The real significance is quantum of the incremental tax received due to growth in the number of tax filers. FBR inYear Book 2018-19 [page 10] claims that the income tax returns were just 1.5 million in Tax Year 2016 but crossed the mark of two million for “the first time in the history of FBR”. It further says that during Tax Year 2017, the number of income tax filers reached to 1.9 million and in Tax Year 2018, 2.2 million. In Tax Year 2018, it says the number of return filers increased by 17.1%. It candidly admits: “The 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 thus clear that numerical increase in return filers for Tax Year 2019 showed negligible growth in revenue. Almost the same position exists for Tax Year 2020 as elaborated in detail in the various independent sources.
The World Bank in its Project Information Document (PID) of April 22, 2019, reported: “While people and firms unregistered as taxpayers… pay income tax withheld on their transactions (e.g., by banks, telecom, and utility companies), the number of taxpayers who file tax returns….remains very small at 1.52 million, while those who declared incomes above the taxable threshold amounted to only 1.12 million in FY2017/18.”
The figure quoted by World Bank for returns filed for tax year 2018 at 1,522,627 against the registered taxpayers with FBR at 4,786,743does not match with what FBR showed in its Year Book 2018-19 and in its Press release (https://www.fbr.gov.pk/pr/no-further-extension-in-date-of-filing-income/152284).
In FBR’s Year Book 2018-19, total income tax returns received for tax year 2018 were shown as 2,666,256. However, in ‘Tax Directory of all Taxpayers for Tax Year 2018’ as well as in ‘Tax Directory Analysis for Tax Year 2018’, total number of income tax returns received till September 14, 2020 for tax year 2018 are shown at 2,852,349. The increase in tax revenue from new filers is not revealed, despite repeated requests. This is a clear violation of Article 19A of the Constitution, which says: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law”.
It is pertinent to mention that in fiscal year 2019-20, out of total collection of income tax at Rs 1523 billion, the contribution of 10 top withholding taxes was Rs 943.6 billion while remaining 56 was Rs 147.9 billion (total Rs 1091.5 billion). Advance tax paid was Rs 351 billion and with returns Rs 61 billion. FBR collected only Rs 61 billion (arrears of Rs 14 billion and out of current demand Rs 47 billion), which is only 4% of total collection. The major contributors under withholding tax regime are: contracts (Rs 237.4), imports (Rs 199.6 billion), salaries (Rs 129.4 billion), bank interest & securities (Rs 128.1 billion), dividend (Rs 55 billion), telephone (Rs 54.6 billion), electricity (Rs 45.4 billion), technical fee (Rs 40.1 billion), exports (Rs 38.4 billion) and Cash withdrawal (Rs 15.1 billion)—Table 10, Page 15 of Year Book for 2019-20.
The challenge before FBR is to enforce the law and get returns from all the taxable persons. According to Special Assistant to the Prime Minister (Minister of State) on Revenue, Dr. Waqar Masood, “around 7.4 million potential tax evaders have been identified”. In a telephonic interview published on October 27, 2020 by a leading English daily newspaper, he said:“These are potential taxpayers”. He further said: “On transactions worth billions of rupees”, citizens paid withholding tax e.g. on the purchase of properties, vehicles, and other luxurious items “but refuse to come into the tax net”. He added: “We have a very large population of prospective taxpayers in our database. We get 2.7 million returns of which one million are filing nil returns.” By triangulating the data of those filing returns from other databases, he said we “aim to ferret out millions of more taxpayers”. According to Dr Waqar Masood: “Household and income expenditure survey shows 21 million individuals with annual household income of Rs 400,000 or more, which is in the taxable limit, we have 6.4million NTN holders, which also shows a huge population of potential taxpayers, 5 million people are paying withholding taxes every year”.
Dr Waqar Masood revealed that FBR had served “very polite” tax notices to 70,000 biggest asset holders excluding salaried persons. In clear terms, he admitted the extreme weakness in enforcement wing of FBR. The real potential of income tax filers, as claimed by Dr Waqar Masood, can be judged from the following:
250,000 individuals out of one million filers declared NIL income but were found to have paid Rs 20 billion in withholding taxes, which means their “transactions are worth over Rs 200 billion”.
The database of 7.4 million NTN holders showed that only 2.7 million filed tax returns while 3.7 million did not file returns for the last five years. It was detected that they paid Rs 100 billion in withholding taxes indicating that they were conducting transactions worth billions of rupees.
Data obtained from land authorities etc.showed8.9 million individuals, out of which 7.4 million potential taxpayers are not filing returns.
168,000 out of 272,000 registered sales tax establishments were filing income tax returns.
Out of over 100,000 companies, only 45,000 filed returns.
The above portrays a pathetic situation about voluntary filing of tax returns. The poorest of the poor pay 12.5% advance income tax to FBR and 19.5% sales tax on services to provinces as mobile users but in return do not get even basic facilities of health, education, clean drinking water etc. from federal and provincial governments. It was mentioned in ‘There’s need for new tax model’, Business Recorder, February 26, 2021, that according to latest data available on the website of Pakistan Telecommunication Authority (PTA), the total number of cellular subscribers as on December 31, 2020 is 176 million (82.34% teledensity), out of which 91 million are 3G/4G subscribers (42.43% penetration), 2 million basic telephony users (1.3 teledensity) and 93 million broadband subscribers (43.5 penetration).At present, the entire taxable population and even those having no income or income below taxable limit are paying income tax at source as mobile users, yet FBR, lender/donors/media are engaged in a vicious propaganda that people of Pakistan are tax cheats. This is highly lamentable.
The above also reflects sadly on the failure of FBR to tax the rich and mighty despite having information confirming wilful default and tall claims to take them to task. The coming days will show whether FBR succeeds or fails to get income tax returns and due tax from them. In the past as well huge numbers were mentioned time and again showing tax gap, but then the successive governments extended amnesties to the evaders and avoiders (for which FBR cannot be blamed), rather than punishing the delinquents and recovering due tax from them. The PTI Government has extended two amnesties since coming into power against its contrary claims to nab them. It is, thus, unfair to only blame FBR for the present sorry state of affairs. The real culprits are so-called legislators supporting the tax evaders and avoiders. Many of them stashed assets worth billions abroad and ex-chairman FBR coming from private sector has been supporting it as “legitimate” even till today.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS))
Copyright Business Recorder, 2021