Instead of broadening the extremely narrow tax base, the government lost over 131000 active taxpayers as only 1.261 million people and companies filed their annual income tax returns. A 10 percent reduction in the tax base during the fifth year of PML-N government underline the need for a serious review of tax and administrative policies that Federal Board of Revenue (FBR) has been following. As per the FBR published list of Active Taxpayer for the year 2017 the number of taxpayers has dropped to 1.261 million as compared with 1.391 million in 2016.
Under the Tax Rules of 2002 FBR, publishes new active taxpayers list on March 1. Last week, FBR Income Tax policy Chief made a claim before the Senate Standing Committee on Finance that the number of taxpayers would jump to 1.6 million once active taxpayers list is notified. On the contrary Special Assis5ttant to the Prime Minister on revenues expressed the hope that the figure would increase to 1.4 million. The difference between the claims and result has put a question mark over keeping 22000 personals strong force tax for collection that is even unable to maintain the existing extremely narrow tax base. The Prime Minister Shahid Khaqan Abbasi declared broadening of tax base as his first priority in his maiden speech delivered at the floor of National Assembly after he was elected as Chief Executive. Likewise, in an interview with Bloomberg, a New York based news agency he said that a plan will be implement with a view to build profiles of potential taxpayers in a renewed bid to broaden the tax base. He said that the plan seeks to plug leakages, encourage correct property valuation, lower individual tax rate and offer tax amnesty on offshore accounts.
The bitter fact is that less than one percent of country’s population of 210 million pay tax. International lending agencies including the World Bank and International Monetary Fund have repeatedly shown grave concern over Pakistan’s very low tax-to-GDP ratio of 12 percent which is lowest in the world. In the governments of two main stream political parties, tax evasion and income tax non-filers trend go up. In 2007 2.1 million people and companies filed their income tax returns. At the end of previous PPP government, the number of active taxpayers dropped to 935,776, which gradually increased during 2014-16 to 1.391 million when IMF loan program of Extended Fund facility was going on. In September 2016, the IMF program ended and the trend of not filing income tax return went up. Hence in 2017, 131000 tax payers jumped out of the tax net.
The PML-N government introduced a policy of charging higher tax rate from the non-filers of income tax returns. It imposed 0.6 percent withholding tax on all banking transactions carried out by non-filers. Eventually, it lowered the rate to 0.4 percent after yielding to the pressure exerted by trading community. But the move backfired as transaction through banks’cheques declined and cash transactions flourished. The FBR own statistics shows that out of 48 main withholding taxes, 94 percent withholding tax received was generated only on 10 rational sources like contracts, imports, telephone bills and salaries etcetera. So long as the government does not impose tax on agriculture income, stock exchange brokers’ income and profits and capitals gains tax on accurate valuation of properties, the tax base will remain narrow. Prime Minister’s offer of one-time tax amnesty is a financial NRO for the offshore business which was hitherto ran with money laundering and the tight global fiscal laws has compelled the offshore assets holders to whiten their black money either by just paying peanuts in the form of direct tax or avail merely a certificate from the incumbent about the legitimacy of their ill gotten wealth by not paying even zero tax.