Filers in hot waters

As per the Federal Board of Revenue (FBR) decision, those taxpayers filing their returns late will be required to pay a surcharge to appear on the new Active Taxpayers' List to be published on March 1. Firms will have to pay a surcharge of Rs20,000, and associations of persons and individuals (salaried and nonsalaried) a fine of Rs10,000 for inclusion on the list which is a central record of online income tax return filers for the previous tax year.

In normal times, it would be difficult to not support the FBR decision to penalise those who fail to comply with their tax obligations in time. But in the given circumstances, when people have been struggling with the impact of the pandemic on their livelihoods, the decision is harsh and unfair, especially in the case of individual salaried and nonsalaried taxpayers.

There are a significantly large number of people who previously submitted their returns and paid their taxes within the deadline but couldn't comply with this obligation this year. Therefore, the FBR needs to review its decision and exempt at least individuals from the payment of fine.

According to the FBR, the number of income tax filers had grown by 9pc to 2.52m by the end of last month when compared to the 2.31m returns received in the corresponding period last year. The tax deposited also rose 63pc to Rs48.3bn from Rs29.6bn. This can be compared to 1.8m returns filed and Rs22bn deposited by the end of the extended deadline on Dec 8 last year.

The increase in tax filers, no matter how meagre the total number, shows that more people are realising the importance of becoming part of the system. Hence, we see a good many returns still being submitted as reflected by the numbers filed after the expiry of the extended deadline. In the current situation, the FBR decision to punish late filers will discourage people from filing future returns for fear of unnecessary punitive actions and reinforce its public image of an unfriendly organisation.

Penalising the existing taxpayers will neither help the tax authorities broaden the tax base nor increase the number of filers. Instead of imposing fines on late filers, the FBR should pursue those who remain outside the tax filing system. Only those filers who have given wrong figures for their assets and hidden their income should be penalised to improve the FBR's credibility and promote tax compliance. Honest taxpayers, including those filing late, should be spared surcharge payments.