The Federal Board of Revenue (FBR) tax to GDP ratio has sunk to 9.9% which is the lowest recorded in last five years. Help has been sought from the provinces for bringing property owners into the tax net. FBR Chairman Syed Shabbar Zaidi has written a letter to all provincial chief secretaries, requesting them to coordinate with the FBR in order to bring property owners into the tax net from the new fiscal year. The letter was sent a day before the close of last fiscal year 2018-19, which turned out to be the worst year in terms of deficit in tax collection.
The FBR does not have does not have access to data of land owners which subjects them to pay annual tax with a land area of 500 square yards or more in accordance to The Income Tax Ordinance 2001.
“I suggest that a focal person be appointed to coordinate with us on this matter as the FBR intends to ensure proper compliance with law on this matter,” wrote Zaidi to provincial heads.
The government is targeting property owners avoiding and evading tax and involved in money laundering. The provinces and FBR working together in bringing property owners into tax net is also essential in repayment of loan by world bank.
FBR data shows that more than 50 million people pay taxes, including withholding taxes but the total income tax return filers in Pakistan are less than two million therefore the claim that Pakistanis do not pay taxes is false.The annual target was of Rs 4.4 trillion whereas the FBR could provisionally collect only Rs 3.82 trillion including Rs 16 billion in book adjustment. It missed the annual target by nearly Rs 578 billion, also witnessing a negative growth in collection as compared to the previous year. Rs 43 billion in 3.82 trillion is the tax amnesty that government extended till July 3rd. Due to the Rs 578-billion revenue shortfall, the FBR’s tax-to-GDP ratio slipped to 9.9% – the lowest in five years.
The IMF has conditioned the loan approval which requires the tax-to-GDP ration to increase by 2.7% by the end of the year to 12.6% at least which seems impossible as of now.
One of the conditions stated by World Bank for disbursement of the $400-million loan is that the
“FBR will reach agreements with the provinces on automated sharing of taxpayer information, the methodology for calculating GST input adjustments and common updated property valuation tables”.
It was also stated that the FBR could help the provinces improve their collection of agriculture income tax.The FBR receives returns from federal income tax but the grounds that declared income is derived from agriculture are exempted. The FBR does not, however, demand proof of payment of agriculture income tax to the province where the income is generated, nor does it share these returns with the province concerned. In response FBR demands no proof of agriculture income tax paid to the province nor inquires the province concerned. In Pakistan 9,352 taxpayers show agriculture income and 6,668 of these people have not paid provincial agriculture tax. Only one-fourth of the total actually paid provincial agriculture income tax during years 2016 and 2017. If the provinces share details of immovable property owners, it can help increase collection on account of capital gains tax (CGT).
In the new budget government has reduced the exemption period for CGT and a person will now have to pay up to 20% CGT, if he sells a house before four years of purchase and a plot before eight years of purchase.
