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ISLAMABAD: The flaws in the country’s weak tax system have been further exposed following the revelation that over 15,000 corporate taxpayers paid no taxes to the Federal Board of Revenue’s (FBR) Inland Revenue department in the tax year (TY) 2016

Though 15,116 companies filed tax returns, which accounts for just over 49pc of all corporate returns filed this year, they paid zero taxes, according to official documents.

While the FBR has claimed that it has 1.2 million people in the tax net who regularly file returns, the total number of corporate taxpayers that filed returns stood at 30,875, as compared to the 81,493 companies registered with the Securities and Exchange Commission of Pakistan (SECP).

Further analysis shows that only 15,759 companies, or 19.4pc, paid income tax in TY2016, meaning that 80.6pc, or 65,734 of the companies registered by the SECP were non-tax compliant.

The tax contribution of the 19.4pc who did pay their taxes was Rs419 billion, or 35pc of the total direct tax collection for TY2016.

Dr Ikramul Haq, a tax expert, told Dawn that FBR had failed to force every company to file tax returns as per law. “This clearly shows poor enforcement on the part of the tax machinery”, he said.

Ironically, he said, SECP had increased the total number of registered companies, but these companies were either dormant or were registered for some future endeavour and have yet to start any business, he said.

Regarding companies that were non-filers, he said they were under the impression that until they start doing business they don’t need to file returns, whereas the law requires them to file tax returns with the income tax department.

According to officials, around 8,000 companies skipped filing tax returns and making payments in TY2016.

Per official data, in TY2014 and TY2015, the big taxpayers – including 7,720 companies and 14,103 associations of persons (AoPs) – had filed income tax returns and paid Rs10.415 billion and Rs11.697bn, respectively. But they did not file returns in TY2016.

Some analysts believe the missing companies hint at a ‘tax revolt’ from big taxpayers in the wake of the Panama Papers, which were leaked in April 2016. The last date for the filing and payment of due taxes was Dec 31, 2016, which was extended further.

The number of corporate taxpayers missing from the tax base in 2016 was 7,720. Of these, 4,588 or 60pc of the total missing companies are based in Karachi and Lahore.

The breakup of the missing companies in the domain of their respective regional tax office (RT) or Large Taxpayers Unit (LTU) is as follows: 2178 with the corporate RTO Karachi, 61 in RTO-II Karachi 61, 32 in RTO-III Karachi, 152 in LTU-Karachi, 36 in LTU-II Karachi, followed by 1,910 in Corporate RTO Lahore, 172 in RTO-II Lahore and 47 in LTU Lahore.

Around 56 companies evaded taxes in the jurisdiction of LTU Islamabad, 1,260 in RTO Islamabad, followed by 487 in RTO Peshawar, 363 in RTO Rawalpindi, 242 in RTO Multan, 181 in RTO Faisalabad, 109 in RTO Quetta, 98 in RTO Sialkot, 84 in RTO Bahawalpur, 79 in RTO Hyderabad, 65 in RTO Gujranwala, 45 in RTO Abbottabad, 24 in RTO Sukkur and 23 in RTO Sargodha.

FBR Spokesperson Dr Mohammad Iqbal told Dawn that FBR would check the status of all the companies who have declared ‘nil’ income in their tax returns. He said that through audit it will be determined whether these companies have actually conducted any businesses or not.

Responding to a query, he said it was possible that those who had declared their incomes had underestimated its value. “We will get information regarding ‘nil income’ or other companies who have concealed their incomes through different tools,” the spokesperson said.

Published in Dawn, August 27th, 2017