BY October 13, only 135,000 people had e-filed their income tax returns as a result of the monstrous e-filing system run by the Federal Board of Revenue.
A majority of taxpayers cannot afford to hire tax consultants and they feel the inefficient and unhelpful information technology system is creating hassles than facilitating them. And the ill-trained manpower deployed to run the system is said to worsen the filers’ troubles.
Interestingly, the FBR’s system did not accept the return filed by Finance Minister Ishaq Dar. But top FBR officials were at his call to take care of his problems; ordinary taxpayers can never have that facility.
Instead of holding FBR officials responsible, the government keeps on extending the deadline for the filing of income tax returns. This doesn’t necessarily bring more revenue to the government, but only covers up the inefficiencies of the tax administration. In short, the situation demands that the government address the capacity issues in the tax administration, rather than distrust taxpayers.
Indeed, in some ways, extending the last date for filing tax returns hurts taxpayers as well. While the extension delays tax collection for the government, taxpayers lose quick refunds of any excess tax they paid.
The government has decided to receive only online returns from income-tax payers, without considering the inefficiency within the FBR’s e-filing Iris system. Iris has been beset with technical glitches, while frequent and unnecessary changes in the format of the return forms every year leads to a delay in the finalisation of the forms.
In most countries, the return forms are available round the year for the convenience of the taxpayers, who do not have to wait for them till the last moment.
The FBR’s inadequacy in facilitating the e-filing of income-tax returns is tantamount to maladministration and reflects serious capacity issues, says tax expert Dr Ikram ul Haq
Tax Reforms Commission Chairman Syed Masood Ali Naqvi says the FBR has yet to develop its capabilities in handling online returns in bulk. He suggests that people also be given the option to file their returns manually until the e-filing system has improved and become user- friendly.
He also believes that the deadline for filing income tax returns should have a fixed deadline to create predictability within the tax system. “We have suggested that the government introduce a one-page return form in Urdu,” he said, adding that the tax department should take up the responsibility for this.
At the moment, taxpayers are confronting two issues. The FBR’s e-filing system is not accepting their returns because of changes introduced at the eleventh hour, without the corresponding modifications in the whole system.
Secondly, the government decided in the 2015-16 budget that taxpayers’ CNIC numbers will be used as tax identifiers instead of their national tax numbers (NTNs). This decision of the parliament is not acceptable to the FBR, which still sticks to NTNs to register taxpayers. As a result, confusion prevails among taxpayers.
Instead of resolving these IT-related issues, the government has a handy and easy tool: extend the last date for filing returns by 3-4 months every year. In India, the last date for filing income tax returns is extended for a couple of weeks at the most if some issues emerge.
Meanwhile, late filing of returns is also subject to penalty. But in Pakistan, taxpayers cannot be blamed for it because of the FBR’s faulty system. Dr Ikram ul Haq, a tax expert, says the penalty can’t be imposed on return filers in this situation because the FBR provides legal cover by extending the deadline.
The law, however, makes it compulsory for taxpayers to file their returns on or before the deadline. But the FBR’s inadequacy in facilitating the e-filing of income-tax returns is tantamount to maladministration and reflects serious capacity issues, said Haq.
Under the income tax law, it is the right of a taxpayer to get refunds of any excess tax/advance tax paid within 90 days after filing his or her return. However, owing to technical glitches in the e-filing system and the subsequent extension in the filing deadline, many taxpayers are denied the right of getting speedy refunds.
A Karachi-based taxpayer said on the condition of anonymity that it took him 24 hours to e-file his return and pay Rs404m tax to the government exchequer.
India has a carrot-and-stick approach that encourages people to file their returns on time. This includes carrying forward losses incurred during the financial year, and in case a return is filed after the due date, the taxpayer will have to pay interest and penalty.
Similarly, a taxpayer also loses out on interest on refunds if his or her return was not filed on time. Pakistan can examine these measures to improve compliance.
In Pakistan, the minimum penalty for not filing returns, statements and wealth statements starts from Rs5,000 and can go as high as 25pc of the tax payable in a year. A non-filer will have to either declare his total income for assessment of tax in a year or the tax official will declare it ex parte. But this only remains on paper.
In the 2015-16 budget, the government took two measures to broaden the tax base. Withholding tax rates were increased for non-filers and a 0.3pc withholding tax was introduced on their banking transactions that exceeded Rs50,000 a day.
However, many people are being made to pay the higher tax rates simply because the FBR’s system is not accepting their online returns owing to technical or some other problem.
And it is these kinds of practices that lead to the taxpayers’ lack of trust in the government and the tax machinery, resulting in poor tax compliance.
Published in Dawn, Business & Finance weekly, October 19th , 2015