The condition for seeking National Tax Number (NTN) or computerised national identity card number (CNIC) of the unregistered buyers/sellers is an unrealistic provision, keeping in view the large scale of informal economy and un-documented transactions involving cash.
Tax experts told Business Recorder here on Sunday that since the undocumented economy is far bigger than documented regime, the documented sector simply could not comply with the provision of SRO 821(I)/2011. The provision of the 821(I)/2011 to obtain NTN/CNIC of the un-registered buyers/sellers could only be made possible in well-documented economies. Under SRO.821(I)/2011, in case the registered manufacturers, importers and exporters, making taxable or dutiable supplies to unregistered persons, shall issue an invoice containing "computerised National Identity Card number or National Tax Number" of such unregistered persons. In the presence of the parallel un-documented economy, it is almost practically impossible to comply with the condition of the 821(I)/2011.
They said that the policy makers in FBR could not ascertain the ground reality before issuance of the notification, which unfortunately put the existing registered regime under stress rather than providing an edge. Therefore, the FBR needs to re-visit the notification, considering above submission. Meanwhile, the disputed notification may be kept in abeyance, experts said.
On behalf of the government, taxpayers collect sales tax from both registered and un-registered persons/organisations and then deposit the same with the government, after input/output adjustment. With the advent of SRO.821, certain taxpayers are required to obtain NTN or CNIC from unregistered customer, who had totally refused to extend co-operation.
Moreover, the FBR should not shift its responsibility of widening the tax base on the shoulders of registered taxpayer who are already assisting the government above their capacity. "The tax experts fully support widening of the tax base, as it would ease the burden of taxation on the documented economy but we could not enforce the writ of the government on undocumented sectors".
The objective of broadening the tax base can not be achieved unless or until there is a political will and practical backing of the government to expand the tax base. The target of broadening the tax base should be defined over 5 years. The standard rate of sales tax should be gradually reduced, and registered persons should be given incentive in taxation. All the utility connections to industrial and commercial unit should be linked with NTN/STRN and field formations of FBR should be given task to enforce NTN/STRN registration in markets. In this regard, the chambers and trade bodies should be taken into confidence to work out a pragmatic plan.
However, without realising the impact of the 821(I)/2011, the FBR has shifted the responsibility of documentation straightaway to existing registered segment. Since the undocumented economy is far bigger than documented economy, the documented sector simply can not comply with the provision of SRO 821. Resultantly, the documented segment would be discouraged and forced to move towards undocumented transactions, and genuine investors may be forced to roll back their investment.v
Last month, the Chairman of the Federal Board of Revenue (FBR), Salman Siddique, had informed the National Assembly Standing Committee on Finance that there was 79 percent tax gap (Rs 796 billion) between collection and actual revenue potential, as highest gap of 70 percent had been witnessed in withholding taxes. The study conducted with the local and World Bank technical support in 2008 showed that tax gap in Pakistan was 79 percent, Rs 796 billion, compared to 22 percent in US.