The incremental increase in tax received from new filers has not been mentioned despite repeated requests
Ever year the Federal Board of Revenue (FBR) issues data relating to collection of taxes with analysis highlighting vital areas of achievements, weaknesses and other disclosures to adjudge its performance. In the latest FBR Year Book (for 2019-20), there is no mention of total income tax returns received for tax year 2019 and persons registered under Sales Tax Act, 1990, until June 30, 2020.
In the FBR Year Book 2018-19, total income tax returns received for tax year 2018 till the date of finalising the year book were shown as 2,666,256, out of which 43,246 were for companies. However, in Tax Directory of all Taxpayers for Tax Year 2018 as well as in Tax Directory Analysis for Tax Year 2018, the total number of income tax returns received till September 14, 2020 for tax year 2018 was as 2,852,349.
The incremental increase in tax received from new filers is not revealed despite repeated requests. This is a clear violation of Article 19A of the constitution, which says: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law”.
The citizens of Pakistan are not seeking any information about any particular taxpayer, which is protected under Section 216 of the Income Tax Ordinance, 2001. They only want to know the contribution of all income tax return filers for each tax year. They also want an analysis of contribution made by all categories of taxpayers, namely companies, associations of persons (AOPs) and individuals (salaried, non-salaried) as well as sector-wise tax paid by those engaged in business and profession. This data is not available in the FBR Year Book for 2019-20.
It is pertinent to mention that out of total collection of income tax of Rs 1,523 billion, the contribution of 10 types of withholding taxes was Rs 943.6 billion while the remaining 56 contributed Rs 147.9 billion (in a total of Rs 1,091.5 billion). Advance tax paid was Rs 351 billion and with returns Rs 61 billion. The FBR collected only Rs 61 billion (arrears of Rs 14 billion and out of current demand Rs 47 billion), which is only 4 percent of the total collection. The argument that the staff of Inland Revenue Service (IRS) contributes by monitoring of withholding taxes is fallacious as shown below.
The segregation of major contributors under withholding tax regime shows: contracts (Rs 237.4), imports (Rs 199.6 billion), salaries (Rs 129.4 billion), Bank interest and securities (Rs 128.1 billion), dividend (Rs 55 billion), telephone (Rs 54.6 billion), electricity (Rs 45.4 billion), technical fee (Rs 40.1 billion), exports (Rs 38.4 billion) and cash withdrawal (Rs 15.1 billion)—Table 10, Page 15 of Year Book for 2019-20.
It is pertinent to mention that details have not been provided for as many as 56 withholding tax provisions prevalent during the relevant year. The FBR claims that withholding taxes need strict monitoring. If this is true then defaulting withholding tax agents must have been penalised and demand should have reflected in either current/arrears collection, or through a separate note, which is missing.
It is still possible for the FBR to post on its website the details of such actions as well as make public the number of income tax returns and sales tax registered persons, category wise, as on June 30, 2020. It must also disclose the quantum of due refunds. In the Year Book for 2019-20 only refunds actually paid are mentioned.
In the Year Book for 2019-20 the FBR has claimed exceeding the third-time revised target of Rs 3,908 billion by Rs 88.7 billion, collecting a net amount of Rs 3,997 billion—direct taxes Rs 1,523 billion, sales tax Rs 1,597 billion, federal excise Rs 250 billion and customs Rs 626 billion. The refunds paid were: direct taxes Rs 68.6 billion, sales tax Rs 92.6 billion, federal excise nil and customs Rs 12.2 billion. FBR officials on September 2, 2020, before the National Assembly Standing Committee on Finance confessed that actual liability of income tax and sales tax refunds as on June 30, 2020 was Rs 710 billion (sales tax Rs 142 billion and income tax Rs 568 billion). The International Monetary Fund (IMF) after its first review seeing that the FBR was far behind the original target of Rs 5,555 billion, had agreed to revise it to Rs 5,238 billion, then to Rs 4,803 billion on the eve of incomplete second review, held prior to Covid-19 endemic, and after coronavirus outbreak, finally to Rs 3,908 billion. If the admitted refunds payable are deducted from the total tax collection of FBR for fiscal year 2019-20, the net figure comes to Rs 3,287 billion or just 7.7 percent of the GDP.
The blame for unpaid refunds cannot be attributed entirely to the current government. In FY 2019-20, the FBR paid total refunds of Rs 173 billion as against the previous year’s figure of Rs 122 billion. An amount of Rs 70 billion was paid in respect of long-outstanding refunds through a technical supplementary grant (TSG).
The previous government had blocked/consumed bulk of these refunds. This shows inflated tax reporting by the PML-N government. Interestingly, this non-disclosure took place when Pakistan was under $6.4 billion Extended Fund Facility (EFF) programme of the IMF and they never detected it. Instead the then finance minister, Ishaq Dar, now a fugitive, was lauded for the remarkable growth in FBR’s collection. The IMF gave 13 waivers to the PML-N following the signing of the programme in September 2013. The programme ended in August 2016.
According to FBR Year Book 2018-19, “The trend for filing of income tax returns has not been satisfactory in Pakistan. Keeping in view very low compliance, the FBR had initiated a Broadening of Tax Base (BTB) drive few years ago, which has *now started paying dividends in shape of growth in the number of filers. The number of income tax returns which was just 1.5 million in TY 2016 has crossed the two million mark. During TY 2017 the number of income tax filers had reached 1.9 million and in TY 2018 2.2 million (Table 7). During TY 2018 the number of return filers had increased by 17.1 percent (316,526 in absolute terms). The performance in terms of number of returns is satisfactory but payment with returns has a meager growth of 3.0 percent, which is a matter of concern”.
*Wrongly appearing as “not” in the directory
No such information is disclosed in the Year Book for 2019-20 for tax year 2019. There are many other vital non-disclosures that will be discussed in the coming articles.
FBR officials cannot be blamed for everything. Successive governments, including the present one, have been giving amnesties, waivers, exemptions and asset whitening facilities that have eroded the tax collection. In fiscal year 2019-2020, total tax expenditure was of Rs 1.5 trillion (Annex-II appended to Economic Survey 2019-20).
If only 40 percent of taxes waived/forgone in fiscal year 2019-20 were recouped in Finance Act 2020, there would have been a fiscal space of Rs 600 billion to reduce taxes. However, the PTI government showed apathy towards the weaker sections of society and small/medium enterprises (SMEs), facing the unbearable toll of Covid-19 outbreak/lockdown by not reducing exorbitant sales tax, withholding taxes, advance tax, and high cost of utilities. They are still subject to oppressive 12.5 percent advance/adjustable income tax.
The total number of cellular phone subscribers on July 31, 2020, was 167 million. This included 81 million 3G/4G subscribers and 83 million broadband subscribers. They also pay 19.5 percent sales tax on services to provinces and 17 percent federal excise duty if based in Islamabad Capital Territory.
The need of the hour is to provide relief to taxpayers who suffered heavily during the lockdown due to Covid-19 endemic and pay all outstanding refunds, which is their right and not a favour. According to a press report placed before the National Assembly Standing Committee on Finance, “The FBR showed its inability to release the refunds from its revenue collection and sought a supplementary grant to clear the backlog”. It is now the duty of the PTI government to resolve this issue on a priority basis.
The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)