Revenue collections

Prime Minister Shahid Khaqan Abbasi after being briefed by the Federal Board of Revenue (FBR) on broadening of tax base and FBR collections directed the Board to increase revenue collections under the existing tax laws as well as broaden the tax net. These directives have been consistently issued by several former prime ministers, including Mian Nawaz Sharif, but so far there has been limited implementation of tax laws as well as efforts towards broadening the tax net.
It is pertinent to note that it is mandatory under the Income Tax Ordinance on those who own urban land or a flat above a certain covered area, as well as several professional groups, including members of chambers of commerce and industry, engineering council and medical associations, etc., to file income tax returns annually even if all their income is exempt from imposition of income tax. This includes even those whose income is sourced to agricultural income (which remains outside the ambit of the FBR according to the constitution). The objective was to enable the FBR to assess whether the entire income of the filer is from a source that is not subject to tax or whether part of it is taxable.
Those who do not file returns are subjected to payment of 0.6 percent (a component of the 2015 Finance Act which was initially reduced but is now charged at that rate) that stipulated that every "banking company shall collect advance adjustable tax from a non-filer at the time of sale of any instrument" (inclusive of cheques and pay orders) and "transfer of any sum" through paper or electronic means "where the sum total of payments for all transactions ... exceed fifty thousand rupees in a day". This unfortunately accounts for lower bank deposits and consequently fuelled a cash economy that has increased the undocumented economy.
The non-filers argue that they would rather pay the non-filer rate (with the differential between filer and non-filer increasing with each subsequence Finance Act) on a number of transactions/services rather than file their returns as they not only complain about the complexity of the form for filing returns (and the continued duration of filing when the filer is technically no longer eligible to file, for example, after retirement) but also have extreme reservations of the abuse of power of FBR staff.
The question that has remained in the minds of subsequent administrations, including the incumbent, is to raise revenue to enable the government to reduce its reliance on borrowing (domestically and from abroad) to meet its growing expenditures. It is indeed unfortunate that raising total tax collections remains the sole focus, it was the focus of the three-year Extended Fund Facility of the International Monetary Fund, rather than an attempt to improve the tax structure by making it more fair and equitable (through increasing the number of income taxpayers rather than increasing the burden on the existing taxpayers who are mostly salaried and have their tax cut at source as well as on the corporate/productive sector). Increasing the withholding tax which is mainly on transactions rather than on income and which now accounts for 75 percent of all direct tax collections is in effect a sales tax which is an indirect tax whose incidence on the poor is greater than on the rich.
Numerous studies also claim that our collections from the stock market are appallingly low - around 5 to 6 billion rupees per annum - while other countries tax these markets more effectively with India generating more than 100 billion rupees from its stock markets. This could well be a source of income for the government.
To conclude, the FBR must not only focus on implementing the income tax laws but also broaden the tax base through reforms in the tax structure as well as improving its own administration to generate a comfort level amongst the taxpayers.