ISLAMABAD: The Federal Board of Revenue (FBR) has scaled down its expectations and will register only one out of every 10 unregistered businesses in two years but has vowed to chase down wealthy individuals, who have once again been served income tax notices this month.
The interaction of the FBR’s top management with media persons on Tuesday once again underscored the huge gap between the ambitions of FBR Chairman Shabbar Zaidi and administrative constraints of the tax machinery and other government departments.
Over two months ago, the FBR chairman had announced that the revenue board would register 3.1 million commercial electricity consumers and 347,000 industrial consumers in the new fiscal year 2019-20, which started from July.
“We expect that as against 41,000 active registered sales tax persons, there will be at least 300,000 to 400,000 registered persons after two years,” said FBR Member Inland Revenue Policy Dr Hamid Atiq.
The low hope, although better than the base year, highlights the difficulties the tax authorities face in broadening the income and sales tax base.
There were practical difficulties in registering 3.1 million commercial connections due to the problems in allied departments like power distribution companies, said Seema Shakil, Member Operations Inland Revenue Service. She argued that until other allied departments were linked with the online system, these people could not be brought into the sales tax net.
There were also issues of duplication and wrong Computerised National Identity Card (CNIC) numbers, which further reduced the scope of broadening the tax base.
A few months ago, Zaidi said the total number of industrial electricity connections was 341,000 whereas there were only 47,000 sales tax registered persons. There were more than 3.1 million commercial electricity connections while more than 90% of them were outside the tax net, he said.
In a letter to the prime minister, Zaidi acknowledged that tax burden on the manufacturing sector was enormous that he wanted to lessen by bringing more people into the tax net.
An analysis of 35 sectors by the FBR from July 2014 to March 2019 revealed that about 40% of total sales of these sectors were to the unregistered persons, which was causing evasion of both income and sales tax.
Zaidi, in his letter to the Ministry of Energy (Power Division), had sought its help in the implementation of Income Tax Ordinance 2001 in letter and spirit, which specifically stipulated that any application for commercial or industrial connection of electricity or gas would not be processed and such connection would not be provided unless the person applying was registered with the FBR.
FBR Member Information Technology Mehmood Aslam said the authority had launched an online sales tax registration application aimed at facilitating people to swiftly register with the FBR.
After the levy of 17% sales tax on garments, carpets, surgical, leather and sports goods in the FY20 budget, the FBR expects a major boost to its revenues. But majority of the retail outlets were not registered with the FBR.
Aslam said there was a bare minimum requirement of documentation for online registration but these people would have to undergo biometric verification within 30 days aimed at ending the possibility of fake registration.
He said business premises verification would be done through geo-tagging of pictures of the manufacturing machinery.
In the past, commercial retailers had registered themselves as manufacturers aimed at evading withholding tax at the import stage.
Atiq said the FBR would launch a cash-back reward system for people who bought from registered sales tax outlets and shared receipts of purchases with the FBR for verification. Such persons would be entitled to claim back 5% of the paid tax on the spot, he added. The FBR management also vowed to go after high net worth individuals, who enjoy lavish lifestyles but are not ready to come into the tax net.
“On the basis of bank information, the FBR has served 100,000 tax notices on wealthy people,” said Shakil. These people conducted trillions of rupees worth of transactions but did not file income tax returns, she added.
The tax notices were served on the basis of treasure trove of 53 million people that the FBR had placed on its website but could only be viewed by the people concerned. Shakil said the FBR planned to send another 100,000 notices next month.
However, similar activities had also been undertaken in the past but did not yield desired results. Shakil said the FBR had generated Rs4 billion tax demand from 6,000 wealthy people and recovered Rs2.8 billion in taxes.
However, the FBR faces serious capacity constraints as its field staff has been overburdened with multiple tasks, which have thinned out human and financial resources.
Published in The Express Tribune, August 21st, 2019.