A steep fall in the tax revenue collection has been witnessed over the past few months, which may be partially due to suspension of economic activities in the aftermath of coronavirus pandemic’ These activities have now largely been restored. Federal Board of Revenue has missed the target of tax collection by Rs.103 billion in May, showing a drop of over 31 percent, which seems flabbergasting and can be attributed to the as usual slackness of tax collectors to broaden the tax base. Out of total collection of Rs.227 billion 62 percent has been contributed by regressive indirect taxes such as turnover tax, withholding tax, custom duty and sales tax.
The documentation of economy drive could not succeed due to stiff resistance from traders to either register themselves under the sales tax or income tax regimes. The traders could also be not registered under fixed income tax regime, although they had shown willingness for it. Despite the upbeat publicity of Asset Declaration Scheme on electronics media and in print media, the tax amnesty scheme received a lackluster response from the wealthy people to whiten their black money. Government had extended the deadline for availing tax amnesty on the ill-gotten wealth but the intended result could not be achieved and just few millions could be added to revenue by way of direct taxes. Waiving of stick to Benami assets holders did work. Likewise, compliance of the notices sent to wealthy people having high value residential properties and expensive vehicles could improve the situation because of the incorrect addresses on these tax notices.
Professional tax was levied on the income of doctors from private practice, the incidence of which they shifted to their clients. On the contrary, the government did not show some spine to tax the income of legal fraternity, which is, by and large, undocumented. Excluding this affluent class out of tax net runs counter to the cannon of equity and social justice in the taxation system.
The unplugged revenue loopholes and tax exemption enjoyed by the feudal class on agriculture income is another major factor of decline in tax revenues. Big land holding gentry is using exemption of tax on agriculture income as conduit for bulk of the tax evasion on income from businesses and industrial enterprises with the collusion of tax collectors.. A report of the Tax Ombudsman had revealed how landed aristocracy managed to get income and corporate tax exemption for their hefty incomes from dairy farming, fisheries and poultry farming. By levying agriculture income tax these loopholes can be plugged and tax revenue be significantly increased.
It is worth mentioning that a significant majority of non-filers have been identified by tax authorities in tribal districts of former FATA and PATA but they could not be brought under tax net because of political expediency. Federal government is helpless so much so that it could not impose custom duty on the non-custom paid large number of expensive vehicles that are brought into the country illegally from Afghanistan.
The under invoicing in foreign trade is another major factor of revenue short fall. The trading partners with whom Pakistan has signed free trade agreements did not comply with the clause of digital exchange of trade data, depriving the country of big revenue from import duty. Moreover, foreign diplomats and representatives of non-government organisation deprive the FBR of billions of rupees of custom duty every year using the facility duty free import of luxury cars.
The objective of authentic tax profiling and creation of tax compliant culture is still illusive. Former Chairman FBR had sent a letter to the heads of all commercial banks to provide data of Benami Accounts. Although the prudential regulations for opening new accounts in local and foreign currency have been made rather more robust yet there are no indications that requisite data about old such accounts may have been provided to the FBR. Protection of Economic Reforms Act of 1992 had not only provided secrecy cover to foreign currency accounts but also granted total protection to the account holders against inquiry by the tax authorities. Laws for creating tax compliant culture needs to be enforced in letter and spirit.