It’s difficult to glean a lot of meaningful information from unsorted data dumps that the FBR does every year in the name of its tax directories in PDF format, which in the case of individual filers takes ages to even convert into a format that facilitates some analysis. But thanks to technology of format conversion and some long hours of flirting with data, here are some important findings that emerge out of the summary table produced here.
First, the number of individual tax filers is growing in the country. It grew 52 percent in FY17 (the year for which the FBR had recently released its tax directory), which is phenomenal when compared to 13 percent growth in the year before, and 27 and 9 percent growth in the two years before. The quality of growth, however, is another question.
The bulk of the growth comes from filers who filed a tax return of zero rupees. 47 percent of the total increase in filers in FY17 came from zero return filers. This number was 18 percent in FY16, and 6 percent in the year before. Looking from another perspective, the growth in zero return filers was at 83 percent in FY17, compared to 8 percent and 4 percent in the preceding two years.
The lesson from this could be that the filer-non-filer differentiation was working in FY17 and forced people to file more returns. Whether that growth translated into higher tax collection in FY18, or how many of those zero return filers graduated into upper bands, one can’t say partially because FY18 directory isn’t out yet, but mostly because the way the FBR releases these directories with unsorted non-comparable data formats - cleaning and sorting which is a tall task best fit to think tanks.
That said the growth in filers who filed more than zero returns i.e. paid at least 1 rupee or more in taxes was at 39 percent in FY17 as against 16 percent in the year before and 40 percent in FY15. Arguably the biggest increase in filers (in absolute terms) came in the category of people who filed a return of Rs10,000 to Rs50,000, followed by the two rungs over and below the Rs10,000-50,000 band. All of this fantastic growth in the number of filers, however, is not translating into proportionally higher income tax collection from individuals. The growth in tax collection in FY17 was 27 percent – surely higher compared to 4 percent in FY16 – but not phenomenally higher when compared to growth of 79 percent in FY14 and 28 percent in the year before.
This growth is being driven by those who file bigger tax return; nearly 34 percent of total increase in individual income tax collection came from those who filed a return of Rs1 to Rs10 million. Recall that in FY13, just 0.1 percent of total filers contributed 24.3 percent of total individual income tax collection. That rose to 0.2 percent filers contributing 27.9 percent of the collection in FY16, whereas by FY17, 0.2 percent filers contributed 28.4 percent of the collection. This clearly shows a growing trend toward catching the big fish.
Tax directories can be a gold mine to assess the performance of the state and economy but also the society at large. This is exactly why the FBR needs to improve the quality of its data releases. Imagine the insights tax directories could have provided for all and sundry if it were classified by economic sectors in the case of AoPs and companies, and by profession or management cadre in the case of individuals. Hopefully, the new directories prepared in the ongoing PTI regime will offer more insights that is if they stand by the manifesto promise of promoting transparency.
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