Pakistan's tax chief expresses inability to bring 4 million people under tax net

Islamabad [Pakistan], November 18 : Pakistan's tax chief Dr Mohammad Ashfaq, who took reins of the Federal Board of Revenue (FBR) over three months ago, showed his inability to bring over 4 million willful law violators to the tax net due to the revenue authority's lack of capacity.
The Chairman said FBR lacks capacity and legal issues are also a stumbling block, reported The Express Tribune.
"I cannot do anything about those 4 million people who are outside the tax net because the FBR does not have the capacity and there are legal issues as well," the FBR chairman said on Wednesday while responding to a question at a session arranged by the Policy Research Institute of Market Economy (PRIME).
Ashfaq showed that against the 7.1 million taxpayers registered with the FBR, only 3.1 million filed annual income tax returns.
He said that against the 305,000 registered sales tax persons, only 191,000 filed annual returns.
"Bringing people to the tax net is a long-drawn-out process and to accomplish the task, the state has to invest in tax administration," said Ashfaq.
The cost of tax collection was only 0.6 per cent of the revenue and the FBR was the most under-financed organisation in the world, the chairman remarked, reported The Express Tribune.
He said that besides the challenge of over 4 million people remaining outside the tax net, there was also the issue of a reduction in the average tax paid by a return filer.
In 2015, the average tax paid by the return filer stood at Rs23,640, which fell to just Rs 10,914 in 2019, said the chairman. However, the trend has started reversing and the figure crossed Rs 17,000 by the tax year 2020.
He also said that the FBR is "better off" without a USD 400 million World Bank loan.
Responding to another question about whether the FBR needed the USD 400 million loans to introduce reforms, Ashfaq said, "I am not a great fan of Pakistan Raises Revenue project and the FBR will be better off without it."
The loan had been negotiated by the Economic Affairs Division and the Finance Division for their needs but "the FBR has been asked to implement the project and we do not have any role in its design", he added.
Ashfaq was candid in a public interaction, where he also talked about the International Monetary Fund's (IMF) demands to withdraw sales tax exemptions and increase personal income tax rates for individuals, reported The Express Tribune.
"We had been promised an amount through the supplementary grant against the USD 400 million World Bank loan but the Ministry of Finance either gave very little last year or turned down our requests for funds this year."
Meanwhile, Dr Ikramul Haq a tax expert blamed Imran Khan for tinkering with the tax system.
"Rather than bringing a paradigm shift, the Pakistan Tehreek-e-Insaf (PTI) government has been tinkering with the tax system for the past three years," said Haq.
He advised the government to reduce income tax as well as corporate tax and suggested that the ratio of direct taxes should go up to 66 per cent from below 34 per cent of the total tax collection, reported The Express Tribune.
"It is high time that the individual income tax rate is reduced to 10 per cent and the corporate income tax rate to 20 per cent," he said.