ISLAMABAD: A unique budget proposal is under the Federal Board of Revenue's (FBR's) consideration to outsource preparation of profiles of potential taxpayers/registered persons to a data mining company for presenting the potential taxpayer's profiles to the FBR's Broadening of Tax Base (BTB) Department to take appropriate action in accordance with the law.
According to the budget proposals of the Pakistan Tax Bar Association (PTBA) submitted to the FBR for 2020-2021, over the last few years, the concept of active taxpayers (filers) and non-filers has been introduced in order to increase the number of tax return filers.
However, such amendments have not been able to widen the tax base by manifolds as envisaged.
On the other hand it has increased the burden of withholding agents by prescribing different withholding rates based on the “Active Taxpayers List" without achieving any significant progress inroads on the actual tax compliance rates.
In reality, bulk of the increased cost due to higher tax rates for non-active taxpayers, has been passed on by the unregistered persons to the end consumer by enhancing the cost of goods/services to gross up the impact of higher withholding.
The PTBA recommended that the assignment of preparation of profile of potential taxpayers/registered persons be outsourced to a data mining company in line with the responsibility of collection of tax on capital gains given to the National Clearing Company of Pakistan.
This company should only be allowed to collect the following information and present the potential taxpayer's profile to the FBR's Broadening of Tax Base (BTB) Department to take appropriate action in accordance with the law.
It is also proposed that a new team comprising young IT experts, accountants and tax experts should be hired for the BTB Department.
A task force comprising independent professionals and top officials be formed to monitor the work assigned to the data mining company, and ensure that the BTB Department operates efficiently and effectively to ensure the progress in broadening of tax base activity by the FBR.
The effective enforcement should be made in accordance with Section 114 of the Income Tax Ordinance.
The government and the FBR on its part should ensure that the relevant provisions of law are implemented in letter and spirit without any distinction on the basis of caste, creed, colour and clout to achieve the goal of broadening the tax base.
The PTBA proposed that a complete profile consisting of CNIC, firm/company registration-wise of a taxpayer may be prepared, which must be generated by maintaining a database of all the owners and holders/allottees of the industrial, commercial, residential and agriculture properties; private motor vehicles; club membership; international traveling; utilities, and credit cards.
The PTBA proposed that the submission of quarterly statements by the registrars; housing societies for registration/transfer of immovable property (industrial commercial, residential and agricultural), motor vehicle registration authorities, clubs (private and public), credit card issuing authorities, Central Depository Company, National Clearing Company of Pakistan, large-scale private hospitals, hotels; schools and financial institutions distributing profit more than statutory taxable limit or granted commercial loans, should be made mandatory.
The jurisdiction other than company should, for some time, be reverted strictly to geographical basis to avoid duplication and slippages of potential tax filers.
The PTBA proposed that the tax credit at the rate of five percent be restored and provided to those taxpayers whose 90 percent sales and purchase of goods are from persons who are registered as sales tax and income tax taxpayers.
The proposed amendments would result in increased visibility of potential taxpayers and incentivise registration with the tax authorities without increasing the burden on existing taxpayers.