The government is in the hunt to pick a new chairman for the FBR following the post fell vacant on Jan 21. Senior Member Customs Mahmood Alam has been given acting charge of FBR chairman. - File photo

ISLAMABAD: More than 42 per cent taxpayers did not file their income tax returns in the year 2011, leading to a substantial tax evasion owing to negligence of the tax department, it is learnt.

The decline is not limited to filing of tax returns this year but also a drastic dip has been witnessed in the compliance level of taxpayers, which fell to 39.5 per cent in 2011 from 65 per cent in the previous year, showed Federal Board of Revenue data available with Dawn.

In absolute term the number of return/statement filers remained at 1.179 million till December 31, 2011 as against 1.965 million filed last year, reflecting a negative growth of over 42 per cent.

“This is an alarming situation for the FBR that dip has been recorded in both filing of income tax returns and compliance level,” a tax official told Dawn requesting anonymity.

The compliance level in developing countries hovers between 70-80 per cent.

But this decline clearly negates the tax administration much-hyped campaign for the broadening of the tax base, involving huge spending on its publicity. Under the drive some 700,000 potential taxpayers were identified who just remained on official pages as in reality more people have evaded filing their returns this year.

The total number of taxpayers who were registered with the income tax department stood at 2.984 million in a country of over 180 million.

The ratio of taxpayers to population in Pakistan (1.5 per cent) is laughably low when compared with India (2.7 per cent), Argentina (14.5 per cent), France (58 per cent) and Canada (86.4 per cent).

When approached, a senior income tax official told Dawn that those who did not file return would be issued notices to file their returns. “This is an enforcement issue for making people filing their returns,” the official added.

This has happened despite the fact that the FBR extended the last date for filing of returns several times until November 30, but even still the facility did not lure taxpayers to file their returns.

The break-up of the total returns showed that this year bulk share was of employees' statements, which reached to 753,181 as against 1,240,493 statements filed last year, reflecting a massive decreased.

The statements are filed by the employers on behalf of employees, which only reflect deduction from salaries.

Others returns filed this year include 32,644 returns by association of persons (AoPs), 264,824 by businesses and 111,654 returns filed by salaried people, respectively.

And of these only 0.4 million returns were filed manually in the year 2011 and the rest electronically.

And the corporate sector filed 16,783 returns this year as against 19,331 returns filed last year, showing a decline of 13 per cent. This also reflects a low compliance level of the corporate sector. More than 50,000 companies were registered with the Securities and Exchange Commission of Pakistan.

It has been observed that compliance level of taxpayers has been static for the past few years following the suspension of desk audit and lack of enforcement because of integration of tax base of domestic taxes — sales tax and income tax — causing administrative hiccups between the income tax and customs officials.

A study conducted in 2006 showed the percentage of taxpayers in Pakistan's population was 1.5 per cent, which remained the same in 2010, indicating that no efforts were made to bring more people into the tax net even though the salaries and perks of tax officials had been doubled, the official said.

The government is in the hunt to pick a new chairman for the FBR following the post fell vacant on Jan 21. Senior Member Customs Mahmood Alam has been given acting charge of FBR chairman.