Less than 1.5 percent of population file tax returns: FBR informs Finance Ministry

The Federal Board of Revenue (FBR) has informed the Ministry of Finance that the number of persons filing income tax/sales tax returns is even less than 1.5 percent of the total population, reflecting exceptionally high level of non-compliance in filing of the returns.
Sources told Business Recorder here on Wednesday that the FBR has moved a summary to the Finance Ministry about the steps to be taken for improving enforcement and compliance by the business community. The board has informed the Finance Ministry about the low level of compliance despite various actions taken during 2009-10.
The FBR has conveyed to the Ministry of Finance that one of the serious issues being faced by the economy is the low tax-to-GDP ratio which hovers around 9 percent and is among the lowest not only in the world but in the region as well. Among the various policy initiatives available at present, broadening of tax base and plugging of leakages in withholding tax collection offer a viable solution to the problem.
According to the latest figures available with the FBR, the number of persons filing returns is even less than 1.5 percent of the total population. Of these, more than 50 percent are salaried persons who pay taxes through withholding at source. In the corporate sector, the number of companies filing returns is around 21,000 only out of total registered companies of more than 60,000 with the Securities and Exchange Commission of Pakistan (SECP). In this backdrop, the FBR had laid down performance rating benchmarks in terms of non-compliance ratios. Under the benchmark fixed for the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs), there should be less than one percent non-filers/short filers in LTUs; less than 7 percent medium size non-filers in RTOs and less than 20 percent small business entities non-filers in RTOs.
In order to achieve these targets, the FBR had launched the enforcement plans for direct and indirect taxes to lay down systematic enforcement procedures and to evaluate their effectiveness through monthly reporting system. The end result of effective enforcement activities is to reduce the non-compliance ratio to the acceptable levels so that Tax Gap is narrowed down.
Although faced with initial operational problems, a total of 50,400 income tax returns and 8700 of sales tax were enforced up to June, 2010 from registered and non-registered non-filers. Sources said that the last date of filing of return was extended till January 25, 2010 coupled with amnesty from levy of penalties and default surcharge. A vigorous campaign on media was launched exhorting the non-filers to file their returns. At the same time about 120,000 SMS messages were also sent to potential tax payers. As a result an additional 112,000 returns were filed during the extended time due to enforcement efforts of the FBR.
Effective March, 2010, an unobtrusive survey of business premises was launched and as a result 23,000 new taxpayers have been identified to date, sources said. Under the Income Tax Ordinance 2001, a new concept of provisional assessments was introduced for non-filers and a 60 days time was provided after the provisional assessment on the basis of available facts/ information, to enable the non-filers to furnish their returns. In case of default, the amendment provided for validation of demand is created through the provisional assessment. Despite making some headway there is, however, a need to further strengthen the enforcement action with respect to detection of new cases, sources added.