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Income tax filers fall by 35% | The Express Tribune

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ISLAMABAD:

The caretaker government has failed to broaden the tax base, with the number of tax filers falling by 35% to just under 3.9 million compared to last year, due to difficulties in meeting the monthly tax collection targets.

The caretaker government, whose rule effectively ended with the swearing-in of the new National Assembly, also remained unable to tax retailers, nor to suspend mobile phone connections of non-tax filers. It was hoped that, unlike politicians, technocrats would oppose powerful retailers.

Sources told The Express Tribune that contrary to the hype created around the Federal Board of Revenue (FBR) reform, the number of tax return filers has dropped significantly.

This is the second consecutive month in which the government has failed to meet its monthly tax collection target. However, thanks to better collection in the previous months, the FBR somehow managed to achieve the eight-month tax target of Rs 5,830 billion.

The FBR, whose performance remained exceptionally good in the first half of the fiscal year, started facing difficulties from January this year. This coincided with attempts by the acting finance minister to restructure the tax system despite opposition from some cabinet members and questions over the mandate of the gatekeepers. The Election Commission of Pakistan also advised the caretaker government against restructuring the tax machinery.

Declining tax base

In November last year, Pakistan had shared a plan with the International Monetary Fund (IMF) to increase the number of tax filers to 6.5 million by June 2024. The caretaker government decided to create district tax offices to broaden the base by moving half of the tax staff from regional tax offices to these new offices.

The Special Investment Facilitation Council (SIFC) also gave the caretaker government a target to increase the tax base by at least one million in the current fiscal year compared to last year’s figure. When those targets were set, about 5 million people had filed taxes last year.

By the end of February, according to sources, the total tax returns received by the FBR stood at just 3.88 million, a figure down by 2.1 million or 35% compared to the financial year 2022. The government was faced with a reduction in the number of tax returns. declarants in the four categories: companies, associations of people, individuals and employees.

However, senior FBR officials are hopeful that this figure will see a sharp rise in March after the list of active taxpayers was released on Monday. The names of all non-filers will be omitted from the new list, doubling the withholding tax rate on their transactions.

Details showed that compared to the 92,704 associations that filed returns in the previous year, this year the figure remained at 91,135 so far. Similarly, in the last fiscal year, around 77,600 companies filed their returns, which has now fallen to less than 72,000, a drop of around 8%.

Read Taxation of SME income

The biggest reduction in filers is among individuals, as about 1.6 million people, or 43% fewer, filed their taxes this year, the sources said. In the last fiscal year, around 3.8 million individuals filed returns, with the number now down to 2.2 million.

Likewise, around 22% or 435,000 fewer employees filed their returns this year. Compared to nearly 2 million employees who filed their declaration last year, only 1.55 filed their annual asset and income declaration this year.

The FBR had proposed to the finance minister to impose a tax on retailers, but she left it to the next government, sources said. Similarly, a committee was also constituted to suspend mobile phone connections of non-filers, but no order was issued in this regard.

A senior FBR official said that despite the low number of filers, there were around 840,000 new filers this year, which is a testimony to the efforts of the tax machinery. Among them, the largest number were businessmen, as 510,000 businessmen became first-time filers.

Nearly 11 million individuals and businesses are registered with the FBR, but less than 7 million have not filed their annual returns.

Tax collection

The FBR managed to achieve its eight-month tax collection target of Rs 5,829 billion, thanks to better performance in the first six months of the financial year. A timely decision of the Supreme Court of Pakistan in the super tax case also enabled the FBR to get Rs 6 billion on the last day, which in return became the reason to achieve the eight-month target.

The FBR, for the second time this financial year, missed the monthly target by a margin of Rs33 billion, or 4.6%. Under an agreement with the IMF, Pakistan could be required to launch a mini-budget if monthly collections fall more than 1% short of the target.

The taxman attributes the shortfall in monthly revenue to the caretaker finance minister’s desire to restructure the FBR and the increase in the number of public holidays in February.

Provisional collection figures showed that the FBR has so far collected Rs5.83 trillion, an increase of Rs1.34 trillion or 30% over the collection made during the same period of the ‘Previous exercice.

Till December, the FBR management was confident of achieving the annual target of Rs9.415 trillion despite a decline in imports. Income tax collection stood at Rs2.76 trillion, up by over Rs800 billion, or 41%, in the first eight months of this financial year.

Sales taxes and customs duties remained the weakest areas. Sales tax collection reached over Rs 2 trillion, up Rs 316 billion or 19 percent from the previous fiscal year. The FBR collected Rs 352 billion in FED, and customs duty collection amounted to Rs 710 billion.

Details showed that against the February target of Rs714 billion, the FBR could provisionally pool Rs681 billion – a shortfall of Rs33 billion. But there was an increase of Rs162 billion or 32% in collections compared to the same month of the last financial year.

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