Decline in tax collection reflects misuse of SAS: Rs 141.6 billion IT collected under voluntary payments

The Federal Board of Revenue (FBR) collected Rs 141.6 billion as Income Tax under the head of "Voluntary Payment" during 2008-2009 as compared to Rs 145.6 billion collected during the same period of previous fiscal year, reflecting misuse of Universal Self Assessment Scheme (USAS) by registered units.
According to a report of the FBR on performance of 2008-2009, net collection of direct taxes stood at Rs 440.3 billion during 2008-09 against the target of Rs 461 billion. The share of direct taxes in total federal tax receipts slightly declined to 38.1 percent in 2008-2009 against 39.4 percent in 2006-2007.
The Voluntary Payments (VP) included payments with return and advances. In net terms, Rs 141.6 billion were generated during 2008-2009 as compared to Rs 145.6 billion in the corresponding period of last year, around 3 percent decline was witnessed in collection from this important component.
It may be recalled that basic objective behind implementation of USAS was to minimise interaction between the taxpayer and tax administration, repose confidence in the system and eliminate the element of corruption. No doubt, that the USAS has been successful since its implementation in achieving these objectives. Till fiscal 2006-2007, VP had emerged as a leading source of revenue. However, since 2007-2008 this important source of revenue is on decline.
A sum of Rs 127.2 billion advance tax was collected in 2008-2009 against Rs 136.4 billion in the same period of last fiscal year, and consequently its share in total VP plunged to 89.8 percent from 93.7 percent. The second component of VP, is payment with returns which grew significantly during the period under review.
During 2008-2009, Rs 14.5 billion were collected against Rs 9.2 billion in 2007-2008, indicating a growth of 57.4 percent. Since payment with returns contributes around 10 percent in total voluntary payments, therefore, the growth has little impact on the overall voluntary payments.
The possible reasons for the shortfall in the collection of income and corporate taxes are: Firstly, the advance tax scheme in vogue envisages 'Pay as you Earn', thereby reducing substantially tax payable with the returns. Secondly, lesser collection of advance tax vis-à-vis anticipated growth owing to improper declarations by large taxpayers.
The change introduced in the tax system has certainly affected the collection, but reduction in collection under VP appears to be on the higher side. It seems that, the USAS is on track as it has been functioning successfully for the past few years and yielded substantial revenue through it. However, the problem lies with audit which needs to be initiated for selected corporate cases.
It is relevant to mention that the planning stage has been over, therefore, full implementation of audit programme should not be delayed any further, especially when there is strong evidence of low voluntary compliance due to inadmissible claims. At the same time, it is also essential to have effective enforcement in place.