ISLAMABAD: The Special Assistant to the Prime Minister (Minister of State) on Revenue, Dr Waqar Masood, has hinted at downward revision in revenue collection target of Rs4.9 trillion for 2020-2021, and withdrawal of corporate income tax exemptions before the next federal budget.
In an exclusive talk with Business Recorder at the FBR House, Dr Masood stated that the Federal Board of Revenue (FBR) was fully committed to utilising data of 100 million persons received from mobile phone companies; of 7.4 million persons whose withholding taxes were being deducted but they were not filing returns; data from electricity and gas companies, and data on return filers declaring below taxable income with actual withholding tax deductions of huge amounts, for increasing government revenue.
"At present our complete focus is on broadening the tax base and controlling tax evasion under tax administration reforms," he said. Dr Masood stated that the Federal Board of Revenue (FBR) was seriously considering withdrawing corporate income tax exemptions under the Income Tax Ordinance, 2001, before the next federal budget (2021-2022).
He said that the FBR was reviewing all four schedules of the Income Tax Ordinance for possible withdrawal of exemptions. However, the minister did not mention the exact timeframe of withdrawal of the exemptions, but he hinted it would be likely before the next fiscal year.
The government is reviewing to withdraw unnecessary exemptions to ensure the simplicity of the tax system. The ongoing exercise is only limited to the corporate income tax; and not for sales tax, the federal excise duty, and the customs duty, he said.
The exemptions would be withdrawn taking into account the fact that the income tax law is applicable on the basis of tax year, he said. About the revenue collection target, the Special Assistant to the PM on Revenue said that so far the FBR was chasing the challenging target of Rs4.9 trillion for the current fiscal year.
"However, there is a consensus among all relevant authorities that the revenue collection target of the FBR may be revised downward. However, the extent to which it would be revised downward has not been decided as yet," he said.
"Till now we are working with the target of Rs4.9 trillion," he said. He said that the government fully realised the fact that the country's tax-to-GDP ratio was at an unacceptably low level. The target of Rs4.9 trillion was based on the assumption that the Covid-19 would be gone by the end of the year, and the business activities would fully resume in the country.
Keeping in view the current situation, -- the resurgence of Covid-19, it is very difficult to achieve the said target. To a query, he said that some people use wrong Computerized National Identity Card (CNICs) numbers, so that the system accepts the CNIC numbers.
These CNICs belong to other individuals or are wrong CNIC numbers. To ensure this does not happen, the FBR will now verify the authenticity of the CNICs with the NADRA, on the pattern of verification done by various banks.
He said that the government tax policy had prioritized four areas in the tax system of the country. First, in line with the vision of Prime Minister Imran Khan, the government is committed to the concept that the tax system should be equitable, based on equality. Second, the government would not burden the existing taxpayers, but make things easier for the existing registered persons with the FBR.
The FBR will try its level best to facilitate the existing taxpayers. Third, we would bring those persons into the tax net who are liable to pay taxes but they are not paying their due share of taxes. Fourth, the government is very serious about controlling tax evasion by persons operating under the tax net.
Businesses conceal their actual income, production and revenues to evade the tax authorities. In other cases, they are hiding their profits to evade the tax authorities. The government is committed to stop tax evasion by such persons who are registered but are evading taxes.
"Track and Trace would be our major instrument in checking tax evasion. At present we are working on tobacco, fertiliser, cement and sugar [sectors] for the purpose of track and trace," Dr Masood said.
He said that the FBR had extracted very alarming and frightening information from its own database. The information is astonishing and unbelievable. Among other taxes, the withholding tax is a very important tax which is used for identifying persons, whose tax has been withheld but they are not filing their income tax returns.
"I want to share very important facts that we have 2.7 million taxpayers who have filed their income tax returns, but out of these, there are one million persons, who are declaring no taxable income. They have filed their returns showing that they have no taxable income."
The FBR has asked its IT Wing and officials using technology and maintaining a database, to check from the withholding tax record that whether, withholding tax has been deducted from these one million persons having no taxable income. There are almost 0.24 to 0.26 million persons who are getting Rs14 billion to Rs20 billion worth withholding tax deducted.
On average, it has been worked out that around Rs60, 000 withholding tax is being paid by each person within the population of 0.24 to 0.26 million persons. If a person is getting Rs60, 000 worth withholding tax deducted, which is 10 percent, we can safely conclude from this data that he is making an expenditure of around 0.6 million, and if a person is making an expenditure of Rs0.6 million and our taxable income is Rs0.4 million, this clearly reflects that the person's income is much higher for a person making expenditure of Rs0.6 million.
Second, 6.4 million persons are having NTNs, who are legally bound to file their annual income tax returns under the law. There are 3.7 million persons, who are registered but are not filing their income tax returns. It is their legal obligation to file their income tax returns.
The third initiative is that we have our own database and data of other federal and provincial government departments engaged in public dealings such as land records, and registration of vehicles. All these departments have now started sharing data of the purchase and sale of immovable properties, and registration of new cars with the FBR.
The data of those doing business dealing with the government departments is also available with the FBR. The utility data of electricity and gas is very huge, we are utilising all such data. Now, we have taken withholding tax data of three years including the FBR data, and data available from these organizations and government departments.
We have concluded that 8.9 million withholding has been deducted during the last three years. On average, we have received returns of around 1.5 million persons only during the last three years. If we minus 1.5 from 8.5, we are left with 7.4 million people.
It is mandatory for these 7.4 million people (whose record of withholding is available) to also file their income tax returns with the FBR, but they are not filing their returns. We have made public, information through awareness campaigns in the media to have your information on "tax-ray" (database of movable and immovable assets of citizens of Pakistan).
Every citizen can access his information on "tax-ray" and file returns having taxable income. The FBR has reached the level of information where we can enforce filing of returns by these 7.4 million individuals based on available record of withholding.
However, the FBR cannot simultaneously approach all 7.4 million, but we have prioritised persons and will go for big cases in the first phase.
"The problem of flying sales tax invoices has re-emerged," Dr Masood said.
The FBR has received data of 100 million people from telcos. We will also use the data of telecommunication companies for expanding the tax net. These are mobile phone customers having CNICs, they have shared data of those, where withholding tax has been deducted.
With the help of technology, we have been able to collect all this information of withholding tax for the purpose of broadening the tax base. The FBR is taking measures to ensure that the complete relationship between the taxpayer and the tax collector should be technology based.
Tax collector must not call anybody. All communication should be done using technology. All tax processes are being automated for issuance of notices, response of notices, collection of taxes, and online deposit of tax deducted at banks. About the reforms, Dr Masood stated that there are two types of reforms i.e. tax administration reforms and tax policy reforms.
Tax policy reforms work is started at the time of budget every year. Now is the time of tax administration reforms, under which, the tax net would be expanded and evasion would be checked. When asked about the restructuring of the tax administration, he said that the FBR is seeking permission from the government to overcome the staffing needs for working with full strength of the FBR.
For instance, if the FBR's workforce requirement is 100, we are working with the strength of 69. Therefore, there is a deficiency of 31 percent. This data is related to the sanctioned strength versus actual strength of the FBR, and its field formations.
When asked about the data of "high net worth individuals", he said that the FBR was completely focused on registering high net worth individuals and collection of due taxes from them. The FBR has been actively in touch with the Law Division to ensure that the vacancies of members of tax tribunals were filled as early as possible.
The FBR Member Legal is very competent and he is working very actively to computerise all the systems of courts to reduce time for early hearings. We need to improve our prosecution and their fee is very less, which needs to be rationalised.
Copyright Business Recorder, 2020