Are AOPs really doing well?
Continuing our analysis of data from the FBR’s recently released tax directory, there is an interesting pattern that emerges when one looks at the tax filings of the Association of Persons (AOP).
As the figure illustrates, the incidence of double-digit growth in AOP taxes continues – the Rs47.8 billion that AOPs paid to the kitty in FY15 is 36 percent more than the previous year. Does this huge growth mean that the AOPs – in simple terms, those businesses that are out of the fancy ‘corporate’ realm, basically the registered commercial businesses and small & medium enterprises – in Pakistan have been doing well under the pro-business PML-N administration?
One cannot be certain as one is unable to use this tax dataset alone to wager a guess on business’s actual profitability. But there is some hint in the data that amelioration in AOP fortunes may have happened in recent years. Consider the following insights gleaned from crunching the numbers.
Remember the July 2014 introduction of filer/non-filer phenomenon for withholding taxes on banking transactions? That measure, it seems, may have lent a hand in growing AOP tax filers by nine percent in FY15. But that growth still does not explain the disproportionate 36 percent increase in AOP taxes in that year. What lends credence to the notion that AOP businesses may be doing well is that a year before, in FY14, tax-return filers had barely increased but there was a 22 percent growth in taxes paid.
If it’s not the growth in number of return-filers, then maybe there was an increase in tax rates on AOPs that is responsible for the revenue growth? Well, that is not the case because AOPs did not see a drastic increase in their tax rates in recent budgets.
In fact, average tax paid per AOP filer increased from Rs0.86 million in FY14 to Rs1.07 million in FY15 – a growth rate of 24 percent. For a better proxy, excluding the NIL tax returns, average tax per AOP increased from 1.35 million in FY14 to 1.63 million in FY15 – a growth rate of 21 percent.
There is also reducing concentration of AOPs who filed NIL tax returns. NIL returns dropped from 39 percent of total tax filers in FY13 to 36 percent in FY14 and 34 percent in FY15. Businesses that file NIL returns do so for a number of reasons, including in situations where they incur losses or when their operations go dormant due to adverse business conditions, re-location, in-formalisation, etc.
In addition, there is an increasing concentration of AOP businesses paying more than a million rupees in taxes. In FY13, 12 percent of AOPs fit that definition, paying 86 percent of total taxes. The ratio of such businesses increased to 16 percent in FY15 as they paid 91 percent of total AOP taxes. On a related note, a mere 0.2 percent of total AOP filers contributed about 28 percent of total AOP income tax collection. This trend is much in line with the findings from tax directories
While the release of FBR’s tax directories is a welcome step, the FBR needs to expand the information base of the directory so as to help the civil society arrive at a more meaningful analysis of the state of taxation in the country.
Lastly, as mentioned earlier, more data are required to definitive answer whether the middle and smaller tier of business community has done well in recent years or not. And in the absence of tax data from prior years, no one knows how well or poorly AOPs did in the previous regimes. But this analysis should leave commentators with some food for thought.
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SUMMARY INFORMATION OF TAXES PAID BY AOP FILERS FY13 to FY15
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Tax Paid (Rs in mn) % share of total tax paid Number of tax return filers % share of tax filers Increase in
filers in…
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FY15 FY14 FY13 FY15 FY14 FY13 FY15 FY14 FY13 FY15 FY14 FY13 FY15 FY14
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Less than zero 0 0 -0.0024 0.00% 6 0.00% -6
Zero 0 0 0 0% 0.00% 0.00% 15,267 14,721 15,960 34% 36.10% 39.20% 546 -1,239
1000 or less 0.11 0.1 0.14 0% 0.00% 0.00% 202 187 251 0% 0.50% 0.60% 15 -64
1001-5000 3.7 3.49 3.75 0% 0.00% 0.00% 1,143 1,095 1,194 3% 2.70% 2.90% 48 -99
5001-10000 9.88 9.81 10.36 0% 0.00% 0.00% 1,302 1,295 1,364 3% 3.20% 3.40% 7 -69
10001-50000 181 164 144 0% 0.50% 0.50% 6,669 6,072 5,250 15% 14.90% 12.90% 597 822
50001-100000 206 178 181 0% 0.50% 0.60% 2,856 2,471 2,486 6% 6.10% 6.10% 385 -15
100001-500000 1,744 1,643 1,642 4% 4.70% 5.70% 7,251 6,514 6,477 16% 16.00% 15.90% 737 37
500001-1000000 2,108 2,044 2,105 4% 5.80% 7.30% 2,913 2,844 2,939 7% 7.00% 7.20% 69 -95
1 mn - 10 mn 18,130 14,583 12,271 38% 41.50% 42.60% 6,175 5,028 4,394 14% 12.30% 10.80% 1,147 634
10 mn - 50 mn 11,917 8,657 6,238 25% 24.60% 21.60% 633 473 333 1.40% 1.16% 0.82% 160 140
50 mn - 100 mn 3,974 3,169 1,570 8.30% 9.00% 5.40% 61 44 24 0.14% 0.11% 0.06% 17 20
100 mn - 500 mn 7,191 3,607 4,664 15.00% 10.30% 16.20% 41 18 20 0.09% 0.04% 0.05% 23 -2
500 mn - 1 bn 2,340 1,109 4.90% 3.20% 4 2 0.01% 0.00% 2 0
1 bn - 10 bn
10 bn or more
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Total 47,806 35,167 28,828 100% 100% 100% 44,517 40,764 40,698 100% 100% 100% 3,753 66
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Source: BR Research calculations based on
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