The Institute of Chartered Accountants of Pakistan (ICAP) has put forward a set of recommendations to the authorities aimed at identifying tax evaders and expanding the tax base.
In preparation for the budget of 2023-2024, ICAP has proposed several measures to bring taxable income under the purview of taxation.
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Identification of Non-Filers:
To effectively identify individuals who have failed to file tax returns, ICAP suggests utilizing the following methods:
1. Use of Withholding Tax Data: The available withholding tax data held by the Federal Board of Revenue (FBR) can be leveraged to identify potential increases in the taxpayers’ base.
2. Mobile Users’ Withholding Tax Data: By examining the withholding tax data related to mobile phone users, authorities can uncover non-filers and encourage them to comply with tax regulations.
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3. Electricity Bills Withholding Data: Similar to mobile users, analyzing withholding tax data associated with electricity bills can help identify non-filers and bring them into the tax net.
4. Bank Account Holders Withholding Tax Data: Withholding tax data from bank accounts, such as import, export, and profit payment transactions, can aid in identifying individuals who have not filed tax returns.
5. Property Registration Data: By analyzing property registration data, authorities can identify property owners who are liable to file tax returns but have not done so.
6. Vehicle Registration Data: Examining vehicle registration data can assist in identifying non-filers and encouraging them to fulfill their tax obligations.
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Reactivation of Broadening of Tax Base Directorate:
ICAP recommends the reactivation of the Directorate General of Broadening of Tax Base, which was introduced through section 230D of the Income Tax Ordinance, 2001. ICAP suggests outsourcing the investigating activities of this directorate to expert agencies or organizations operating within Pakistan, including members and affiliates of ICAP.
ICAP proposes that the FBR invite representations from individuals interested in working for the outsourced function. The methodology of these agencies/organizations should be reviewed to ensure effective tax base expansion and identification of new taxpayers. In exchange for successfully identifying new taxpayers, these outsourced entities could be granted a share in the tax collection. This approach would increase FBR’s revenue without incurring additional fixed administrative costs.
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Challenges and Solutions:
The existing burden on field officers within the FBR has hindered efforts to expand the tax base. Outsourcing the function of broadening the tax base would alleviate this burden and facilitate the inclusion of new taxpayers. Additionally, the Directorate General of Broadening of Tax Base should collect and analyze data from various government bodies working at national and provincial levels. This would involve reviewing information provided by banks regarding withholding tax, cash withdrawals exceeding specified limits, and credit card transactions.
To enhance the effectiveness of the Directorate General, ICAP recommends that the FBR:
1. Establish proper criteria for assessing non-filers.
2. Conduct provisional assessments of non-filers.
3. Refer cases to the relevant commissioner.
4. Provide opportunities for non-filers to present their perspective or furnish complete information as required.
5. Make the best assessment of non-filers based on the available information.
6. Enforce the requirement of a National Tax Number (NTN) for non-filers under section 114 of the Income Tax Ordinance, 2001, if the criteria are met.
Conclusion:
ICAP’s proposals aim to combat tax evasion and broaden the tax base by leveraging existing data and implementing effective strategies. By utilizing withholding tax data, property and vehicle registration information, and outsourcing investigative activities, authorities can identify non-filers and encourage compliance with tax regulations.
