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Tax directory

August 13, 2017

THE latest tax directory released with fanfare shows that some progress has been made towards increasing the revenue base of the state, but that growth is still very small and much of the incremental revenue has come from squeezing those who are already in the net. Finance Minister Ishaq Dar has rightly boasted of a 72pc increase in tax collection by the FBR since his tenure began. But a closer look reveals a slightly less glittering reality. There are three levels that one needs to look at in order to understand the tax effort of the present government. The number of people who have a National Tax Number has gone up. But amongst those, the number who are filing returns is less than a quarter. The more meaningful task would be to determine how many of those who are filing their returns are actually declaring a tax liability. And, how many of those who are seen to be enjoying lavish lifestyles are still declaring paltry amounts of income and contributing negligible tax amounts.

Publication of the directory is a positive step, and there is little doubt that it has helped encourage a culture of compliance in the country. But the publication also reveals the extent of evasion that takes place as people every year see insignificant contributions being made by those who live in luxury. Less than half of the registered companies in the country are actually mentioned in the directory, meaning even for the corporate world, evasion is not difficult and the absence of compliance carries no major cost. This remains the case despite strenuous insistence by the government that it is penalising non-filers of tax returns, whereas in reality the steps it has taken to encourage the filing of returns have had the effect of simply legalising noncompliance by attaching a meagre penalty to remaining outside the net. Treating documentation steps as revenue measures will necessarily produce this effect. The effort to get those who have NTN numbers to file returns must be stepped up, and getting people to declare their incomes in line with their visible expenditures needs to be ensured on top of this. A culture of compliance will only flourish when stigma, in addition to cost, is attached to being a nonfiler of income tax returns, or to declaring paltry amounts while living lavish lifestyles. Until then, the directory will spur little more than gossip.

Published in Dawn, August 13th, 2017