Broadening the taxpayer base

In a move aimed at broadening the tax base, promoting documentation within the economy and improving the level of revenue generation, the Central Board of Revenue is reported to have approached the Securities and Exchange Commission of Pakistan (SECP) for necessary details about as many as 48,000 corporate entities registered with it.
The list of the names and addresses of these companies will make it possible for CBR to identify how many of them are already enrolled as filers of income tax returns and have obtained their national tax numbers (NTNs).
On the one hand, according to a news report, only about 20,000 companies out of the total number registered with the SECP are stated to have filed income tax returns in 2003, while the rest have ducked out of their legal responsibility of filing income tax return.
It has also been pointed out that normally the SECP provides all the details to the CBR/income tax department on a monthly basis about the operations of the registered companies and thus the CBR is supposed to possess the data it is now seeking.
In this light, the latest approach by the CBR to SECP for obtaining details about the registered companies would be a duplication of a work already done. On the other hand, the CBR's record reportedly includes as many as 1.5 million taxpayers under the head of income tax/direct taxes, the number having increased over the recent years from 1.1 million, and it is projected to swell to 2.00 million taxpayers over the next three years. One may presume that the existing number of taxpayers encompasses all those individuals and business concerns which are already documented in one way or the other.
Therefore a fresh probe by the CBR into the profiles of the companies registered with the SECP cannot be seen as a significant effort to expand the base of taxpayers.
In fact, what is needed more is to penetrate the informal sector of the business operations throughout the length and breadth of the country. The number of such informal entities definitely runs into millions.
They must be brought into the taxation net, and then alone the massive level of tax evasion can be combated. It is true that the on-going campaign of the sales tax department to unearth unregistered companies engaged in business transactions, would ultimately lead to a substantial expansion in the number of taxpayers.
At the same time the compilation of the names and addresses of persons owning cars/commercial vehicles, mobile telephones, electricity, gas and telephone connections, would also add considerably to the number of taxpayers. Additionally, it may be emphasised here that a survey of houses built on plots of over 200 square yards in all urban centres throughout the country would definitely uncover the existence of a substantial number of persons with taxable incomes, who are not enrolled as taxpayers.
The stock markets in particular and speculative transactions in commodities are usually the avenues where tax evaded money is used on a large scale. These transactions are not generally declared in tax returns, being categorised as contributories to investment through capital formation, in line with the economic policies. However, a deeper probe would uncover large-scale tax evasion in these activities.
The Central Depository Company may be asked to furnish to the CBR the names and addresses of its account holders. These details may be checked by the CBR to see whether these persons are filers of tax returns or not and whether they have declared their investments correctly in their returns.
Exercises in the fields noted above, can only be undertaken in phases, of course, but are bound to produce results from the very start.