The Federal Board of Revenue (FBR) has beaten the revenue target for the fourth consecutive month with collection of Rs2.75 trillion in July-October and decided to go after one million non-filers of income tax returns after receiving a poor response from the people.

While the FBR exceeded its July-October tax collection target by Rs68 billion, it fell short of the total returns filed in tax year 2022 by almost two million, or 40% of the existing filers.

The FBR would not further extend the date for filing the annual income tax returns, which expired on Tuesday, said Malik Amjad Zubair Tiwana, Chairman FBR, while talking to The Express Tribune.

The chairman said it had been decided that after fulfilling the legal requirements, the FBR would ensure “compulsory registration” of at least one million people, who were required to file returns but did not fulfill their obligation.

As against the target of Rs2.68 trillion, the FBR provisionally collected Rs2.75 trillion in July-October, according to FBR’s officials. Tax receipts were Rs68 billion higher than the target, helping avoid any pressure from the International Monetary Fund (IMF) for a mini-budget.

The FBR achieved 28% growth in tax collection and got Rs591 billion more than the last fiscal year. During the first four months of the previous year, it had received revenues of Rs2.16 trillion.

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However, the FBR once again struggled to ensure the timely filing of income tax returns. Till the extended deadline, it received only 2.9 million tax returns. In the last tax year, 4.9 million returns had been filed.

The laws are lenient as people can submit their annual wealth and income tax statements anytime by paying a nominal penalty of Rs1,000.

The FBR chairman said that the 2.9 million returns were still higher by around 300,000 than October last year. He added that it had been decided that the FBR would ensure the compulsory tax registration of at least one million filers based on their withholding tax statements.

In cases where people had paid Rs15,000 to Rs20,000 in withholding taxes but did not file tax returns, the FBR would serve them notices, he added.

About half of the workforce in the regional tax offices had been assigned the task of broadening the tax base and soon those people would start receiving tax notices, said Tiwana.

Over 10 million persons and companies are registered with the FBR but 7.1 million, or 71%, did not file their annual returns. Last week, the FBR chairman stated that, based on the existing demographics and legal provisions, the potential to increase the tax base was limited to 10 million to 15 million. The low tax collection has remained a chronic issue as taxation has skewed towards the indirect mode that has hurt poor people the most.

Despite imposing heavy taxes in the last fiscal year, the FBR collected Rs7.164 trillion, hardly equal to 8.6% of the national economy. One of the reasons was the political patronage of tax-evading sectors like real estate, traders, stock market and exporters.

The salaried class paid Rs71 billion in taxes in the first three months of the current fiscal year compared to the payment of just Rs21 billion by the exporters.

For the current year, Pakistan has agreed with the IMF that it will strive to collect Rs9.415 trillion in taxes.

It was the fourth consecutive month when the FBR achieved its monthly target. It collected Rs707 billion in October against Rs516 billion in the same month of last year. Of the four types of taxes – income tax, sales tax, federal excise duty (FED) and customs duty, the FBR met income tax and FED targets.

Income tax collection amounted to nearly Rs1.23 trillion, up Rs335 billion, or 38%, in the first four months of the current fiscal year. The collection was about Rs190 billion more than the target, offsetting the impact of the missed sales tax and customs duty targets.

Sales tax remained the weakest area as its collection stood slightly above Rs1 trillion, which was nearly Rs144 billion, or 17%, more than the last fiscal year. It was Rs65 billion less than the target due to a low growth in tax receipts at the import stage.

The FBR collected Rs176 billion in FED with 63% growth. It was Rs17 billion more than the four-month target. The collection of customs duty stood below target by Rs69 billion. The FBR received Rs343 billion in customs duty, which was even less than last year.

Published in The Express Tribune, November 1st, 2023.

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