The comparison of total population with the taxpayers filing income tax returns is not an appropriate indicator, as a major portion of population is out of the tax net.
Central Board of Revenue (CBR) Member Direct Taxes Salman Nabi stated this, while responding to a question raised by a Public Accounts Committee (PAC) member, who referred to the State Bank of Pakistan (SBP) Annual Report (2004-2005), saying the number of registered taxpayers in Pakistan is approximately 1.5 percent of the total population.
He said that it is not correct to have population as criteria for ascertaining the volume of taxpayers. For example, out of 52 percent of the population most of the women are housewives. Secondly, younger generation, students and old citizens are also not taxpayers and, thus, not filing any returns. Around 32 percent of the population is living below the poverty line. Even after excluding all these people, the number of potential taxpayers is very less.
Comparing Pakistan with Canada, Sweden, Italy and Netherlands where tax systems are entirely different is not a right approach.
There is a large number of people who are paying taxes, but not filing returns. The subscribers of landline and mobile phone holders are paying income tax, while importers are paying withholding tax at the import stage. There are 28 million bank accountholders, who are in one way or the other contributing toward taxes, but not filing returns. If we consider all those people as taxpayers, the total number of taxpayers may surpass 3 million as compared to the figure of 1.2 million return filers.
The 20 percent increase in the number of taxpayers against previous year is a reasonable growth keeping in view expansion in business community, who were reluctant to come within the tax net.
The PAC members also referred to the SBP report that "demand raised" from income taxpayers is very less following implementation of Universal Self-Assessment Scheme (USAS). The SBP report said that the income tax collected from demand has declined for the last two years.
CBR Chairman Abdullah Yusuf said that the demands were raised in the past when USAS was not enforced. No demand is being raised under the USAS and this figure would show nil amount in future. Now, demand could only be raised through audit. However, decline in the figure of "demand raised" is a positive sign due to policy change.
He referred to visits to chambers and trade bodies to encourage the business community to come within the tax net and pay their due taxes.
The PAC has asked the CBR to explain whether schools like Beacon House are paying any taxes. Rich people can afford these schools, which are charging huge fees.
The CBR chairman said that these schools are filing returns on the basis of their annual profits and paying taxes.
Criticising the USAS scheme, one of the PAC members said that the CBR has given liberal policy of accepting returns along with whatever declared by the taxpayer. "Is it justified to introduce such friendly policy in a society where businessmen beat tax officials on demanding tax records? In India, the taxation authorities have even arrested defaulters and violators. On the other hand, you have given self-assessment option in a country where the richest people had purchased a financial institution after committing tax frauds.
There are examples that the heavily industrial areas have contributed less tax as compared to Balochistan.
The CBR chairman said that old schemes have miserably been failed. USAS is a self-assessment system, which is applicable across the world except a few countries. Once the CBR compiles an "Electronic Data Warehouse" containing information about all activities of the economy, it would enable the department to submit documented proofs about the people evading taxes.
One of the PAC members said that why the CBR is reluctant to adopt tax polices of India, where these have shown successful results.
Abdullah Yusuf said that CBR is analysing the best tax systems of the world, which could be effectively applied in the Pakistani tax culture. Sri Lanka has adopted USAS in 70s, whereas we are still far behind. People usually referred to India, but there are other countries, whose tax systems could be analysed for obtaining desired results.
When asked about the performance of sales tax, he said that there are still gaps and problems on the sales tax side.
The PAC members asked the CBR to educate consumers to demand receipts after purchasing consumer items from the markets.
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