On September 18, 2020, Federal Board of Revenue (FBR) released 'Parliamentarians' Tax Directory for Tax Year 2018', 'Tax Directory of all Taxpayers for Tax Year 2018' and 'Tax Directory Analysis for Tax Year 2018'. The data contained in the directories for tax year 2018 in majority cases is for fiscal year 2017-18 (ending June 30, 2018) and in the case of some taxpayers having calendar year as tax year for year ending December 31, 2017. The Tax Directory Analysis for Tax Year 2018, released for the first time since start of publishing directories for tax year 2013, presents figures of return filers and their contribution; category wise as well as on provincial, region, city and leading markets basis. It covers returns received up to September 14, 2020. Returns for tax year 2018 became due after the coalition Government of Pakistan Tehreek-i-Insaf (PTI) came into power. It therefore reflects on the performance of PTI Government to enforce compliance and not that of the government of Pakistan Muslim League (Nawaz)-PMLN.
In the Finance Act, 2018, presented by the PMLN and passed by the National Assembly on May 18, 2018, two laws relating to amnesty were adopted: Foreign Assets (Declaration and Repatriation) Act, 2018 and Voluntary Declaration of Domestic Assets Act, 2018. Those who availed these amnesties are included in Tax Directory Analysis for Tax Year 2018. The PML ending its tenure on May 31, 2018 was adamant to pass these amnesties. Through 82,889 declarations both these amnesties fetched only Rs. 124 billion (domestic Rs. 77 billion and foreign Rs. 47 billion), though the then Adviser to Prime Minister on Revenue, Haroon Akhtar, claimed that collection would not be less than US$ 5 billion for foreign assets alone. In the Finance Act, 2019, the PTI government also passed Asset Declaration Act, 2019, earlier promulgated on May 15, 2019, as Asset Declaration Ordinance, 2019. The PTI scheme was for undisclosed assets, held in Pakistan and abroad, acquired up to the 30th June, 2018 or expenditure incurred or benami assets held, and date of compliance was June 30, 2019. The returns received under this scheme must also be appearing in Tax Directory Analysis for Tax Year 2018 as it claims the deadline of September 14, 2020 of all returns received for tax year 2018.
As per previous practice, tax directories for tax year 2018 should have been released by the end of February 2018. However, the PMLN Government delayed it as amnesties were on its top agenda. These were announced on April 9, 2018 and subsequently made part of Money Bill. The other reason was to conceal abysmal performance as growth in overall tax collection for fiscal year 2017-18 was 0.4% less as compared to the fiscal year 2016-17 and net collection of direct tax was at Rs. 1,445.4 billion registering a negative growth of 5.9 % over the collection of Rs. 1,536.6 billion in fiscal year 2016-17.
Earlier on February 22, 2019, the PTI Government published two tax directories- 'Parliamentarians Tax Directory' and 'Tax Directory for the year ending 30 June 2017' (these were tabulated from returns filed manually and electronically till February 21, 2019 for tax year 2017). The PTI Government could have released directories for tax year 2017 and 2018 simultaneously, but it delayed tax directories for 2018 for several months to show "impressive" performance by taking into account returns filed up to September 14, 2020 for tax year 2018.
According to Active Taxpayers' List (ATL) updated by FBR on March 1, 2019, total number of returns filed for tax year 2018 was 1,596,340. According to FBR Year Book 2018-19, it was 2,666,256 [Table 7, page 10]. Now, Tax Directory of all Taxpayers for Tax Year 2018 reveals that total number of income tax returns received till September 14, 2020 for tax year 2018 was 2,852,349. However, the extra revenue received through belatedly filed returns is not mentioned. The bifurcation given is: companies 44,609 (1.56% of total filers with tax contribution of 55.84%), AOPs 64,336 (2.26% of total filers with tax contribution of 8.49%), non-salaried individuals 1,542,088 (42.12% of total filers with tax contribution of 14.66%) and salaried individuals 1,201,316 (54.06% of total filers with tax contribution of 21.01%). Obviously, all those who filed returns for tax year 2018 after June 30, 2019, tax paid if any, would be accounted for in current financial year [2020-21].
According to a report [Tax directory of companies: new data, old story, Business Recorder, September 22, 2020]: "This is also visible in the table for new filers where nearly 81 percent of first-time filers filed a return of zero rupees. For clarification sake, first time filers or new filers are assumed to be those companies whose National Tax Numbers were found in FY18's tax directory but not found in FY17's tax directory. Understandably, this may not be the most tenable assumption, but in the absence of detailed analyses presented by FBR, this should shed at least some light on the expansion of the so-called tax net".
According to FBR Year Book 2018-19: "The trend for filing of income tax returns has not been satisfactory in Pakistan. Keeping in view very low compliance, FBR had initiated a Broadening of Tax Base (BTB) drive few years ago, which has not started paying dividends in the shape of growth in the number of filers. The income tax returns which were just 1.5 million in TY 2016 have crossed the two million mark first time in the history of FBR. During TY 2017 the number of income tax filers reached to 1.9 million and in TY 2018 2.2 million (Table 7). During TY 2018 the number of return filers increased by 17.1% or 316,526 in absolute terms. This performance in terms of number of returns is satisfactory but payment with returns has a meager growth of 3.0%, which is the matter of concern".
It is proved through an analysis that most of the new filers have contributed negligible or zero payment with returns just to be on ATL to take benefit of waiver or lower tax under withholding tax regime. The same was the case for tax year 2017 as delay of publishing tax directory gave a chance to FBR to include all the returns filed for tax year 2017 till February 21, 2019-long after the last date of filing of returns for all categories of the taxpayers, namely, companies, Association of Persons (AOPs) and individuals. In this way, the crafty officials ably manage to cheat the parliamentarians, public and even international lenders and donors.
Once again, the PTI Government deferred publication of tax directories for tax year 2019 that could have been released along with those for tax year 2018 as already long overdue. The target assigned to FBR for fiscal year 2018-19 was Rs. 4435 billion, which was revised downwards twice [first to Rs. 4398 billion and then to Rs. 4150 billion]. According to FBR Year Book 2018-19, FBR collected Rs. 3828.5 billion that was "0.4% lesser than the collection of previous fiscal year". This pushed the fiscal deficit to record 8.9% of GDP (Rs. 3.45 trillion). For fiscal year 2019-20, it was reduced to 8.1% of GDP (Rs. 3.37 trillion) by blocking refunds of Rs. 710 billion. The PTI government during its first two years in power incurred a tax expenditure cost of Rs. 2.12 trillion [Analysing 'tax expenditure', Business Recorder, June 26, 2020].
The top officials of FBR at the time of launching electronic version of tax directories for tax year 2018, as in the past years, tried to give an impression that "marvellous" progress was achieved-the same modus operandi adopted by them in earlier years. They claimed "substantial growth" in tax collection and the number of return filers, but the facts extracted from tax directories for tax year 2018, their own Year Books and various Press reports speak otherwise. Some salient features are summarised below:
Only five lawmakers paid 60% of the total amount paid by members of the lower and upper houses of parliament in taxes.
45 members of parliament did not even submit their income tax returns.
Of the 401 National Assembly and Senate members, who submitted their income tax returns for 2018, 70 paid more than Rs. one million.
There were over 90,000 companies registered with Securities & Exchange Commission of Pakistan (SECP) as on 30-06-2018 but only 44, 609 filed returns.
There were also less than 3,400 companies that paid more than Rs. 7 million income tax.
Of total number of return filers, 36.6% filers (1,004,221) showed income less than Rs. 400,000,
In the bracket of taxable income from Rs. 400,001 to Rs. 500,000, total filers are 433,133 or 15.79%.
441,312 filers constituting 16.09% fall in the slab between Rs. 500,001 and Rs750,000.
15.4% (422,349) fall in the bracket from Rs. 700,001 to Rs. 1,500,000.
153,645 return filers or 5.6% of total filers are in the range of Rs. 1,500,001 to Rs. 2,500,000.
Those falling between Rs. 2,500,001 to Rs. 4,000,000 are only 59,276 or 2.16% of total return filers.
In the bracket between Rs. 4,000,001 to Rs. 6,000,000, total filers are 21,934 that is only 0.80% of total filers.
In the last slab exceeding Rs. 6,000,000 and above, there are 22,593 filers or just 0.82% of total filers.
(The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).
(To be continued on Sunday)
Copyright Business Recorder, 2020