FBR’s data analysis   

Dr. Ikramul Haq

The Federal Board of Revenue has released four documents in September 2020, namely, ‘FBR Year Book for 2019-20’, ‘Parliamentarians’ Tax Directory for Tax Year 2018’, ‘Tax Directory of all Taxpayers for Tax Year 2018’ and ‘Tax Directory Analysis for Tax Year 2018’. The data contained in these documents once again confirms lack of capacity of FBR in enforcing tax laws. These documents also show laxity on the part of legislators vis-à-vis their tax declarations, majority declared incomes not matching their living standards and assets owned by them. Amongst the general public, though millions pay advance adjustable tax as mobile users, the filers showing taxable income are less than 1.5 million. Majority, doing businesses through companies, individually, and associations, barring a few exceptions, has declared incomes not even justifying their annual expenses.

Once again in ‘FBR Year Book for 2019-20’, there is no mention of total income tax returns received for tax year 2019 and persons registered under Sales Tax Act, 1990 for the fiscal year ending on June 30, 2020. In FBR Year Book 2018-19 , total returns filed for tax year 2018 were shown as 2,666,256, out of which companies were 43,246. However, in ‘Tax Directory of all Taxpayers for Tax Year 2018’ as well as in ‘Tax Directory Analysis for Tax Year 2018’,total number of income tax returns received till September 14, 2020 for tax year 2018 are shown at 2,852,349. The incremental increase in tax received from new filers is not revealed.  

In FBR’s collection and unpaid refunds, Daily Times, August 9, 2020, FBR’s claim of exceeding the target of Rs. 3908 billion was exposed showing that refunds payable were not subtracted to give the correct figure. Surprisingly, FBR Year Book for 2019-20 also fails to mention it although on September 2, 2020, before the National Assembly Standing Committee on Finance, FBR confessed that actual liability of income tax and sales tax refund as on June 30, 2020 was Rs. 710 billion (sales tax Rs. 142 billion and income tax Rs. 568 billion). If this liability is excluded from collection of Rs. 3997 billion as reported in ‘FBR Year Book for 2019-20’, the net collection comes to Rs. 3287 billion or just 7.8% of GDP. The stance of FBR is that outstanding refunds mainly pertain to the period of last government to show higher figures and thus it is the responsibility of Ministry of Finance to clear these as the same could not be given from current year collection of FBR.     

According to ‘FBR Year Book for 2019-20’, against original target of Rs.5503 billion, total net collection as on June 30, 2020 was Rs. 3996.7 billion, but against revised target of Rs. 3908 billion, it was exceeded by Rs. 88.7 billion (102%). As per details, direct taxes (Rs. 1523 billion) and Federal Excise Duty (Rs. 250 billion) “missed their respective targets by 6.2% and by 19.7% respectively”. Sales tax (Rs. 1597 billion) and customs (626 billion) “have surpassed revenue targets by 11.9% and 14.7% during FY 2019-20”.  

‘Parliamentarians’ Tax Directory for Tax Year 2018’ reveals some startling results:

• Only five lawmakers paid 60% of the total amount paid by members of the lower and upper houses of parliament in taxes.
• 45 members of parliament did not even submit their income tax returns.
• Of the 401 National Assembly and Senate members, who submitted their income tax returns, 70 paid more than Rs. one million.

Analysis of ‘Tax Directory of all Taxpayers for Tax Year 2018’ shows:

• There were 87,620 companies registered with Securities & Exchange Commission of Pakistan as on 30-06-2018 but only 44,609 filed returns. Out of these, less than 3,400 paid more than Rs. 7 million as income tax. 35,000 companies claimed refunds and 499 paid 79% the total amount.
• 64,336 Association of persons (AOPs)(2.26% of total filers with contribution of 8.49%) and 43% of them paid 99.8% of total tax under this category!
• Of total number of return filers, 36.6% filers (1,004,221) showed income less than Rs. 400,000,
• In the bracket of taxable income from Rs. 400,001 to Rs. 500,000, total filers are 433,133 or 15.79%.
• 441,312 filers constituting 16.09% fall in the slab between Rs. 500,001 and Rs. 750,000.
• 15.4% (422,349) fall in the bracket from Rs. 700,001 to Rs. 1,500,000.
• 153,645 return filers or 5.6% of total filers are in the range of Rs. 1,500,001 to Rs. 2,500,000.
• Those falling between Rs. 2,500,001 to Rs. 4,000,000 are only 59,276 or 2.16% of total return filers.
• In the bracket between Rs. 4,000,001 to Rs. 6,000,000, total filers are 21,934 that is only 0.80% of total filers.
• In the last slab exceeding Rs. 6,000,000 and above, there are 22,593 filers or just 0.82% of total filers.

The above facts confirm that in Pakistan, the rich are avoiding tax obligations whereas millions having no income or incomes below taxable limit have been forced to pay advance tax. The latest data at website of PTA shows the total number of subscribers as on July 31, 2020 at 167 million, out of which 81 million are 3G/4G subscribers, 3 million basic telephony users and 83 million broadband subscribers. Among them about 100 million are unique subscribers (some have more than one SIM) and are subjected to 12.5% advance and adjustable income tax. FBR should determine true tax base from the data of these 100 million mobile users that how many are liable to income tax using details of their calling patterns, bills, handset ownership status, assets, travel abroad, payment of utilitybills, fees forchildren etc.

FBR’s statistics in ‘Tax Directory Analysis for Tax Year 2018’ thus do not present the correct figures regarding income tax payers in Pakistan. It is based only on return filers. It is FBR’s duty to issue notices to those having taxable income, paying tax at source, yet not filing returns. It should not take tax from those who have no taxable income.

Out of total income tax collection during FY 2016 to 2020, the percentage of withholding taxes, advance tax and payment with returns is about 92%. It proves beyond any doubt that blame shifted to business houses, especially to small and medium enterprises (SMEs) for alleged non-payment of taxes, is just eyewash on behalf of FBR to hide its own inefficiency and incompetence to collect due tax from the rich.

In the wake of heavy economic toll of Covid-19 endemic, SMEs are still being heavily taxed through withholding tax regime, indirect taxes and advance taxes for which main fault lies with the legislators as officials at federal and provincial level are given irrational tax targets that are achieved at the cost of destroying business growth. Laws are not passed by tax authorities but by the parliaments—national and provincial. The remedy lies in lower rate of taxes on broad base which should be collected when income is actually earned and in case of indirect taxes when transactions take place. Presently 50% taxes are collected at import stage and many more by federal and provincial governments in advance, which is the real cause of hardships for businesses, especially SMEs, and individuals with income below taxable limit or up to 1.2 million per annum.

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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)