FBR transformation plan, digitisation: Business groups, tax compliant cos taken on board

ISLAMABAD: Chairman Federal Board of Revenue (FBR) Rashid Mahmood Tuesday took into confidence leading business groups and tax compliant companies on FBR transformation plan, digitization and action against non-filers and limitations on non-compliant taxpayers and existing filers, involved in mis-declarations or under-declarations.

In this regard, FBR Charmin gave a detailed presentation to leading business and trade groups at the FBR Headquarters on measures to convert the cash economy into the documented economy. The measures would also reduce the existing tax gap of Rs7.1 trillion. However, there was no discussion on agriculture tax or improving taxation from agriculture sector during this special meeting of the FBR.

The FBR has invited businessmen from all main industries to a briefing on the planned FBR transformation plan. Ali Pervez, the State Minister for Finance and Revenue, attended the meeting with senior tax managers and FBR Members. FBR Chairman Rashid Mahmood Langrial and Member Inland Revenue (Policy) Dr. Hamid Ateeq Sarwar gave presentation to the business community.

FBR Chairman said that FBR has no choice, but to end the menace of non-filling or nil-filing of returns. “Non-filer will not exist in our books or non-filers would be non-existent in future. There would be no concept of non-filers in future”, he added.

He categorically said that if the situation did not improve, it would be impossible for the government to collect taxes even with new tax measures. To increase tax-to-GDP ratio, drastic steps are being taken to reduce burden on existing taxpayers.

On the smuggling side, Chairman FBR said that the FBR will setup special focal points to check smuggling of non-customs duty paid vehicles and other smuggling-prone items at provincial borders. All provincial points would be linked with the digital databases of excise and taxation.

He said that the high tax rates would dissuade enterprises from staying in Pakistan, as has happened in the textile industry. He went on to say that high tax rates for the salaried class will force highly skilled individuals to leave Pakistan.

The FBR would establish disincentives for non-compliant taxpayers, beginning with registration and tying the availability of facilities such as investments and the creation of bank accounts to the filing of tax returns. There will be no monetary transactions, and the source will have to be established via different digital interventions.

The FBR chairman stated that non-filing is a fraud method that was established domestically. "We must do away with the concept of non-filers. There is agreement to eliminate this idea," the chairman stated, adding that the FBR will create extra facts to assess people's financial transactions. At the registrar's office, property transactions will be linked to two categories: eligible and ineligible.

In 2023, non-filers paid out Rs20 billion in tax. Moreover, FBR got more than Rs423 billion under withholding taxes which was unclaimed by any persons. This is a grey area which need to be traced and identified such people.

A presentation slide of FBR revealed Tiers of taxpayers based on the filed amounts, earning income more than Rs 10 million or income less than Rs 10 million etc. Based on these filed amounts, taxpayers would be able to purchase motor vehicles, purchase immovable properties or make investment in securities, mutual funds and money market instruments or operate bank account except Assan Account and also specified per person annual cash deposit/withdrawal limit (Rs 30 million per year).

The reforms will include a cap on cash cheques issuance. The FBR will provide information to all banks based on people's declared incomes in tax returns and construct a specific limit; any crossing of that red line for financing transactions will be reported to FBR. This system will be in place in a few months.

Tax authorities informed the business community that the existing situation has resulted in an Rs7.1 trillion tax gap in fiscal year 2004, which has become chronic and must be reduced.

During the special meeting of business leaders at the FBR headquarters, FBR Chairman further said that the main difficulty for customs enforcement is smuggling, which has surpassed Rs750 billion in volumes. Smuggled petroleum goods alone account for Rs500 billion of this total smuggling in the country. A comparable cost arises from the pilferage of Afghan transit trade cargos in the domestic market.

He said that the FBR is engaging in data mining and using artificial intelligence for broadening the tax base.

Patron-in-Chief Khurram Mukhtar suggested that a comprehensive mapping of the manufacturing landscape across the country and all sectors should be conducted through both digital and desktop surveys. This process will enable us to gather sectoral data on capacities, output, and the nature of businesses, which is essential for informed decision-making and accurate assessment of tax potential.

There is a need to distinguish between compliant and non-compliant taxpayers. Compliant taxpayers will get all benefits, and the compliance base will expand, resulting in rate decreases.

The meeting was informed about the potential tax gap in 20 sectors. The biggest tax gap was reported about textile at Rs700 billion, followed by Rs100 billion in cement sector. However, the textile association representatives did not agree with the calculations of the FBR regarding tax gaps.

One of the participants recommended to FBR the proper implementation of current legislation. However, many businesspeople attributed the majority of the suggested actions in the FBR reform plan to the government's political determination to lower the cash economy and tax gap.

A textile representative has advised the FBR to adequately educate the public about the proposed measures. He stated that the FBR should not act hastily and that any changes should be adequately communicated to citizens.

Copyright Business Recorder, 2024