FBR seeks Parliament’s support

SOHAIL SARFRAZ

ISLAMABAD: The Federal Board of Revenue (FBR) Thursday sought Parliament’s support for launching the national survey for documentation of the economy.

This has been stated by Director General Directorate General Broadening the Tax-Base (BTB) Rehmatullah Wazir before the sub-committee of National Assembly Standing Committee on Finance. Rehmatullah Wazir presented a plan with special focus on tax survey for broadening the tax-base on national level.

He disclosed that there are 50 million potential income taxpayers, whose tax has been deducted at source, but they are not filing their due returns. These included subscribers of cellular companies, accountholders where tax deducted on cash withdrawal from banks and other categories where tax has been deducted, but no return has been filed.

Director General BTB strongly proposed launching of the tax survey across the country as a major initiative to broaden the tax-base. Field survey of Regional Tax Offices (RTOs) is necessary to expand the tax net. Due to political reasons, survey was not started. “If you (parliamentarians allow us) we can conduct survey for expanding the tax-base”. It is upto the Parliament to give go ahead signal for starting the survey for broadening the tax base, he added.

When committee asked what is stopping FBR from launching the survey, tax authorities said that the FBR is ready to consider the proposal of the Director General BTB.

One of the major reasons for narrow tax base is the discontinuity of regular surveys across the country. The discontinuation of the old Circle-based system without corresponding effective mechanism is also one of the reasons of narrow tax base. 60-70 percent returns are filed by documented corporate sector and we are not focusing on individuals and AOPs.

Giving a comparison, he said that 0.84 million returns were filed in Pakistan as compared to 36 million returns filed in India.

Director General BTB said that almost every notice has been challenged in courts. Courts are granting stay orders against the notices issued by the FBR for expanding the tax-net.

He said that the preparation of the directory of non-filers of the income tax returns is necessary to broaden the tax-base. The sales tax side is often neglected in the BTB exercise, he explained.

During the ongoing exercise of the BTB, the FBR has obtained data of 814,018 persons from motor vehicle registration authority, 548,248 cases of immovable properties from provincial registrars; 201,773 top mobile subscribers with higher bills; doctors 186,408; engineers 22,099; lawyers 3,697 and information of 608,801 traders/vendors/businessmen has been obtained from NADRA.

He said that the banks are reluctant to provide data of their major accountholders where huge amount of cash withdrawals took place during tax year 2014. There are big transactions where billions of rupees have been withdrawn from the banks, but the total number of non-filer accountholders is over 85 percent. Last year, the amount of cash involved in withdrawals is Rs 6,300 billion, but accountholder’s data is not shared with the FBR.

He said that the FBR has taken a number of initiative for broadening of direct/ indirect tax net in the country. The measures so taken are yielding both short and long terms results. The thrust of the various administrative and policy initiatives already taken or intended to be taken in the coming budget in this regard is to place more reliance on direct taxes in comparison to indirect taxes.

It has long been recognized that non-reporting and under reporting of income is a matter of grave concern. Such persons do not contribute to state revenue despite the fact that they can afford to and are liable to pay due taxes. On the other hand they demand services of the state.

In view of importance of this matter a fresh initiative to expand the tax net has been launched by the government in FY 2013-14. This exercise makes use of data quantifiable economic activities of significant value that are indicative of significant asset creation or consumption expenditure by persons not on tax roll.

For this purpose, a National Data Warehouse has been created in FBR. The data warehouse primarily includes the data collected through third party sources such as motor vehicle registering authorities, educational institutions, CVT collected by FBR and provincial governments on purchase of immovable property, electricity distribution companies, automobile manufacturing companies, and the withholding tax statements. Bases on the data base notices are being issued, he said.

Notices requiring filing of returns have been issued to 180,686 potential taxpayers so far. In response to these notices 54,791 persons have filed returns. Provisional assessments in cases where the persons did not respond to the notices have been framed in more than 44,613 cases, he said.

Besides, FBR assigned target to Regional Tax Offices of 207,000 notices to be issued under section 114 for filing of Income Tax Returns during FY 2014-15. So far 101,487 notices have been issued by the RTOs against the said target.

Furthermore, all RTOs have been directed by FBR to maintain computerized stock registers for all potential taxpayers (both filers and non filers).

FBR has also sought information for NADRA regarding persons who have declared themselves as businessmen/ industrialists in column No.22 and 23 of CNIC form submitted with NADRA.

DG BTB said that the new policy measures taken through Finance Act, 2014 to broaden the tax base include a new regime wherein different rates of adjustable withholding of Income Tax for income tax returns filers and non filers on certain transactions have been introduced. This includes sale and purchase of immovable property, purchase, registration and transfer of ownership of motor vehicle, cash withdrawal from banks, and payment of profit on debt and dividend income. The higher rates of tax for non filers will not only prod non filers to file returns and declare their income for all sources, but also provide a database to FBR for identification of potential taxpayers to be pursued for broadening of tax base.

In the Finance Act, 2014 Special Procedures has been adopted wherein sales tax is charged from unregistered retailers through their monthly electricity bills at the rate of 5% where monthly bill does not exceed Rs.20,000 and seven and half percent where the bill exceeds the aforesaid amount. Big retailers working in air conditioned shopping malls or who has a credit or debit cards machine or whose cumulative electricity bill of preceding twelve consecutive months exceeds 600,000 or who have a shop in a air-conditioned shopping mall or who are part of a chain or are registered to pay sales tax at standard rate.

Sharing the issues and challenges, he said that the maintenance of centralized database to be jointly used by BTB, Directorate/PRAL and regular updating of such database. Moreover, new sources of data to be explored and utilized for creation of central data bank whereas human resource deficiency still persists in BTB and field formations. There is a lack of logistics support; difficult and cumbersome procedures; lack of proper and effective enforcement by FBR/ field formation; lack of capacity and motivation to utilize available information; lack of taxpayer’s education and lack of tax culture.

He recommended that a vigorous policy has to be followed – the key to success in this broadening of tax base drive is dependent on delivery of majority of notices to the right potential taxpayers therefore logistics requirements have to be carefully assessed and implemented.

A district level set up for broadening of tax base is proposed. Currently, the field formations are facing acute shortage of workforce and therefore officers and staff have been given additional charges which results in lesser priority given to broadening of tax base initiatives, Rehmatullah Wazir added.