Data integration by FBR

According to a section of the press, the Federal Board of Revenue (FBR) has begun integrating data of Customs and Inland Revenue departments with the objective of identifying potential taxpayers and preventing revenue leakages. The Directorate General of Broadening of Tax Base has reportedly raised new demands amounting to 19.3 billion rupees, against potential taxpayers who had either not filed or under-filed their returns of income, since July 2014 to March-end. These demands were raised as a result of information gathering from various sources. An amount of 9.55 billion rupees has been created as demand at FBR headquarters while a remaining 9.7 billion rupees was detected through efforts of regional tax offices. In addition, as many as 282,180 notices have been served to potential taxpayers in an ongoing broadening of tax base campaign. Few, if any, would actually challenge the usefulness of this exercise as the need to increase the numbers paying income tax, the most equitable tax source, has long been acknowledged by governments and economists - national and international - alike.
Be that as it may, this is not the first time that the exercise to integrate data as well as enforce filing of returns has been carried out. In June 2010 the then government introduced amendments to the Income Tax Ordinance, 2001 making it mandatory for all National Tax Number holders to file their returns. On 20th April 2011, FBR spokesperson Asrar Rauf revealed that 2.3 million had been identified through internal data analysis as having sufficient resources to pay tax but were not filing income tax returns. On 24th May, 2011, the FBR claimed that 700,000 had been identified as potential taxpayers based on their owning more than one house, driving expensive cars, travelling abroad and, of course, maintaining bank accounts. The next logical step was to send notices requesting an explanation as to why these 700,000 did not pay taxes. Their surprising response reflected the poor analytical capacity of FBR: a considerable number of these 700,000 sourced their income from agriculture and other sources that are exempt from the payment of income tax. What was baffling at the time was the FBR's inability to use computers to use the stored information to determine the exact numbers who would be eligible to pay taxes or in other words there appeared to be an inability on the part of the FBR to analyse data and ensure its integrity. One would only hope that this capacity has been considerably strengthened since 2011.
The Ishaq Dar-led Finance Ministry has also repeatedly claimed credit for publishing the annual list of taxes paid by all parliamentarians. This again is a good precedence however when asked if this has led to a rise in taxes collected from parliamentarians, regarded as one of the richest groups in this country, the FBR response has been that separate data for this group has not yet been tabulated. This is unfortunate as it raises concerns, based on the FBR performance in the past, that actions are limited to sending notices an/or publishing taxes paid by parliamentarians but no subsequent effort is made to ensure higher tax collections.
It is fairly well known in this country that year after year Pakistani governments have increased their reliance on withholding taxes collected by withholding agents (as opposed to FBR) as a percentage of annual direct tax collections. This exercise has necessitated overstating not only FBR collections, and therefore its performance, but also misrepresenting taxes as those payable on income. Tax on income has unfortunately therefore risen only as and when the government imposes higher income tax on existing payees, consisting largely of industries sector and those whose tax is cut at source, i.e., the salaried class, rather than by bringing new taxpayers into the net.
To conclude, there is little evidence yet that the FBR performance has improved under the present government or indeed that the tax system has become more equitable or non-anomalous. There is therefore a need for the Finance Ministry as well as FBR management to focus on these obvious shortcomings.