Creating tax compliant culture
Response to the efforts of creating a tax compliant culture is far from satisfactory. The deadline for the filing of tax returns was thrice extended and now it will expires on 31st October. Federal Board of Revenue (FBR) has sent 130000 plus notices to wealthy people across the country to file their tax returns. These notices have been issued to unregistered industrial and commercial consumers through by the Regional Tax Offices. The FBR data show an increase of 783039 new filers as a result of various schemes including the tax amnesty. The total numbers of tax return filers have gone up from 1.5 million to 2.561 million but there is no proportionate increase in tax revenue as Rs.116 billion shortfall in tax collection target was witnessed in the first quarter of the current fiscal year. The tax amnesty scheme of offshore assets generated paltry revenue of $6 million.
There is an alarmingly poor compliance with tax laws. FBR has repeatedly requested the industrial and commercial consumers, who consume electricity worth million of rupees, to register themselves with the tax department to get national tax number and sales tax registration number, failing which they will face disconnection of electricity supply. They were also requested to become filers to avoid penalties and other harsh actions that may be required under the relevant tax laws. But it remains to be seen as to whether the intended actions shall be taken after the expiry of 31st October deadline.
As a part of broadening the tax base, FBR requested Power Division in July to provide details of industrial and commercial consumers who are still not registered with the Inland Revenue Services Department. The electricity distribution companies provided a list of 267,426 such consumers who have not obtained national tax number and also don not have sales tax registration number. Until now 26,512 industrial consumers have obtained sales tax registration numbers, Likewise, the response to registration under income tax by the industrial units is very poor as 25,871 industrial consumers have obtained national tax numbers.
The traders are resisting the imposition of fixed income tax and are also not willing to register themselves for sales tax registration. The entry of protesting traders into D-square in Islamabad was blocked with barbed wires by Police on Monday. A number of dialogue rounds have been held between the traders’ association and Chairman FBR ShabbarZaidi to persuade traders to become filers but to no vail. Addressing traders’ convention, Central Chairman Traders Association Khwaja Salman Siddique said that traders are willing to pay tax but will not do so under coercion. Perhaps some confidence building measures may persuade traders to come under the tax net, making the documentation of economy drive successful. The traders’ argument about the fast deteriorating business environment carries a lot of weight. The closure of industrial units has impacted the business activities.
The exercises of sending tax notices have always fizzled out. The Inland Revenue Service Department has deliberately neglected its prime responsibility of correcting the invalid addresses of wealthy non-filers. The tax collectors had issued 3.121 notices to non-filers of tax returns in December, 2018. The campaign met with weak response as only 220 of them had complied with terms of notices because of the incorrect addresses. Instead of correcting the addresses with the help of field staff second and third round of notices for filing returns were sent on earlier faulty ones. The fresh drill may meet the same fate if PTI government does not fulfill its promise of carrying out reforms in the Inland Revenue Services Department of FBR.