With­hold­ing tax

The Pak Banker - - FRONT PAGE -

With­hold­ing tax has be­come a ma­jor source of rev­enue for the FBR. Ac­cord­ing to the lat­est fig­ures, the field for­ma­tions of the Fed­eral Board of Rev­enue have col­lected more than three-fourths of in­come tax through with­hold­ing tax, which has con­trib­uted to a dou­ble-digit growth in rev­enues. An anal­y­sis of tax col­lec­tion by the field for­ma­tions in July-De­cem­ber of the cur­rent fis­cal year re­vealed that the con­tri­bu­tion of with­hold­ing tax to to­tal in­come tax re­ceipts was in the range of 75% to 95% in the case of 20 out of 23 for­ma­tions. Net in­come tax col­lec­tion by the 23 field of­fices to­talled Rs695.7 bil­lion, of which 70.6% or Rs491.5 bil­lion came in the form of with­hold­ing tax. The share of with­hold­ing tax in the first half was 4% higher than the same pe­riod of pre­vi­ous year, in­di­cat­ing grow­ing re­liance on the re­gres­sive mode of tax­a­tion.

There are four Large Tax­payer Units (LTU) and 19 Re­gional Tax Of­fices (RTOs) that col­lect in­come tax and sales tax across the coun­try. More than 16,000 peo­ple are cur­rently work­ing in these field for­ma­tions. FBR's data showed that an over­whelm­ing ma­jor­ity of these units were solely re­ly­ing on with­hold­ing tax. LTU Karachi-II col­lected Rs74.7 bil­lion in in­come tax in the first half, of which 94.8% or Rs70.8 bil­lion came in the shape of with­hold­ing tax. RTO Karachi-I col­lected Rs57.93 bil­lion in in­come tax, of which Rs51.5 bil­lion or 89% was with­hold­ing tax. RTO Karachi-III re­ceived Rs42.3 bil­lion worth of in­come tax, of which about Rs40 bil­lion or 94.4% com­prised with­hold­ing tax. RTO Karachi-II got Rs39 bil­lion in in­come tax where with­hold­ing tax had a share of Rs32 bil­lion or 83%.

RTO La­hore-II col­lected Rs41.7 bil­lion in in­come tax, of which Rs39.7 bil­lion or 95.2% was with­hold­ing tax. RTO La­hore-I gen­er­ated Rs34.1 bil­lion which in­cluded Rs28.5 bil­lion (83.4%) in with­hold­ing tax. LTU La­hore wax an ex­cep­tion that col­lected Rs12.2 bil­lion or 22.6% of to­tal taxes in with­hold­ing tax. Sim­i­larly, the LTU Is­lam­abad re­ceived Rs91.4 bil­lion in in­come tax in which the share of with­hold­ing tax was al­most half. RTO Is­lam­abad col­lected Rs32.2 bil­lion in in­come tax, of which Rs28.3 bil­lion or 87.7% was with­hold­ing tax. RTO Rawalpindi got Rs22.2 bil­lion in in­come tax with with­hold­ing tax con­tri­bu­tion at Rs20.5 bil­lion or 92.7%. RTO Mul­tan col­lected only Rs20.8 bil­lion in in­come tax and three-fourths of it was in the shape of with­hold­ing tax. RTO Peshawar's in­come tax col­lec­tion stood at Rs18.6 bil­lion, of which al­most 80% was with­hold­ing tax. RTO Faisal­abad col­lected only Rs12.7 bil­lion, of which Rs9.8 bil­lion or 77% was with­hold­ing tax.

It is rel­e­vant to add here that tax rev­enues are grow­ing de­spite cor­rup­tion and in­ef­fi­ciency in the FBR. In Novem­ber, Prime Min­is­ter Shahid Khaqan Ab­basi had taken no­tice of ram­pant cor­rup­tion and ap­point­ment of of­fi­cers with bad rep­u­ta­tion at key po­si­tions in the FBR. How­ever, af­ter that noth­ing has hap­pened and the PM Of­fice is sit­ting on a re­port about hun­dreds of FBR of­fi­cials serv­ing at im­por­tant posts. Ap­par­ently, the PM Of­fice has be­come com­pla­cent af­ter the dou­ble-digit rev­enue growth, al­though it had fallen short of the quar­terly tar­gets. It seems this has de­flected at­ten­tion from ac­count­abil­ity and broad­en­ing of the tax base.

Re­gret­tably, the FBR has failed to widen the ex­tremely nar­row tax base de­spite giv­ing nu­mer­ous ex­ten­sions for fil­ing in­come tax re­turns. The num­ber of fil­ers by the end of Jan­uary 2018 stood at 1.220 mil­lion. The gov­ern­ment has broad­ened the scope of with­hold­ing tax un­der its strat­egy of charg­ing higher tax rates from non-fil­ers of in­come tax re­turns. This has helped in­crease tax col­lec­tion, but the tax base has re­mained nar­row. This is counter-pro­duc­tive. The real, longterm in­crease in rev­enue will come by broad­en­ing the tax base.

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