placing the burden of collection on these businesses and increasing their costs. While these withholding taxes may provide an easy source of revenue collection for the FBR, they make the tax system incredibly complex for the taxpayers. The high compliance cost imposed on businesses being unpaid tax collectors for the government is the very reason for tax non-compliance. In such an unconducive environment, the current documentation drive would kill transactions and with it any hopes of increasing economic growth and sustainable revenue streams.
According to the sources, the cost of collection (CoC) has sharply increased over time. It has increased from Rs16 billion in 2014 to Rs 25 billion in 2018, representing a 36 per cent increase in cost during a short span of 5 five years. Higher CoC leads to lower benefit of revenue collection. Nearly 80 percent of CoC is distributed in the form of wages of the tax collection staff. Tax expenditures have been estimated in a study by FBR to be about 1.2 trillion rupees, about four percent of GDP.
Copyright Business Recorder, 2020