Tax troubles

According to the new Active Taxpayers List, instead of broadening the extremely narrow tax base, the government has lost over 131,000 active taxpayers in the last one year as only 1.261 million people and companies filed their annual income tax returns. The FBR published the Active Taxpayers List for tax year 2017 last week, which comprised only 1.261 million entries. This figure was 1.391 million in tax year 2016, which shows that 131,258 people and companies that were earlier in the tax net are not active taxpayers anymore. Under the Income Tax Rules of 2002, the FBR publishes the new Active Taxpayers List on March 1 every year. Last week, FBR's income tax policy chief made a claim before the Senate Standing Committee on Finance that the number of taxpayers would jump to 1.6 million people once the Active Taxpayers List is notified. Special Assistant to Prime Minister on Revenue had hoped that the figure would increase to 1.4 million.

A 10% reduction in the tax base during the fifth year of the PMLN government underlines the need for a serious review of tax and administrative policies that the Federal Board of Revenue (FBR) has been following. The results have put a question mark over keeping a 22,000-strong force that is unable to maintain the existing extremely narrow tax base. The final outcome is far below expectations and is also a serious setback to the Prime Minister's Office. Prime Minister Shahid Khaqan Abbasi had declared broadening of the tax base as his first priority in his maiden speech delivered on the floor of the National Assembly after he was elected as the chief executive of the country.

Tax experts blame FBR's backward looking approach whenever they are confronted with questions about the low tax base. People are also afraid of arm-twisting tactics applied by FBR officials. Instead of cleansing the tax machinery of corrupt officials, the government promoted several FBR officials to their next grades despite them facing inquiries under disciplinary and efficiency rules of 1973. In November, Secretary to Prime Minister had written to the FBR chairman that "certain officers of the FBR with embarrassingly compromised reputations and general conduct are leading some of the most important establishments of the FBR". But instead of taking these people to task, the government promoted some of them. FBR Chairman Tariq Pasha said recently that the Central Selection Board should be asked how officers facing inquiries got promoted to their next grades. He was responding to a question after a meeting of the Senate Standing Committee on Finance.

In 2007, 2.1 million people filed their income tax returns. In 2013, when the PML-N came into power, active taxpayers in Pakistan were only 935,776, which gradually increased to 1.391 million last year. A recent FBR report, submitted to the Senate Standing Committee on Finance, revealed that only the salaried class was allowing FBR to save face. Excluding the salaried class, the number of return filers from the other 35 sectors of the economy has actually decreased over the previous five years.

In June 2013, the PML-N government had introduced the policy of charging higher tax rates from those who do not file their income tax returns. It imposed 0.6% withholding tax on all banking transactions carried out by non-filers. Eventually, it lowered the rate to 0.4% while succumbing to pressure exerted by the trading community. The FBR's official stance on the low tax base is that the income tax returns figure would jump once those who were earlier in the tax net start paying withholding tax rates as high as the non-filers.