Tax trou­bles

The Pak Banker - - FRONT PAGE -

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.

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