Under-declaration, under-filing: some taking undue advantage of ‘flaw’ in law

LAHORE: Some, not all, individuals carrying out freelancer consultancy services are involved in under declaration and under filing, as the term “freelancer” has not been defined as business category in the Income Tax law, said sources.

They said the overall revenue impact is more than Rs10 billion in case the category of freelancer is covered in the law.

The Federal Board of Revenue (FBR) sources said about 100,000 individuals are found funds from foreign sources through banks and half of them are even not registered with the Board as taxpayers. Last year, they said, the Board had uncovered a foreign company transferring Rs 60 billion to more than 70,000 Pakistani citizens without the knowledge of the tax authority.

Meanwhile, those filing income tax returns are not paying any tax, as they have never showed any income from international remittances.

They said the Board’s revenue drive is being hit hard due to the lacuna in the law, resulting into failure in broadening tax base. Also, they said, the phenomenon of under declaration has become very common.

One tax practitioner, requesting anonymity, told this scribe that one of his clients is doing business of in freelancer consultancy service has recently received a payment of Rs 80 million from the outside country. The said person has paid a meager amount of Rs 50000 to his tax consultant to prepare a tax return with nil filing without mentioning his bank account. He said many such taxpayers manage with their bank managers for not sharing his bank statement with the Board, which leads to closing of audit proceedings, if any, due to the non-availability of sufficient information. According to him, such taxpayers agree to deposit a few hundred thousand rupees to close down audit proceedings against them.

The FBR sources said the individuals involved in freelancer consultancy services are not covered by the tax machinery at the registration stage as a category of taxpayer. Also, they said, the tax authorities have no clue about the portals they are linked with to provide services. The tax machinery is also clueless about the number of bank accounts, assets, travel expenses, credit cards spending, mobile bills, and payment of car tokes of all such individuals, they added.

When asked, they said, the call centers are registered as a business category in the tax system but there is no mention about the individuals carrying out freelancer consultancy services across the country as business individuals.

Some tax experts have pointed out that the annual contribution of such freelancers is over Rs 50 billion and the Board can collect Rs 10 billion revenue as a starting point in case the legal lacuna is overcome ahead.

Copyright Business Recorder, 2022