ISLAMABAD: The tax gap for income tax on salaried income is approximately Rs28 billion and non-salaried approximately Rs755 billion, according to the tax gap report (2022).
The Federal Board of Revenue’s (FBR) first report on tax gap analysis-2022 revealed that the corporate tax gap is estimated to be approximately Rs395 billion in 2020-21.
The compliance gap in income tax is Rs730 billion which is 31 percent of the potential collectable income tax.
However, based on the Labour Force Survey, the FBR has calculated tax gap of salaried class of Rs31 billion. The information on individual incomes and tax data is required to estimate the income tax revenue potential.
The Household Integrated Economic Survey (HIES) is the national level survey which collects information on income and expenditure of individuals. The latest HIES is employed to estimate the income gap. The sample size of the HIES is 25,676 households with 116,499 individuals.
FBR sees Rs1289bn tax gap for 2022
In this survey, the FBR has individual reported income by type. Individuals report their type of work (paid, self-employed, family worker, agriculture) and their earnings for the previous month. They also report how many months they worked in the previous year.
The FBR has relied on their monthly income and calculated the annual income. Further, this annual income also includes income from other sources. Finally, using the individual-level estimates of taxable income for each observation in the sample, a tax calculator is used to estimate income tax liabilities based on statutory rates in 2019-20.
Overall, the FBR has followed the following steps to estimate the tax gap: Calculate the gross annual income (excluding agriculture income); calculate the gross tax collectable by applying the statutory rates on gross income and subtract gross tax collection and tax expenditure from gross tax collectable to calculate the tax gap.
For robustness, the FBR has used Labour Force Survey (LFS) to analyze the same tax gap for salaried individuals.
Copyright Business Recorder, 2023