FBR chief ascribes untaxed wealth accumulation to flawed policies

KARACHI: The newly-appointed FBR chairman Shabbar Zaidi has attributed accumulation of untaxed wealth to bungled taxation policies and administrative flaws, saying the existing system poses threats to economy, it was learnt on Friday.

“As a result (of) serious flaws in the policy and administrative aspects, there has been substantial accumulation of untaxed wealth,” Zaidi said in a letter to the Prime Minister Imran Khan.

The FBR chief was critical of the tax collection’s reliance on indirect taxes. “Pakistan’s tax collection system generates less than 10 percent of GDP. Even that collection is made in form of indirect taxes, not being real income,” he said in the letter available with The News. “This system is not workable and it represents a serious economic threat for the country.”

The country has been struggling to broaden the tax base with what the FBR chairman said only one percent of the people carrying the burden of the entire state. Despite all efforts and punitive taxation, less than two million people – out of 220 million population – have so far been encouraged to file returns. The FBR’s collection amounted to Rs2.983 trillion in July-April period of the current fiscal year of 2018/19 against the desired target of Rs3.337 trillion. The provisional shortfall has so far ballooned to Rs355 billion so far. The country, which is about to enter an International Monetary Fund’s $6 billion loan program, is under an immense pressure to mobilise tax resources to introduce fiscal discipline.

A seasoned tax expert Zaidi is a firm believer of the documentation of the economy, reiterating his resolve to bring untaxed sector into the mainstream through various measures, including assets declaration scheme and data gathering. The cash-strapped government has decided to launch movement for increasing tax collections equitably on all the taxable income. It is acquiring data of economic transactions from third parties, including banks, excise and taxation departments and other offices to net tax evaders.

“We all agree that the present system is not sustainable for us and our generation. Social services can only be provided where there is adequate collection the revenue,” he said.

The FBR chairman said large numbers of businesses are reluctant to enter into the tax system. Out of 100,000 companies registered with the FBR, only 50 percent file returns.

Total number of industrial electricity connections is 341,000 whereas there are only 40,000 sales tax registrants. There are more than 3.1 million commercial electricity connections, while more than 90 percent of them are outside the tax system.

Zaidi further acknowledged the tax burden on manufacturing sector. “Over 75 percent of tax is collected from the manufacturing sector that is seriously affecting the industrial sector.”

Businessmen said the informal economy has outgrown the formal economy due to presumptive tax scheme that encourages mispricing, widely known as under-invoicing, in foreign trade, The Pakistan Business Council, representing at least 78 private sector businesses in a report estimated five billion dollars of under-invoicing in a year, calling for comprehensive review of import valuations.