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Almost 600,000 taxpayers missing from tax net
Publication Date : 25-11-2012
The bad news about Pakistan’s weak tax system never stops coming. The latest revelation emanating from the Federal Bureau of Revenue (FBR) is that nearly 600,000 taxpayers have "mysteriously disappeared" from the tax net in the past one year.
If official documents that reveal this astonishing figure are to be believed, it simply highlights incompetence and mismanagement of the country’s top tax machinery.
So while the FBR has been claiming happily that it has in its net 1.44 million people who regularly file tax returns, it turns out that there are only 856,987 taxpayers in the country that the bureau can trace to their homes or workplaces. Does this mean that the missing numbers — 583,013 — are imaginary tax payers?
This discrepancy has emerged from the data of the National Database and Registration Authority (Nadra) when it was compared with the figures compiled and maintained by Pakistan Revenue Automation (PRAL), a subsidiary of the FBR.
The comparison was carried out recently after a request by the FBR and it was revealed that just 856,987 tax payers were there, and even among them 51,522 did not pay any taxes last year.
This lower figure emerged once discrepancy and errors in data compilation were identified and corrected.
For instance, one mistake emerged when lists of tax return filers were compared with the names submitted by employers.
As many as 676,367 people have filed income tax returns in the tax-year 2011, while 549,369 statements were submitted by employers on behalf of their employees, taking the total number of taxpayers to 1.22 million.
The data revealed that out of 1.22 million, 204,069 people overlapped — their names were present in both the list of those who filed tax returns and in the list of employees whose names were submitted by the employers.
Critics are of the opinion that the names were deliberately counted twice to present a rosier picture than the reality.
Once this discrepancy was removed, the number of taxpayers stood at a mere 1.021 million for 2011. However, further miscalculations were removed that had added an extra 164,684 to the taxpayers’ number. Eventually, the tax officials were left with the miserly 805,465 tax payers in a population of 180 million people.
The total revenue contributed by these taxpayers stood at 80 billion rupees (US$832.64 million) in 2011. If official figures are to be believed, out of Pakistan’s 805,465 taxpayers, each pays about 13,673 rupees as income tax every year.
The Nadra data, which has forced the FBR to accept a harsh reality, has sent its officials scurrying. A senior tax official confirmed that around 600,000 taxpayers were missing and that the FBR was clueless.
Requesting anonymity, he said the FBR was trying to locate the missing taxpayers.
Whether or not the FBR will unearth a more palatable number remains to be seen.
However, this latest revelation has driven home the low compliance of Pakistan to income tax rules.
Tax and aid
This scandal is likely to encourage international donors who want the country to widen its tax base before asking for more aid.
Only 0.6 per cent of the population pays taxes in Pakistan, as against 4.7 per cent in India, 58 per cent in France and 80 per cent in Canada.
This is despite the fact that the government has doubled salaries of tax officials in the hope that it will improve the compliance level, but to no avail.
Pakistan continues to have the lowest number of active taxpayers per tax administrator in South Asia — 64. In India, taxpayers per tax administrator share stands at 537, in Sri Lanka 232, in the United States 1,990 and Switzerland 3,182.
According to the tax official, the FBR has already launched the system audit of PRAL to assess its performance. He said that PRAL had purchased costly software but these had not been used effectively. “We will fix the responsibility regarding the missing taxpayers etc,” the official added.
*US$1= 96.08 Pakistani rupees