Government urged to set collection targets on basis of actual economic activities

The federal government should set future revenue collection targets of the Federal Board of Revenue (FBR) on the basis of actual economic activities taking place in the country instead of traditional methods of adding 10-15 percent growth every year in the FBR tax projections.
During panel discussion at the National Tax Conference, organised by Institute of Chartered Accountants of Pakistan (ICAP) here on Tuesday, leading chartered accountant Syed Mohammad Shabbar Zaidi said, "We must understand the internal methodology used by the FBR in working out the revenue collection targets. The government uses traditional methods of setting target by using figures of revenue growth, inflation etc over the last year's targets. This resulted in revenue shortfalls due to unrealistic targets."
He said that the whole problem in taxation is the economic polices of the country and not the tax administration issues. The less collection of taxes on income is not the fiscal issue but a major policy issue.
Referring to the statement of the Prime Minister to raise a new FBR, former president & senior partner AF Ferguson & Co, said that it was a statement of the PM. The economic and fiscal polices of the government got wrong since 1992. In real sense, tax reforms have not been done since then. Due to wrong economic polices, the government drafted wrong fiscal policies.
While giving an example of wrong economic policies, he said, "For the last 16 years, we have been persistently recommending the policymakers and FBR to abolish section 111(4) of the Income Tax Ordinance 2001 to probe source of unexplained remittances. When huge amount of foreign exchange went out of the country, the government realised to restrict the scope of section 111(4) of the Income Tax Ordinance 2001."
There is an urgent need for documentation of all assets and income on records through automation, Zaidi said. He said, "Directly or indirectly we accountants are also responsible for this, as we cannot merely blame government or FBR for current taxation situation of the country."
Syed Masoud Ali Naqvi, Chairman Tax Reform Commission and former president & senior partner of KPMG said that the compliance level of the corporate sector is too low in Pakistan. Out of 80,000 companies registered with the Securities and Exchange Commission of Pakistan (SECP), only 30,000 are return filers. There is no problem in approaching these companies with the help of data, but the compliance level is too poor, Naqvi added.
Member Tax Policy Board (TPB) and former FBR Chairman, Abdullah Yusuf said that the main problem of the country is the cash and un-documented economy. The potential taxpayers are successfully able to run away from the tax system due to non-availability of complete electronic data, profiles and income/expenditures of individuals under one tax agency. Due to incomplete information available with the tax department, these people never get caught and remained out of the tax net.
"We can get after these potential taxpayers on the basis of sole identifier to record all economic activities of a person for the purpose of documentation. All information of a person could be collected on the basis of CNIC-based activities. When we confront these potential taxpayers with the help of authentic data, they would not be able to run away," the member TPB said.
Abdullah Yusuf said, "We have information in bids and pieces. Unless we have complete 100 percent information about potential person's source of income and expenditures, we cannot bring these rich individuals into the tax net. In this regard, we have to follow the role model countries which have gone through the same situation like Pakistan."
He referred to Chile where information of an individual is being collected from 37 different sources. They prepare and submit draft of the return form for their taxpayers which cannot be denied. Due to availability of all information of their citizens under electronic system, nobody can refuse to the information provided in the draft of the tax return forms given by the tax authorities of Chile on the behalf of their taxpayers.
Therefore, authentic information must be available under one data warehouse which would be instrumental in bringing potential taxpayers into the formal tax regime, Abdullah Yusuf added. Abdul Qadir Memon, President, Pakistan Tax Bar Association also highlighted key issues faced by taxpayers and business community. He made recommendations for improving the tax system of the country.