Most of the companies and corporate entities in 20 major sectors declared losses, or nil income, reflecting massive misuse of Universal Self-Assessment Scheme (USAS) by the most documented sectors of economy during first half of 2009-10.
The FBR quarterly report, issued on Saturday, said that sector-wise analysis of corporate case with respect to the declaration of income and loss was quite dismal as the percentage of cases declaring income in all the listed major 20 corporate entities was 24 percent, and majority of the companies were either declaring loss or nil income.
The question here is: how a company is surviving over the years by continuously declaring losses? This aspect must be probed by conducting a detailed field audit. The FBR report said: "It is quite clear that there has been gross misuse of the USAS, which is alarming for the income tax department". By analysing the returns received from the corporate sector during first half of 2009-10, the data gave another gloomy picture. Out of total returns filed, only 24 percent declared income, and 76 percent were without any contribution to the federal revenue.
A further in-depth analysis of the corporate sector would provide a comprehensive picture to ascertain and pinpoint the non-compliant sectors so as to devise a strategy accordingly. From the data it was well evident that of the top 20 corporate entities, except for five sectors, the compliance level in submitting the returns was less than 50 percent. The FBR data showed that out of total 19,910 units in major 20 sectors, 3,232 declared losses and 11,813 declared nil income during 2009-10.
Out of 23 units in tobacco sector: 5 declared losses and 10 nil income; of 288 companies in auto sector, 70 declared losses and 112 nil income; 107 hotels, 25 declared losses and 47 nil income; 266 iron/steel units, 58 declared losses and 105 nil income; 298 chemical companies, 62 declared losses and 122 nil income; 54 pesticides units, 6 declared losses and 21 nil income; 431 pharmaceutical companies, 70 declared losses and 202 nil income; 77 banks, 23 declared losses and 27 nil income; 249 electronic units, 45 declared losses and 117 nil income; 46 POL companies, 16 declared losses and 18 nil income; 809 food products units, 169 declared losses and 394 nil income; 237 paper units, 53 declared losses and 94 nil income; 24 fertiliser units, 3 declared losses and 12 nil income; 41 beverage companies, 13 declared losses and 18 nil income; 77 sugar units, 46 declared losses and 14 nil income; 175 units in power sector, 40 declared losses and 106 nil income; 158 units belonging to telecom sector, 33 declared losses and 92 nil income; 1,742 textile units, 380 declared losses and 1064 nil income; 37 units in cement sector, 17 declared losses and 12 nil income and out of 7,922 units within services sector, 1,147 declared losses and 4,586 nil income.
As far as the contribution of revenue is concerned, top five sectors contributed 80 percent of total revenue received with the corporate returns. Owing to this uneven composition and reliance on a few entities of corporate sector has not been at all promising for the overall health of the economy. Thus, a detailed analysis and probe is reiterated to get the maximum revenue from the rest of the non-compliant entities of the corporate sector.
As far as the growth is concerned, the traditional sectors like telecom, chemicals and POL sectors either showed negative growth or marginal improvement. The non-traditional sectors, like sugar, paper, cement, etc, exhibited higher growth during first half of 2009-10.
The analysis further showed that around 70 percent income tax originated from this sector. The return filers were 19,910 during 2009-10. To ascertain the potential growth vis-à-vis the department efforts with regard to the 'Returns', a gap analysis of corporate returns received up to December 09-10 has been done.
The number of corporate returns filed during this period registered a growth of 32.9 percent, but there has been massive negative growth (38.2percent) in payment with the return. The growth in returns filing was driven away by negative growth in collection. It indicated that a large number of returns had been filed showing losses or nil income, which again warrants for scrutiny of the filed returns and effective audit.
Now to analyse the potential of increasing the compliance of corporate sector, it is better to review the SECP data. The given data not only shows poor compliance of only 39 percent on the part of the corporate taxpayers, but also leaves a viable room for the department to broaden the tax base and improve collection by nabbing 31,000 corporate non-filers as registered with SECP.
The number of income tax returns and statements received during first half 09-10 as compared to the corresponding period of last year was lower by 24,637, indicating a decline of about 1.3 percent. However, there had been positive growth of 9.3 percent in the number of returns received during this period. On the contrary, statements declined by 7.4 percent. Total tax received with returns/statements also declined by 38.2 percent.
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