Chairman Federal Board of Revenue (FBR) Salman Siddique on Monday said the board was focused upon reducing the estimated tax gap of 79 percent in the actual tax collection and potential, to regain financial sovereignty. Addressing a news conference on Monday, he said that the government has changed the taxation policy by lowering and simplifying tax rates and FBR is tasked to focus on compliance to generate more revenues.
Giving details of the new measures, he said that the risk based audit would be aggressively pursued and central audit system would start functioning from July 1 and the plan for the audit would be finalised by July 20. The post refund audit system had already started from June 04.
He said there is a huge gap between the actual tax collections and potential, as a World Bank study conducted in 2009 found a tax gap of 79 percent or Rs 572 billion in the tax collection and potential. This gap needs to be bridged by 40-45 percent in the short term.
He said that the International Monetary Fund and other International Financial Institutions raise the question on how a country that is nuclear power could not bridge the gap between its expenditure and income. “We have to live as a sovereign nation and have to reduce the gap”. About the current fiscal tax target of Rs1588 billion, he said, achieving it was not an issue as there were withholding agents in nine big sectors, and just by audit of Karachi based banks they have generated a demand of Rs 19 billion. The risk based audits of withholding agents would generate more demand as Rs298 billion are withheld by them which is 52.7 percent of the recovery in 2009-10.
Similarly he said that the banks were deducting tax on the basis of net salary instead of gross salary. The mistake had been pointed out to them. Administrative measures like these are expected to generate Rs50 billion during next fiscal year. He said that an amount of Rs131 billion was stuck in litigation and they were making efforts for its early recovery. “Extra administrative effort of entire FBR will help achieve the target”.
As for the Gross Asset Tax, he said that the idea was put off as the Revenue Advisory Committee mentioned that the immovable property fell under the jurisdiction of the provincial government and federal government could not impose the tax. Even the Law Ministry supported the RAC argument. On the general sales tax on services, he said that it would be decided by the provincial assemblies and if they allowed the FBR would collect it on their behalf. He clarified that the Government of Sindh would collect GST on only those services which involved no input adjustment as these would continue to be collected by the board.
On the new Afghan Transit Trade agreement he said that it would be implemented from June 12 and measures were taken to curb smuggling. He said that Afghan importers would be providing financial guarantees through the approved Pakistani insurance companies. He said that the 70,000 identified tax evaders are the crème de la crème of the country, which were selected automatically through a 19 item list. No political influence would be accepted. He said the field formations were directed to report to the Finance Minister directly if there was any pressure.
