Corporate tax returns drop 26 percent in 2016

KARACHI: Corporate sector and high net-worth individuals filed 26 percent less returns in the tax year 2016 than in the preceding year, indicating the tax machinery’s failure to convince the taxpayers into declaring their annual income and assets, sources said on Friday.

Total number of corporate and high net-worth individual taxpayers, registered with the Large Taxpayers Unit (LTU), Karachi, stands at 3,900. “Of which, only 2,875 taxpayers filed their returns and wealth statements for the tax year 2016,” said a source, privy to the development.

Sources said it was irritating for the Federal Board of Revenue (FBR) that even the already-registered taxpayers were not complying with the law despite its several initiatives to increase the total number of taxpayer.

Last year, the government unveiled a tax amnesty scheme to document the black money estimated at seven trillion rupees parked only in the real estate sector. 

The scheme, introduced through an amendment into the income tax law, exempts an investor from disclosing the source of funds by paying three percent tax on the amount of difference between declared and actual cost of a property.

But, if he fails to file returns an additional four percent withholding tax is to be levied.  

Officials at the LTU Karachi said the unit has prepared an aggressive enforcement plan under which ‘penal’ action would be taken against the taxpayers who remained non-compliant to the notices.

Around 3,000 high-net worth individuals or companies’ directors and 900 big volume companies are registered with the LTU Karachi. Interestingly, the FBR has an access to the records of all the taxpayers.

LTU sources said around 250 companies and 800 directors have not filed their annual returns for the tax year 2016. High-net worth individuals were included in the jurisdiction of LTU Karachi from July 2016, they added.

Sources feared that the number of non-filers would further increase as the unit decided to declare a return invalid if a taxpayer provided incomplete information.

They said the unit has already taken actions in several cases, which especially belonged to non-filing of returns by directors. 

Sources said the unit has also initiated audit proceedings of the past tax years against 300 executives associated with the big volume companies.

The high net-worth individuals, such as board members, chief executives, chief financial officers, chief operating officers are included in the jurisdiction of LTU Karachi. The tax department identifies tax evasion and avoidance in the corporate sector.

The overall income tax return filing also declined during the tax year 2016 as the FBR received around 800,000 returns during the year as against 1.2 million returns in the tax year 2015.

LTU officials said a non-filer for the tax year 2016 and onwards would automatically be selected for auditing under the Income Tax Ordinance, 2001. Therefore, the unit would also conduct detailed audit of non-compliant taxpayers.