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Pakistan – A case of tax revolt!

It is a troubling fact that the ranks of taxpaying people in Pakistan seem to be shrinking every year. Statistics show that1.44m people filed their returns in 2011. But in 2013 there were only about 840,000 taxpayers whom the FBR could trace at their homes or workplaces.

In 2010 1.7m tax returns were filed in the country. Does this mean that the missing numbers are imaginary taxpayers? A comparison shows that only 0.4 per cent of the population pays taxes in Pakistan, against 4.7 per cent in India, 58 per cent in France and 80 per cent in Canada. In the last nine months of current fiscal, FBR has witnessed a tax shortfall of over Rs130bn.

Instead of making efforts to increase revenue, successive governments have taken loans from the IMF and other lending agencies to pay interest on previous loans. During last year`s election campaign, Nawaz Sharif criticized the PPP government for taking loans from the IMF and pledged to take no loan from it after coming to power.

But now his finance minister is building up the country`s reserves on loans from donors and `gifts` friendly countries instead of increasing the country`s exports and revenue.

The PML-N government`s talk of bringing the rich into the tax net has failed to produce any noticeable results. In its first budget, last year the government announced to launch a project to broaden the tax base. Later under a two-pronged strategy, 100,000 potential taxpayers were included in the list of taxpayers this year and an incentive package was announced for those who are on tax rolls but have not filed returns for the last five years.

The outcome of both the schemes is negligible and unnoticeable. Under the scheme, the government focused on affluent people who neither had national tax numbers (NTN) nor filed income tax returns by Nov 2013.

Data compiled up to Feb 28 shows the dismal performance of the tax enhancement drive. The revenue generated through the drive is in a few millions. Around 75,000 notices were issued by the FBR to tax defaulters from July last year to March this year, but only 6,500 people have so far filed tax returns on voluntarily basis.

The National Database and Registration Authority has identified more than three million potential taxpayers, who have luxury houses in posh areas and multiple banks accounts and frequently visit foreign countries, but do not pay taxes. The data was shared with the FBR and verified by officials working for the project.

Finance Minister Ishaq Dar has chosen the easiest target of 100,000 people to bring them on the tax roll by the end of June. A target achieved by the FBR is issuance of notices to around 75,000 people until March. But more than half of the notices could not be delivered to the recipients. Reasons given for the failure in notice delivery include incomplete or incorrect addresses and people`s migration and refusal to receive the notices.

Actually, the FBR is hiding the facts and quoting higher figures of delivered notices. A member of the FBR, Riffat Shaheen Qazi, who was removed from the post of spokesperson for the bureau a few months ago, said that she was punished for providing information about the performance of the bureau to reporters. The delivered notices also indicate low level of compliance.

FBR spokesperson Shahid Husain Asad agreed that no effective outcome of the project was possible until there was a fear of enforcement and audit among people. Currently, both are missing in the tax machinery of the country.

Under the scheme, only 2,600 people filed their returns on voluntarily basis until Feb 28, 2014, when the scheme came to an end. The revenue that came with the returns is less than Rs200m. As a result of this poor compliance, the FBR extended the scheme until April 30.

Issuing tax numbers will not help the FBR in broadening the tax base because there are more than three million people who have already been issued NTNs but only 840,000 of them have filed their returns this year. The government has offered exemption from penalties, surcharges, audit and questions about the source of income under the schemes.