FBR Chairman Salman Siddique conceded that 79 per cent was the highest-ever figure. At the same time, he said, the tax-to-GDP ratio also fell to 9.1 per cent from last year’s 9.2 per cent. He projected the next year’s figure at 9.5 per cent. – File Photo

ISLAMABAD: The Federal Board of Revenue admitted on Monday that tax evasion hit 79 per cent this year and said it would have to be reduced to achieve the revenue target set for 2011-12.

The tax gap (tax evasion) is the difference between potential and actual tax collection. The potential is the amount of tax the government will collect if everyone fully complies with the tax law. Briefing reporters on new taxation measures taken in the budget, FBR Chairman Salman Siddique, however, said there was no increase in the tax gap over the past few years.

According to a World Bank study, the tax gap, which was 69 per cent in 2008, has now gone up to 79 per cent. But Mr Siddique said as the figure of 69 per cent was calculated by using a different methodology, the two figures were not comparable.

However, he conceded that 79 per cent was the highest-ever figure. At the same time, he said, the tax-to-GDP ratio also fell to 9.1 per cent from last year’s 9.2 per cent. He projected the next year’s figure at 9.5 per cent.

Mr Siddique said the FBR was focusing on reducing the tax gap. “There is a potential to reduce the evasion percentage to 40 to 50 per cent.”

He rejected a perception that the budget had envisaged impractically high revenue targets. “I am taking extra administrative measures which will yield an additional amount of Rs50 billion. This will reduce the tax gap by one or two percentage points.”

But he did not explain what the “extra administrative measures” meant.

The FBR chief said it was not possible to reduce the tax gap to zero. This was not even possible in developed countries like the USA (tax gap 22pc) and Britain (eight per cent). The tax gap in Pakistan could be brought down with constant efforts, he added.

A 2008 study showed that the gap in direct tax was 143 per cent, which was much higher than the 36 per cent gap in indirect taxes. This shows that a large number of people are not paying income tax.

The FBR chairman said a centralised audit system would be launched on July 1 to improve the collection and efforts would be made to bridge the gap by bringing the evaders under the tax net.

He said that improvement in the system and auditing of withholding agents like banks and telecom companies would help the bureau raise additional revenue. He said the FBR had collected Rs25 billion through the audit of banks alone -- Rs9 billion from Karachi and Rs160 million from Rawalpindi.

Mr Siddique said there were nine such sectors (withholding agents), but they were not paying proper taxes collected from the taxpayers. “We have full support of the top leadership, including the president and the prime minister, for broadening the tax base and bringing evaders and non-taxpayers under the net,” he said.

In reply to a question, he admitted that there was a huge gap between the tax collection and its potential and said that efforts would be made to bridge the gap by improving the performance of FBR.