Saturday September 25, 2021

More than half of registered firms fail to file tax returns

KARACHI: More than half of the registered companies in the country failed to file their income tax returns for the tax year 2016, pointing to a weak law enforcement by the authorities, sources said on Thursday.   

Sources said the Federal Board of Revenue (FBR) has detected around 41,800 non-filer corporate entities, which are registered with Securities and Exchange Commission of Pakistan (SECP). 

The number of registered companies with SECP rose to 81,493 in the fiscal year of 2016/17 from 73,207 a year earlier. Officials said under Section 114 of Income Tax Ordinance 2001, every incorporated company is required to file income tax return even in case of losses or no income derived during the tax year. FBR received around 31,400 corporate returns filed till August 10 for tax year 2016.

Tax experts said the available data is a telltale sign of FBR’s weak enforcement.  The experts said the FBR should improve enforcement and ensure the return filing by corporate entities as all the documents are already available with SECP. Presently, companies are filing returns to avail tax concessions and refunds, they added.

The number of corporate return filings, however, increased 25 percent during the last four years (2013-2016). Number of companies registered with SECP grew 36 percent during the same period.

Sources said the FBR has obtained information related to non-filer corporate entities from the commission. The board started issuing notices to the companies for filing their mandatory returns for tax year 2016.  They said a majority of the companies, which filed income tax returns for tax year 2016, have declared no income. Tax authorities are also examining the records of such companies to identify tax evasion.

Pakistan has a narrow tax base. Only four million people, including individuals, companies and association of persons, are registered as income taxpayers. Of total registered taxpayers, only 1.23 million are filing tax returns, according to the latest active taxpayers list.

Government could not attract companies to fulfill their obligation of return filing despite a significant reduction in corporate tax rates during the last five years. Corporate tax rates were slashed to 30 percent in the current tax year of 2018 from 35 percent in tax year 2013.  The apex tax authority received a total of 1.2 million tax returns by June 30 for the tax year 2016, depicting a 20 percent growth over a year ago.

FBR began an aggressive drive to encourage returns filing. It slaps additional withholding tax on non-cash banking transactions to broaden the taxpayers’ base. The government, in the budget for 2015/16 fiscal year, introduced Section 236P into Income Tax Ordinance 2001 and imposed withholding tax rate of 0.6 percent on non-filers, while they make non-cash banking transaction above Rs50,000 in a day. The rate was reduced to 0.3 percent on July 15, 2015, but edged up to 0.4 percent in March 2016. The tax rate is applicable till September 2017.