Netting non-filers

The Inland Revenue Services Department of the Federal Board of Revenue (FBR), as usual, avoided a determined drive to net the non-filers. After a large exercise of serving 3,121 notices to high net individuals, who are non-filers of tax returns, a weak response has been received as only 220 of them have complied with the terms of notices thus far. It is a matter of great concern that in President Musharraf era the number of active taxpayers was 2.4 million which dropped to less than 1.2 million over the past 10 years. How come that 50 percent of taxpayers skipped out of the tax net? What were factors for such a steep decline in the number of filers? Is it because of the pressure exerted by the political elite sitting in the corridors of powers?
Soon after Pakistan Tehrik-i-Insaf came to power, The FBR identified 3100 high net-worth individuals who were non-filers of tax return and issued notices to them in four batches. However, media reports revealed that most of the notices were sent on invalid addresses which returned undelivered. In the first batch 148 notices were issued to the rich people, followed by another 75 notices, 220 notices, respectively. In the last batch, 2678 people were served with notices asking them to file returns. Tax officials believe the rest of the notices are “under processing” and remain confident that who received notices will file their tax returns eventually. However, the success rate of this exercise depends on the honesty and determination of tax collectors of Inland Revenue Services Department both sitting in offices and working in the field. The tax official did not reveal the quantum of revenue collected from those who have complied by filing their returns thus far.
The FBR has also identified more 3000 more non-filers of tax returns, though notices have not gone out to them. These high net-worth individuals who are non-filers can be identified in the system and have been seen purchasing immovable properties worth 20 million and above, as well as vehicles of 1800 cc engine size and above and are earning rental income of Rs. 10 million and above. On the top of this, the tax authorities have sought and received in formation on 152,518 Pakistani nationals with undeclared assets abroad. The information has been received from 28 countries under OECD Tax Convention.
According to tax officials, notices are being served to initiate process for recovery of evaded taxes, if any, and also determine whether the assets in question have been acquired from legally generated income. The data received was matched with the domestic one.
In its manifesto, The PTI promised deep reforms in the FBR to make it an autonomous body and inducting some professionals from the private sector. These reforms are yet to be initiated and the stereo type bureaucrats have dismally failed to meet the revenue target by Rs. 90 billion in the first quarter of the current fiscal year. The government’s own Economic Advisory Council has advised to bring into the tax net the non-compliant rich people as way to broaden the tax base and promote documentation of the economy. It was the rigidity of tax collectors that the drive of documentation of the economy did not succeed in the year 2000. Council’s members say comparative data from other countries shows large room for growth in direct taxes and with the detailed data available in the database of NADRA, the banking system, and the FBR itself, along with the utility bills and school registrations, it is easy to pinpoint people who have ample resources at their disposal and are not filing returns.
The Prime Minister Imran Khan, while launching the report of 100 days performance of the government, lamented over the botched drive of the FBR to bring non-filers into the tax net. He said that only 72,000 people have declared their income above Rs.200000 per month. Mentioning the paltry number, he said these many people can be found only in Islamabad with income equal or above Rs.200000.
In order to evade income tax, the landlords of Punjab, Sindh and Baluchistan claimed exemption from the FBR by declaring the sources of income from agriculture, revealed a study by the office of Federal Tax Ombudsman (FTO). These landlords club greater amount of their income from industrial and business enterprises with agriculture income to evade hefty amounts of income and corporate tax. The FBR has also shown them the tax evasion rout by declaring income fro forestry, fishing, poultry and dairy farming as agriculture income. The legal lacunae in this regard need to be removed and tax collection machinery must be made accountable for their failure to promote the documentation of the economy.

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