The Federal Board of Revenue (FBR) is considering implementing special measures to examine taxpayers who filed their annual returns without making any tax payments.
This move comes as part of efforts to address the issue of massive underreporting of income and property by a significant number of individuals, as highlighted in the proposals submitted by the Revenue and Reform Mobilization Commission (RRMC) for the budget of 2023-2024. The RRMC recommends enhancing reporting requirements, improving information sharing among agencies, strengthening tax enforcement, and adopting advanced technology solutions to combat tax evasion and promote fair taxation.
Data provided by the FBR reveals alarming statistics for Tax Year 2022. Approximately 34.11% of individuals, 46.32% of associations of persons, and 62.81% of companies filed their income tax returns but reported nil tax payments. These figures indicate a significant gap between reported income and actual tax obligations.
The RRMC suggests that taxpayers who report nil tax payments should undergo scrutiny, with an emphasis on understanding the reasons behind their non-payment. To achieve this, the FBR is urged to augment reporting requirements for individuals and businesses. This could include demanding more comprehensive information about income and property. For instance, taxpayers may be required to disclose all transactions above a certain Rupee threshold or provide details about the ownership structure of companies they own or control.
To enhance monitoring capabilities and detect potential underreporting, the FBR should enhance information sharing between agencies. One proposed measure is to mandate banks and other financial institutions to report all transactions above a specified Rupee amount to the FBR. This step would enable the tax authorities to track financial activities more effectively and identify individuals or businesses attempting to conceal their true income and property details.
The RRMC emphasizes the need for the FBR to bolster tax enforcement efforts. This could involve increasing the frequency of audits conducted each year and imposing stricter penalties for tax evasion. For instance, the FBR could focus on examining taxpayers who have tax deductions or withholdings exceeding Rs. 20,000. By intensifying enforcement measures, the FBR aims to deter individuals and businesses from underreporting their income and property.
To improve detection capabilities, the FBR should invest in advanced technology solutions for data analysis. By leveraging sophisticated algorithms and machine learning, the tax authorities can identify patterns of underreported income and property details. This technology-driven approach will enable more efficient and targeted investigations, contributing to the overall effectiveness of tax enforcement efforts.
In its pursuit of fair taxation and combating underreporting, the FBR intends to examine taxpayers who filed their returns without making any tax payments. By increasing reporting requirements, strengthening information sharing among agencies, enhancing tax enforcement, and adopting advanced technology solutions, the FBR aims to close the gap between reported income and actual tax obligations. These proposed measures will ensure a more equitable tax system and promote transparency and compliance among individuals and businesses in Pakistan.