Federal Board of Revenue (FBR) decided to take intensive measures to broaden the tax net and reduce annual tax evasion between Rs 700 billion to Rs 1 trillion annually, in different sectors.
This would help the tax collector meet the federal government’s revenue target for FY14. FBR’s intensive steps include automation of its system and reconciliation of databases made available at different state-owned organisations. The revelation was made by Khawaja Tanveer Ahmad, chief commissioner, regional tax office (RTO), while addressing a post-budget seminar organised by southern regional committee of the Institute of Chartered Accountants of Pakistan (ICAP) recently.
The tax authority has planned to carry out detection of violations of concessionary conditions and strict legal action against non-filers of returns, under-taxpayers, non-taxpayers and those who are involved in corruption claiming fake refunds and tax frauds. The revenue collection department will develop an automation system of cross-verifications that can help reduce incidence of tax fraud, cleansing and updating databases through use of third-party data, such as Customs, NADRA, SECP, utilities, land revenue etc.
FBR has developed task management and case tracking modules to ensure that each task/case taken up is completed, and to ensure monitoring performance of officers and sections. He further said evasion occurred under all three heads of taxes including customs duty, sales tax and income tax.
It is because of narrow tax base, poor compliance of a big number of non-filers, increasing reliance on withholding tax, poor record-keeping and little value-addition by assessing officers which results in less transparency in the tax collection system, he said. The FBR regional chief said the body has identified weaknesses in systems and is seeking suggestions for improvement from all stakeholders including economists, chartered accountants, and income tax lawyers. Many businesses remain unregistered, especially wholesalers and dealers. This causes evasion of both, sales tax and income tax, Khawaja said.
Hundreds of dummy firms have registered sales tax by misusing identity cards of unconcerned persons, he added.
The seminar was attended by former Federation of Pakistan Chamber of Commerce & Industry president and Din Group of Industries chairman S M Muneer, Shaikh Saqib Masood, FCA, chairman, taxation committee, ICAP, Ebrahim Yacoob Sidat, FCA, country managing partner, Ernst & Young Ford Rhodes Sidat Hyder, Syed Masoud Ali Naqvi, FCA, senior partner, KPMG Taseer Hadi & Co, S M Shabbar Zaidi, FCA, partner, tax services, A F Ferguson & Co, Riaz A Rehman Chamdia, FCA, chairman, southern regional committee, ICAP and Adnan Mufti, FCA, CPD convener, southern regional committee, ICAP.
Saqib Masood, chairman taxation committee, ICAP, said the revenue collection target set by the government at Rs 2.6 trillion is unrealistic against last year’s revised estimate of Rs 2.1 trillion due to the current economic and social scenario.
He said the Finance Bill for financial year 2013-14, despite all taxation measures to increase revenue for the national kitty, has failed to focus on broadening the tax base. The increased rate of sales and withholding taxes would be paving way for recovering the shortfall but it will be a tough measure as well, he added. He suggested that employees be required to submit returns of total income in respect of taxable salary and the annual statement by employers in lieu of tax return be done away with.
The adjustment of tax credits / rebates for withholding tax purposes should be withdrawn, he stated. Only the employee should be entitled to claim credits/rebates in annual return of total income, which invariably would result in creation of refunds, Masood said.
He proposed that minimum tax rate for a resident company, individual & AOP (having turnover of Rs 50 million or more) should be enhanced from 0.5% to 1%.
The scope of minimum tax was proposed to be extended to businesses from construction and development of plots.
The ICAP taxation committee chief lauded the Finance Bill proposal for bringing people in the system through filing of tax returns, particularly those entrepreneurs of commercial and industrial sectors whose annual electricity bill exceeds Rs 500,000 as against Rs1,000,000.
All persons registered with any chamber of commerce and industry or any trade association, market committee or a professional body should file tax returns, he added. Masood further said the FBR commissioner should be empowered to call upon the person to file tax returns within a period of less than 30 days.
He pointed out the tax potential and its massive evasion in different areas such as manufacturing, distribution, dealer and wholesaler or commercial import of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint and foam. He said the FBR should collect tax at 0.5% of the gross value of sales from retailers which shall be adjustable against the tax liability of the taxpayer.
The seminar concluded with a very interactive question and answer session by Ebrahim Yacoob Sidat, Syed Masoud Ali Naqvi, S M Shabbar Zaidi, and Adnan Mufti followed by a vote of thanks by Riaz A Rehman Chamdia.
