The level of non-compliance in Pakistan is evident from the fact that out of total 225,963 units registered with the sales tax department, only 120,230 are filing returns whereas only 22,092 units are submitting payments with the monthly sales tax returns, as on December 31, 2018.
The astonishing data was shared by Member Tax Reform Commission (TRC) Abid Shaban during his presentation on 'Tax Reforms-Shattered Dream' at National Tax Conference organised by Institute of Chartered Accountants of Pakistan (ICAP) here on Tuesday.
According to Abid Shaban, out of total 225,963 sales tax units, 59,727 were null-filers and 38,411 were nil-filers of monthly sales tax returns as on December 31, 2018.
About the compliance of tax amnesty schemes, he highlighted that under the Traders Tax Amnesty 2016, only 9,090 people took advantage, reflecting a poor response of traders. At present there are 3.5 million traders throughout Pakistan and only 135,000 are in the tax net. Trading sector constitutes around 19 percent of the GDP but traders' tax contribution is only 0.05 percent.
Referring to the Foreign Asset (Declaration and Repatriation) Act 2018 and
Voluntary Declaration of Domestic Assets Act, 2018, Abid Shaban said that 82,443 declarations were filed with declared value of foreign assets of around Rs 1.009 trillion and domestic assets of around Rs 1.474 trillion. And now there are requests for another amnesty scheme, he added.
As per Tax Directory 2017, company returns were 37,130; AOP Returns: 55,760 and individual returns were 1,680,405.
He said that since 1947 there have been at least a dozen Tax Reform Commissions and donor funded tax reform programmes in Pakistan. Unfortunately they have fallen short of expectations. One of the main reasons for unsuccessful implementation of tax reforms is serious resistance to change as well as culture at FBR.
The efforts, however, failed to bring about the desired deep-rooted change in the tax bureaucracy which remains stubbornly wedded to its way of doing things, Abid Shaban maintained.
The Member Tax Reform Commission said that the Tax to GDP ratio in Pakistan has remained low and oscillates between 11-12%. Taxation system in Pakistan suffers from severe administrative and organisational issues and there is heavy reliance on indirect/ withholding taxes which are regressive.
There is low tax compliance and manufacturing sector is heavily taxed, as the tax laws are complex. The tax collection target set for FBR this year is Rs. 4.4 trillion. This is not sufficient for the country to progress or to create the needed jobs or to meet the development goals. Tax gap is about 10.4% of GDP hence tax revenue potential of Rs 8 trillion is not a wishful dream but can become a reality, Abid Shaban added.
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