August 25, 2007	Saturday	Sha’aban 11, 1428

ISLAMABAD, Aug 24: The tax compliance rate of edible oil manufacturers has declined drastically over the years owing to tax-evasion and avoidance in a thoroughly professional manner, says an official report of the Federal Board of Revenue (FBR).

It was observed that 45.2 per cent of the total edible oil manufacturers filed their income tax returns during 2005-06 declaring their national tax numbers (NTN), but this rate declined to 36.8 per cent in 2006-07.

The data confirms that even though low income tax compliance is a common feature among all categories, those registered as distributors of edible oil showed a dismal compliance.

A research study conducted by the FBR highlighted the weak compliance level of the sector in payment of taxes, besides posing serious problems, like narrow export base and serious threat to environment.

The share of customs duties has been around 50 per cent of the revenue generated from edible oil at imports. The contribution of sales tax, federal excise duty (FED) and withholding tax (WHT) at import stage is 35.8 per cent, 6.8 per cent and seven per cent, respectively.

Of 244 registered units, 202 have filed their sales tax returns during 2006-07, showing a compliance level of about 83 per cent. Comparing historically, virtually there is no improvement in compliance level even though the number of return filers has increased.

A deeper analysis highlights an interesting point that the compliance level of manufacturers was 94 per cent in 2004-05 that dropped to 92 per cent in 2005-06. It has further declined to 82 per cent in 2006-07.

This gradual decline in compliance by manufacturers needs further investigation, considering the revenue implications of such a change.

Compared to this, the compliance rate of wholesalers suddenly jumped from 50 to 84 per cent, a change that also needs further review to understand the motivational factors for such an improvement. A further analysis confirms that the compliance status of those registered between 2005-06 and 2006-07 was better than those registered earlier.

In fact, all 25 units registered in 2005-06 submitted their sales tax returns by 2006-07 irrespective of the category they belonged to. A similar profile has been witnessed for the recently registered persons.

This clearly indicates that the problem of non-compliance lies with those registered in 2004-05 or earlier.

Of the 101 registered manufacturers, 95 filed their sales tax returns in fiscal year 2004-05. This number declined to 81 and 73 in the two subsequent years, thereby reducing the compliance rate from 94 to 80 per cent and 72 per cent, respectively.

Since disclosure of NTNs on sales tax returns is mandatory, the compliance has improved from 90.2 per cent in 2005-06 to 94.1 per cent in 2006-07, which is encouraging, but the scary part is decline in income tax compliance by the edible oil sector.

Further tax-wise details indicate that collection of customs duties has increased by 17.7 per cent during the last three years whereas sales tax and federal excise collection grew by 37.6 per cent and 22.5 per cent, respectively during the same period.

The major source of revenue has been palm olein with about 61 per cent share in total revenue realised from edible oils at import stage.

Currently, Pakistan spends more than Rs75 billion ($1.2 billion) per annum on import of edible oil and related raw material.