The logic of choosing the current difficult year to freeze the last date for the filing of tax returns two months earlier than the last year is puzzling. More so as fewer Pakistanis have filed tax returns this year than last year.
The pandemic has caused disruption and if extending the deadline was ever an option, this was the time to apply it to provide relief to the people.
Pakistanis filed tax returns for 2018-19 until Feb 28, 2020. The Federal Board of Revenue (FBR), however, decided to enforce the writ of the government by sticking with Dec 8 as the cut-off date to file tax returns for 2019-20. Intended filers, however, are offered a facility of 15-day grace period on request that is extendable by another two weeks. How many citizens will bother to avail the offer will become clear in a month when the grace period expires and the final count of tax filers is officially recorded.
The FBR chairman expects the final number of taxpayers for 2019-20 will at least be about the same as last year’s by the end of the grace period
According to media reports, the base of tax return filers this year shrank by as much as 55 per cent to 1.3m from 2.9 million last year. On the corresponding date of December last year, the filer count was 1.7m. By February 28, additional 1.2m people joined the active taxpayers’ list. The tax received with returns this year was Rs6.5bn, almost half of Rs12.8bn last year, according to a report published last week.
Critical of the narrow tax base in the country, Prime Minister Imran Khan vowed to triple the revenue collection in his term. According to the FBR Revenue Division Yearbook, tax collection was Rs3,842bn in 2017-18. In the first year (2018-19) of the PTI rule, collection dropped by 0.4pc to Rs3,828bn. In 2019-20, the second year of the PTI, the FBR Yearbook states revenue collection increased by mere 4.4pc to Rs3,996bn. For 2020-21, a target of Rs4,963bn has been set. In the first five months of the current fiscal year, the FBR has collected Rs1,688bn.
The overall tax-to-GDP ratio has actually declined under the PTI watch from 12.9pc in 2017-18 to 11.8pc in 2018-19 and 11.4pc in 2019-20. The situation is worse if the FBR tax-to-GDP ratio is tracked. This ratio slid from 11.1pc in 2017-18 to 10.1pc and 9.6pc in subsequent years when the IMF desired the tax-to-GDP ratio should spike to 16-17pc by mid-2022.
Probably in pursuit of ambitious revenue collection targets, the PTI government changed FBR chairman four times in two and a half years, equivalent to what the PPP and PML-N did over their full five-year tenures. The administrative shuffle, however, did little to break the low tax collection cycle. Each year, collection trailed revenue targets. Objectively, the chances of hitting the tax target in 2020-21 also appear slim.
Senior revenue officers, when approached, dismissed the published data that they claim under-reports the number of filers and underplays higher taxes deposited with returns. They defended the government’s decision on the cut-off date and the reshuffling in the FBR. They found the general perception regarding tax collection and tax collectors misplaced and based on flawed information.
FBR Chairman Tariq Javed Ghani sounded confident over the phone. Commenting on the deadline, he mentioned tax laws that bind the filing of returns within three months of the availability of return forms. “We loaded the new return forms compliant with the current Finance Act on Sept 9 and fixed the last date of filing Dec 8,” he explained to Dawn. On extension, he said the FBR has adopted a lenient stance keeping in view the Covid-19–induced difficulties.
He confirmed 1.8m tax returns have already been filed by Dec 11 and the FBR has already received extension requests from 0.4m intended filers, swelling the filers’ ranks to 2.2m. He expects the final count of tax filers to be about the same if not more by January 2021 when the grace period ends. He says new filers keep trickling in even afterwards.
Mr Ghani insisted that the decision to not extend the deadline is a step towards transforming the tax culture. “We needed to make people realise that the government means business. People pay for goods and services they use. They must also learn to honour their responsibility towards the state.”
He believed that tax collectors are trying hard and mentioned 30 customs officers losing their lives to Covid-19 while manning the ports to ensure smooth supply of food and medicines in the country.
The FBR chairman mentioned the absence of new tax measures in the current Finance Act and exemptions and higher sales tax refunds to exporters when discussing leaner revenue collection. “You need to put things in perspective before passing judgment on the performance of the FBR.”
Special Assistant to Prime Minister on Revenue Waqar Masood was fairly content with the performance of the FBR. He told Dawn over the phone from Islamabad that 2.1m people have filed tax returns for 2019-20 and tax deposited with returns has increased sharply to Rs22bn. He said the expiry of the last date of filing returns will not stop earlier filers from filing.
“People will continue to file tax returns even if they had to pay the penalty.” He said the current month’s tax collections are crucial for achieving the first half-yearly tax collection target.
Another member of the FBR found the controversy over the high turnover of senior tax officers baseless. “No one is violating any rule. It is the prerogative of the government to make whatever administrative changes it deems necessary.”
Pakistan is currently negotiating with the IMF to put $6bn 39-month Extended Fund Facility Arrangement back on track. The IMF put the programme on hold in February this year just months after its approval in July 2019. The fiscal consolidation was a key tenet of the programme that aimed to reduce public debt and build resilience. In its note released at the start of the programme, the IMF stated: “Achieving the fiscal objectives will require a multi-year revenue mobilisation strategy to broaden the tax base and raise tax revenue in a well-balanced and equitable manner.
“The adjustment will be supported by comprehensive efforts to drastically increase revenue mobilisation by 4-5pc of GDP during the programme period.”
Published in Dawn, The Business and Finance Weekly, December 14th, 2020