Federal Board of Revenue Chairman Sohail Ahmed on Thursday said the FBR would lay an amended Sales Tax Act with no exemptions before the Parliament in case the proposed Federal Value Added Tax (VAT) Act 2010 has not been approved by the National Assembly.
During a presentation on revenue collection to the National Assembly Standing Committee on Finance chaired by Fauzia Wahab, Sohail said that there would be no exemption in the amended Sales Tax Act. In case the Parliament did not approve the Federal VAT Act 2010, the amended ST Act would be presented before the Parliament.
About the practical problems being faced by the tax department to increase Tax-to-GDP ratio and broaden the tax base, Sohail said that it is very difficult to bring people into the tax net without the political backing of the government. The audit deliberately remained suspended in the past despite implementation of self-assessment scheme.
It is common practice that people indulge in unnecessary litigation to challenge the assessments made by the income tax department. Secondly, traders and retailers always prefer fixed tax schemes instead of payment of taxes on the basis of actual turnover and sales. The small traders always give such suggestions to remain in the undocumented sector. "We have no support of police or army to hunt the tax evaders and whenever strict enforcement actions are being taken the FBR had faced strikes and allegations of harassment. Even the government drive of national survey to document economy failed to deliver the desired results in the past. The tax officials have to operate with the limitations of rules and regulations", he added.
When asked about the additional revenue generation measures, he said that presently government has no program to take new taxation measures keeping in view excellent performance of revenue collection. If it was extremely necessary, the government may take new measures in the last quarter of current fiscal.
He said that the FBR has compiled data of 2.5 million rich people. The board has made all preparations to action strict action against the non-filers and those operating out of the tax net from January 25. The FBR database contains information 0.7 million rich peoples who have purchased new car, 2.7 million commercial and industrial gas and electricity consumers and details of other expenditures.
He said that the benefit of reduction in sales tax on sugar has not been passed on to the consumers. The sales tax was reduced from 16 to 8 percent in August 2009, but the benefit of this reduction was not passed on to the consumers. "It has been observed that people seek exemptions, but do not pass the benefit to the general public".
Sharing the enforcement plan, FBR Member Enforcement informed that the committee that enforcement plan has been launched and communicated to the field formations. The progress of field offices has been monitored on monthly basis.
The FBR would issue notices to the non-filers of income tax returns after January 25, 2009. Through promulgation of the Finance Amendment Ordinance 2009, the FBR has obtained powers of provisional assessment of the taxpayers. The government had introduced section 122C in the Income Tax Ordinance 2001 through Finance (Amendment) Ordinance, 2009.
The section 122C had empowered the tax officials to make best judgement assessment (ex-parte assessment) on the basis of any kind of data available with the department. This would be applicable in the cases where any person failed to respond to the notice under section 114 for filing of income tax returns. In the presence of section 121 (best judgement assessment), there was no requirement for introducing another assessment provision in the Ordinance 2001.
The final assessment could be challenged in three forums ie Commissioner Appeals, Tribunal and high courts. After completion of all appeal stages recovery proceedings would be carried out against elite class to recover the due taxes, Member Enforcement added. The FBR Chairman said that 35 percent corporate tax for investors is too high, as the local and foreign investors don't find it feasible to invest in Pakistan.
He also supported the viewpoint of the members of the committee that FBR should be allowed to publish directory of taxpayers and tax evaders so that a tax culture is promoted in the country.
When asked about publishing list of tax defaulters/evaders, the FBR Chairman said that legally we cannot declare anyone as evader till he passes through all judicial or legal fora available to him. If a taxpayer challenge the income tax assessment in courts, how we can declare him as defaulter till finalisation of the case.
He told the committee that the FBR is planning to introduce Urdu version of Income Tax Return form in "Urdu". Responding to a query, he said that Pakistan would not agree to any proposal allowing transit facility to India for Afghanistan under new transit trade agreement with Afghanistan.
Sohail informed the committee that FBR had proposed the Cabinet that filing of income tax return should be made mandatory for obtaining commercial connections of gas and electricity. However, the proposal was not accepted by the policy makers.
Zafar-ul-Majid, FBR Member Strategic Planning and Statistics (SPS) informed the committee that size of informal economy is almost equal to the formal economy. On the other hand, certain experts believed that the size of black economy could more than formal economy of the country. He said that FBR plans to raise Tax-to-GDP ration from existing 8.8 percent to 15 percent of the GDP by 2015 taking total revenues to Rs 2.5 trillion.
About the level of compliance, he said that nearly 40,000 commercial and residential properties are on rent in Islamabad and FBR has received only 7000 return of income from property this year. Major reasons of low Tax-to-GDP ratio in the country included low tax compliance, exemptions that amount of 2 percent of the GDP, large under ground economy, weak audit and enforcement and political will of the government.
The contributions of agriculture in GDP stand at 21 percent but its share in taxes is 1.2 percent. Services sector having 53 percent share in GDP is contributing only 24 percent in taxes, on the other hand, manufacturing sector having 19 percent share in GDP is contributing 54 percent in taxes, Zafar-ul-Majid added.
During meeting, FBR Member Direct Taxes, Israr Rauf said tax culture needs to be developed in the country. There are 2.7 million commercial consumers of gas and electricity in the country but FBR has received only 0.6 million income returns.
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