ISLAMABAD: Federal Board of Revenue (FBR) has started widening tax net by chasing wealthy tax-dodgers who enjoy luxurious lives.
However, FBR officials are also facing huge challenges to bring the wealthy and influential people into the tax net. The country’s tax-to-GDP ratio of 9.5 per cent is among the lowest in the world and the government is under pressure from foreign donors and lenders, including the International Monetary Fund (IMF), to increase collection to boost the struggling economy.
Revenue authorities say they have identified about a quarter of a million new taxpayers who they project will add around Rs14 billion ($140 million) to government coffers.
Broadening the tax base and improving the economy after years of drift and sluggish growth under the last government was a key pledge in Prime Minister Nawaz Sharif’s election campaign.
Currently, less than one per cent of Pakistanis pay income tax and the government collected just $8 billion in total income tax in the 2013-14 fiscal year – barely enough to cover just the country’s defence expenditure of $7 billion.
The finance ministry is aiming to boost the tax-to-GDP ratio to 15pc in the current fiscal year ending on June 30.
As part of those efforts, the FBR is compiling a `lifestyle and vehicle data’ to try to trace unregistered wealthy landlords and businessmen.
“We are collecting information from the vehicle registration authority, carmanufacturers, utility companies, telecom companies and property registration offices and tracing people who are not paying any tax,” FBR spokesman Shahid Hussain told AFP.
The data is used to generate profiles of potential taxpayers, after which demands are issued for them to pay income tax.
“FBR has already issued notices to 261,250 potential taxpayers,” Mr Hussain said, adding that that new taxpayers had paid Rs570m since the crackdown started.
It is not just dodgy businessmen who have been caught – several lawmakers have been found paying either no tax or very little and not filing their mandatory annual tax statements.
The FBR has taken punitive measures against some “chronic defaulters”, freezing nearly 300 bank accounts, seizing more than 100 vehicles, putting 78 properties up for sale and issuing arrest warrants in 40 cases.
“Employing information technology, the FBR is creating a central database which would contain information about all taxpayers and nobody will be left undetected,” Mr Hussain said.
A new Federal Bureau of Revenue department tasked with broadening the tax net started working in July 2013 and within one year it started showing results, he added.
In Pakistan, however, wealth and political influence go hand in hand. For generations, landowners and industrialists have given patronage to political parties and scant attention has been paid to their assets by the taxman.
Changing this privileged arrangement is a tricky proposition. Observers say the FBR’s commitment is encouraging, but they do not expect them to net any big fish.
The central bank said in a recent report that revenue growth was not keeping up with budget targets.
The tax collection grew 11.7pc in the first quarter of the current fiscal year, against an annual target of 26.9pc – but this was only half the growth of the same period during the previous fiscal year, according to the State Bank of Pakistan (SBP).
The SBP has urged the government to simplify tax procedures and do more to increase the documentation of the economy.
A vast amount of business in Pakistan is done off the books, making transactions hard to trace and levy dues on them.
“Although FBR has taken a number of measures to increase tax collection, these focused more on deductions at source, and/or increasing the tax rates,” a recent SBP report said, warning such measures had brought “limited success” in the past.
The IMF, though, has said the government’s reform programme – tied to a $6.6 billion loan from the Washington-based lender – was on track, and expects growth to accelerate to 4.3pc in the 2014-15 fiscal year from 4.1pc previously.
