Many times in the past efforts have been made to increase revenue collections under the existing tax laws as well as broaden the tax net but to no avail.The main issue is incompetence and corruption on the part of the taxation machinery.For instance, under the Income Tax Ordinance, all those who own urban land or a flat above a certain covered area, as well as several professional groups, including members of chambers of commerce and industry, engineering council and medical associations, etc., are required to file income tax returns annually even if all their income is exempt from imposition of income tax. This includes even those whose income is sourced to agricultural income (which remains outside the ambit of the FBR according to the constitution). But very few people file their annual tax returns.
Under the law, the FBR has to assess whether the entire income of the filer is from a source that is not subject to tax or whether part of it is taxable. But, according to a report, the Federal Board of Revenue has been delaying on the latest reform measures which were originally designed to block all loopholes in the tax administration system leading to revenue losses. The reform measures were evolved as part of the Tax Reforms Commission's recommendations and were tasked to the Tax Implementation Reform Committee. This committee which has a representation from the private sector was not taken seriously by the tax authority's top management. Several meetings were held on all crucial reform measures but they still await approval for implementation despite the lapse of several months.
One of the reform measures relates to the introduction of forensic audit for major companies, especially the telecom sector. The second big reform proposal was the introduction of electronic monitoring of tobacco products. Originally, it was agreed to introduce a track and trace system for the tobacco industry from the start of the current fiscal year.The committee also finalised the system for curtailing tax evasion in the tobacco industry but some FBR officials are said to be blocking the proposal. It is estimated that more than Rs30 billion per annum revenue is lost due to tax evasion in the tobacco industry. It was also agreed to establish data connectivity with other departments for bringing more people under the tax net, but progress on this accountis very slow.
According to a report, the State Bank of Pakistan is willing to provide data on withholding taxes to the FBR. However, the response from the FBR is negative. The withholding agents withhold taxes but do not submit the same into the government exchequer. Another proposal was regarding the offer from Pakistan Banking Association on data sharing with the tax department. Another recommendation was the registration of Rs25,000 and Rs40,000 bonds to check whitening of black money through these bonds. But the government has not yet moved to implement this reform measure. The FBR high ups are also opposing the introduction of single page income tax return form. The current FBR team is only interested in temporary measures to raise money for achieving revenue target.
There are several ways to broaden the tax base. Agriculture is a major window. Another important source is the income of professionals like doctors, accountants and lawyers. Research studies have also shown that our collections from the stock market are very low - around 5 to 6 billion rupees per annum. Other countries like India generate more than 100 billion rupees from their stock markets. The overriding need is to reform the tax structure and improve the tax administration to boost revenue in the long run.