Federal Board of Revenue (FBR) has decided to take intensive measures to broaden the taxpayers and reduce annual tax evasion of Rs. 700 to 1,000 billion which is being evaded annually in different sectors to meet target for next financial year 2013-14 through automation of its system and reconciliation of database made available at different state-owned organizations.
This was stated by Khawaja Tanveer Ahmad, Chief Commissioner, Regional Tax Office while addressing as a keynote speaker at Post Budget Seminar organized by Southern Regional Committee of the Institute of Chartered Accountants of Pakistan (ICAP) recently at a local hotel, Karachi.
The tax authority has planned to carry out detection of violations of concessionary conditions and strict legal action against the non-filers of returns, under-taxpayers, non-taxpayers and those who are involved in corruption claiming fake refunds and tax frauds.
The revenue collection department will develop an automation system of cross-verifications that can help reduce incidence of tax fraud, cleansing and updating the databases through use of third-party data such as Customs, NADRA, SECP, utilities, land revenue, motor vehicle, and etc, Khawaja added.
FBR has developed a task management and case tracking modules to ensure that each task/case taken up is completed, and to monitor performance of officers, sections, etc.
RTO chief said that evasion occurs under all three heads of taxes including customs duty, sales tax and income tax. The country’s Tax-to-GDP ratio is less than 9% whereas it witnessed high incidence of tax evasion by 67 percent.
It is because of narrow tax base, poor compliance of big number of non-filers, increasing reliance on withholding tax, and poor record-keeping, little value-addition by assessing officers which results in less transparency in the tax collection system.
FBR regional chief said that the tax collection authority has identified the weaknesses in systems, seeking suggestions for improvement from all stakeholders, economists, chartered accountants, and income tax lawyers.
Many businesses remain unregistered, especially wholesalers and dealers. This causes in evasion of both sales tax and income tax, Khawaja said. Hundreds of dummy firms got sales tax registration by misusing CNICs of unconcerned persons. Such firms are engaged in tax fraud. Persons got wrong registrations, e.g. registered as manufacturer without having manufacturing facilities. They illegally avail certain concessions, he added.
The seminar was attended by S.M. Muneer, Former President, Federation of Pakistan Chamber of Commerce & Industry and Chairman, Din Group of Industries, Shaikh Saqib Masood, FCA, Chairman, Taxation Committee, ICAP, Ebrahim Yacoob Sidat, FCA, Country Managing Partner, Ernst & Young Ford Rhodes Sidat Hyder, Syed Masoud Ali Naqvi, FCA, Senior Partner, KPMG Taseer Hadi & Co, S.M. Shabbar Zaidi, FCA, Partner, Tax Services, A.F. Ferguson & Co, Riaz A. Rehman Chamdia, FCA, Chairman, Southern Regional Committee, ICAP and Adnan Mufti, FCA, CPD Convener, Southern Regional Committee – ICAP.
Saqib Masood, Chairman Taxation Committee, ICAP, said the revenue collection target set by the government at Rs 2.6 trillion is arduous and unrealistic against the last year revised estimate of Rs 2.1 trillion due to current economic and social scenario.
He said the Finance Bill for financial year 2013-14 despite all of the taxation measures to increase the revenues of the national kitty, has failed to focus to broaden tax base. The increased rate of Sales Tax and Withholding tax will be paving way for recovering shortfall but it will be a tough measure as well.
He suggested that the employee is mandatorily required submitting return of total income in respect of taxable salary. The annual statement by employer in lieu of the tax return should be done away.
The adjustment of tax credits / rebates for withholding tax purposes should be withdrawn. Only the employee entitled to claim credits/rebates in annual return of total income, which invariably would result in creation of refunds, Masood said.
The obligation of withholding tax shifted from an “employer” to “any person responsible for paying Salary”, he added. He proposed that minimum tax rate for a resident Company and Individual & AOP (having turnover of Rs fifty million or more) should be enhanced from 0.5% to 1%.
The scope of minimum tax proposed to be extended to business from construction and development of plots. In case of person deriving income from business of construction and sale of residential, commercial or other buildings should be increased @ Rs 25 psf, he added.
ICAP taxation committee head lauded Finance Bill proposal for bringing people in the system through filing of tax returns particularly those entrepreneurs of commercial and industrial sectors having annual electricity bill exceeds Rs 500,000 as against  Rs1,000,000.
The person should filed tax return who is registered with Chamber of Commerce and Industry or any trade association or any market committee or any professional body such as PMDC, PEC, ICAP and ICMAP.
Masood further said that the FBR commissioner should be empowered to call upon the person to file the tax return within the period of less than thirty days.
He pointed out tax potential and its massive evasion in different areas such as manufacturer, distributors, dealer and wholesaler or commercial importer of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam.
He said that FBR should deduct / collect tax @ 0.5% of the gross value of sales from retailers which shall be adjustable against the tax liability of the taxpayer.
The seminar concluded with a very interactive question and answer session by Ebrahim Yacoob Sidat, Syed Masoud Ali Naqvi, S.M. Shabbar Zaidi, and Adnan Mufti followed by vote of thanks by Riaz A. Rehman Chamdia.