Prime Minister Shahid Khaqan Abbasi recently asked the Federal Board of Revenue (FBR) to increase revenue collections under the existing tax laws as well as broaden the tax-net. This is not the first time that such directives have been issued but little has so far been done to implement tax laws and broaden the taxation base. The main issue is sloth on the part of the taxation machinery. For instance, under the Income Tax Ordinance on those who own urban land or a flat above a certain covered area, as well as several professional groups, including members of chambers of commerce and industry, engineering council and medical associations, etc., are required to file income returns annually even if all their income is exempt from imposition of income tax. This includes even those whose income is sourced to agricultural income (which remains outside the ambit of the FBR according to the constitution).
The objective was to enable the FBR to assess whether the entire income of the filer is from a source that is not subject to tax or whether part of it is taxable. But, according to a report, the Federal Board of Revenue (FBR) is delaying on reform measures which were originally designed to block all loopholes in the tax administration system leading to revenue losses. The reform measures were evolved as part of the Tax Reforms Commission’s recommendations and were tasked to the Implementation Reform Committee. One of the reform measures relates to the introduction of forensic audit for major companies, especially the telecom sector. The second big reform proposal was the introduction of electronic monitoring of tobacco products. Originally, it was agreed to introduce a track and trace system for the tobacco industry from the start of the current fiscal year.
According to the source, State Bank of Pakistan is willing to provide data on withholding taxes to the FBR. However, the response from the FBR is negative. The withholding agents withhold but do not submit the same into the government exchequer. Another proposal was regarding the offer from Pakistan Banking Association on data sharing with the tax department. TIRC also recommended registration of Rs25,000 and Rs40,000 bonds to check whitening of black money through these bonds. But the government has not yet moved to implement this reform measure. The FBR high ups are also opposing the introduction of single page income tax return form. The current FBR team is only interested in temporary measures to raise money for achieving revenue target.
There are several ways to broaden the tax base. Agriculture is a major window. Another important source is the income of professionals like doctors, accountants and lawyers. Research studies have als shown that our collections from the stock market are very low – around 5 to 6 billion rupees per annum. Other countries India generate more than 100 billion rupees from their stock markets. The overriding need is to reform the structure and improve the tax administration to boost revenue in the long run.