THE tax filing deadline has come and gone twice already, and with a third extension, it is puzzling to see that the number of people filing their returns has actually gone down considerably. Last year, about 835,000 people filed their returns, a paltry number to start off with.

And this year that number has dropped further, coming in just above 550,000. On the one hand, this is puzzling because it comes after a strenuous effort to serve notices on more than 70,000 individuals who were non-filers.

Less than 20,000 of those have actually complied.

Read: FBR urged to extend filing date to Dec 31

It is also baffling because this year the government encouraged the electronic filing of returns, which has simplified the process to a large extent, even though some people found it confusing initially.

In light of the efforts being made to encourage a culture of filing, it is puzzling to see the numbers of returns actually drop so sharply this year.

At some level, this represents a failure of the government’s efforts. Part of the explanation may lie in the excessive recourse to withholding taxes to raise revenue.

Raw pressure to increase revenues quickly has led to a large reliance on withholding taxes which creates a sense amongst people that since they are already paying they need not go through the trouble of filing returns. If true, this indicates that raising revenues and encouraging filing of returns can work at cross purposes if not implemented properly.

The extensions in the deadline for filing returns have been warranted given the new systems rolled out this year, but clearly something has gone wrong somewhere else.

Also read: New rules for filing of tax returns notified

Two mistakes need to be avoided when rectifying this situation.

One is a greater reliance on withholding taxes as the revenue requirements continue mounting.

The second is the temptation to resort to coercive measures to force greater compliance.

Ultimately, a culture of compliance will emerge only if taxpayers find it beneficial to come into the net.

There are no short cuts here, and only a credible tax reform effort can get the job done.

Published in Dawn, November 23th , 2014