FBR FY17 directory: ‘zero’ sum game

Updated 14 Mar, 2019

The Federal Board of Revenue’s (FBR) recently released tax directory, it’s fifth since it began, shows that the filer-non-filer differentiation is somewhat working. The number of SECP-registered filers in FY17 increased 18.4 percent, its highest growth since the tax body started releasing these datasets. But let’s not get too excited!

The growth in filers mainly comes on the back of growth in zero-return filers, which grew by 26 percent in FY17. That trend is visible since the last four years. As a percentage of total increase in filers, zero-return filers were about 69 percent of the total in FY17, compared to 69 percent in FY16, 59 percent in FY15 and 42 percent in FY14. This shows that firms are probably just filing returns to avoid being a non-filer – a status which increases their cost of commercial existence. The alternate theory could be that nearly half of Pakistani firms are not making taxable profits, but this theory doesn’t seem plausible given the trends in GDP, household consumption and import growth.

Considering that new filers – filers whose NTNs didn’t not feature in FY16 but featured in the directory for FY17 – are estimated to be around 6000-7000 (initial estimates), one can safely say that a significant number of filers who filed a zero-return in FY16 continued to be in the zero-return category, since there is no upward movement of the bulk of filers from zero-return category to high-brackets of tax paid.

Another way of looking at it is to evaluate the growth in filers in the context of total SECP-registered companies. When a company registers with the SECP it ought to file a tax return in the subsequent year, exceptions apply of course. Now consider that the number of companies registered with the SECP increased by 7,364 companies in FY16, which means these firms should have filed a return in FY17. In contrast the increase in filers is only 5,763. In other words, the growth in filers is less than the growth in companies in the previous year. Little wonder then that even after all the public debate on the urgency of tax reforms, the total number of filers as percentage of SECP-registered firms stood only at 46 percent in FY17, having grown from 43 percent in the year before.

The rest of the story from tax directory’s section on SECP-registered companies is the same: if in FY13 about 0.3 percent of filers contributed to 68.3 percent of total corporate tax collection, in FY17 about 0.4 percent of filers contributed 61 percent to total corporate tax collection. Whether it reflects corporate inequality or poor tax administration, or both, is the stuff that academic researchers will hopefully work on. Meanwhile, suffice to say that FBR’s FY17 directory is an evidence of the fact that all those notices and so-called reforms were not working throughout FY13-FY17 despite being under the IMF programme. With the PTI in power, many have hopes that the state will deliver, but given the performance evidenced in the tax directory, the FBR appears beyond hope.

Copyright Business Recorder, 2019

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