Tax Collection: A tale of haves and have-nots

Every year around September, FBR springs into action with its detailed numbers and a plea to file taxes by the end of September (which usually is extended). The insecurities of residents of Karachi come sprawling out considering for how long Karachi, as a city, has been treated by the Federal and Provincial Government. Though the numbers might favor Karachi, many critics believe that Head offices of major businesses and Karachi port activities are resulting in bloated collections. According to them, the assumption of masses that Karachi runs Pakistan is flawed.

Let’s talk on facts and numbers in detail:

Province wise filers, Punjab takes the lion share (59.48%), which is more than its share in the population of Pakistan (52% as per 2017 census), Sindh also outperforms in filer % as compared to its population % (23.04%). Capital Territory also has 5 times more filer % compared to its population % (0.97%). KPK, GB, and Baluchistan as expected, are below their population % in terms of filer %.

Interestingly the total tax collected, Sindh takes the lead with a 44% share in tax collection, which is helped by the fact that most head offices and banks are situated in Karachi along with the port. Islamabad, as expected, has a higher share than the population due to many oil and gas headquarters, major head offices,f and capital significance.

One fascinating fact is that out of 2.8 million filers, over 64,000 are Oversees Pakistanis (non- resident). Interestingly, if we see the breakdown of PSX investment, overseas Pakistanis are over 4.13% (September 24, 2020). Apart from remittances, overseas Pakistanis are directly involved in the capital markets of Pakistan.

As per PAMA figures, 4186 Fortuners were sold in FY 2018, however, only 22,593 filers could afford a Fortuner based on the filed income. In FY 2018, 99,000 cars (Civic, Swift, Corolla) were sold, but in the tax bracket range of Rs 1.5 million to 6 million, there are only 234,885 filers. As per 2017, census there were 57,967 households in Clifton and 41,574 in Civil lines Karachi. In just these two elite blocks in Karachi where an individual property would range from 10 million – 200 million Rs. This puts a big question on how many people file for taxes in Pakistan.

Over 1 million filers have filed income as 400,000 or below.

Tax collection from major cities:

In terms of break down about total tax collected from major markets, Karachi was ahead with Rs 209 billion collection, followed by Islamabad at Rs 204 billion, and Lahore at Rs 180 billion.

Karachi south is clearly dominating every other city apart from fed capital and Lahore. Karachi East, Malir and Karachi west all outnumber Faisalabad. Assuming most head offices are in Karachi south, it is difficult to explain why other districts are outnumbering Faisalabad in tax collection. Dera Ghazi Khan has collected more tax than Sialkot, Sukkur, and Hyderabad.

Major Market Tax Collections:

Shabbar Zaidi, though no longer the chairman of FBR, explained the purpose of sharing these breakdowns in a recent talk show, “throw this collection data every single year and sooner or later the market collections will improve.”

Karachi is visibly ahead with 85 markets and a collection of over Rs. 96 billion, followed by Lahore, Islamabad, and interestingly Peshawar.

As per tax per filer’s analysis, Islamabad, due to high collection in Blue Area, is leading at Rs. 5.1 million per filer, which is an anomaly. For real understanding on collection in the capital territory, one needs to review the collection in Rawalpindi, which is Rs. 0.14 million per filer. Karachi has 2.4 times more collection per filer compared to Peshawar, which has shown higher collection per filer than Lahore. Sahiwal markets only collected Rs. 54,192 tax per filer. Gujranwala and Multan also showed higher collection per filer as compared to Sialkot, Quetta, Faisalabad, and Sukkur. Hyderabad tax collection is also around only Rs. 100,000 per filer with only 8531 filers with a population of 1.73 million (Peshawar population 1.97 million & 27557 filers)

Peshawar has a population of 1.97 million and 27,557 filers (0.014 filer per population) compared to Lahore’s population of 11.13 million and 109,217 filers (0.0098 filer per population). If we review Peshawar’s collection breakdown, major markets in Peshawar collected over Rs 300,000 per filer.

Lahore breakdown signifies how tax collection is skewed across Pakistan, major markets in Lahore were paying less than 300,000 per filer, which contrasts with the size of the market in Lahore. Notable markets like liberty, Urdu Bazaar, Saddar, Wapda Town, Faisal Town have a tax per filer collection below Rs 200,000.

The market tax collection confirms the assumption that Karachi generally pays higher taxes than Lahore, but the interesting fact is Peshawar pays higher taxes per filer compared to Lahore. The real question is not Karachi, it is is how Peshawar is outnumbering major markets like Lahore, Rawalpindi, Gujranwala, Hyderabad, Sukkur, Sialkot, Bahawalpur, etc. On the other hand, Karachi pays more, way more and this assumption that tax collection is only due to head offices is also flawed as shown in the tax collection per filer in Karachi’s major markets. Karachi tax collection has no comparison with other cities in Pakistan. Out of 19 markets in Karachi, which collected over 100 million Rs in FY2018, only 5 markets had collections below Rs 300,000 per filer. However, the Forum’s tax collection per filer is an exception due to multiple companies’ head offices.

Major Markets of Karachi, Peshawar, and Islamabad outshined in terms of tax collection, while Lahore and other cities in Punjab & Sindh disappointed in tax collections. If Pakistan has to increase tax collection, these cities will need to improve their tax per filer and bring it to parity with Karachi and Peshawar.

The trader’s associations talk about how the government is sabotaging their business, but when it comes to their responsibility to the state, there is a clear disparity in terms of tax payment within different cities. The real question isn’t why Karachi pays the most taxes, it should be why Peshawar pays more taxes per filer than Lahore, Rawalpindi, Faisalabad, and other cities of Pakistan?