Income tax payers decline by 35%

Due to difficulties meeting monthly tax collection targets, the number of income tax return filers decreased by 35% to little under 3.9 million from the previous year, indicating that the interim administration has failed to expand the tax base.

The caretaker government, whose tenure has now officially come to an end with the new National Assembly taking office, was also unable to impose taxes on retailers or revoke the mobile phone service of those who failed to complete income tax reports. It was hoped that technocrats, as opposed to politicians, would take action against large retailers.

That the number of people filing income tax returns has drastically decreased, notwithstanding the hoopla around the proposed changes to the Federal Board of Revenue (FBR).

The government has fallen short of its monthly revenue target for taxes for the second month in a row. However, the FBR has managed to reach the eight-month tax target of Rs5.83 trillion, thanks to stronger collection in the preceding months.

The FBR began experiencing issues in January of this year, despite maintaining an unusually high performance level for the first half of the fiscal year. This was happening at the same time that the acting finance minister was trying to reorganize the tax system in spite of resistance from certain cabinet members and doubts about the caretakers’ authority. The Pakistani Election Commission also recommended against reorganizing the tax system to the acting government.

Declining Tax Base

Pakistan presented a plan to the International Monetary Fund (IMF) in November of last year to raise the number of income tax return filers to 6.5 million by June of 2024. In order to broaden the base, the interim administration chose to establish district tax offices, moving half of the tax force from the regional tax offices to these new locations.

Additionally, the interim administration was assigned a target by the Special Investment Facilitation Council (SIFC) to raise the tax base by a minimum of one million for the current fiscal year compared to the previous year’s amount. Approximately 5 million persons had filed tax returns during the previous year when these goals were set.

According to sources, as of the end of February, the FBR had only received 3.88 million income tax returns in total; this was 2.1 million or 35% fewer than in the tax year 2022. In all four categories—companies, associations of people, business individuals, and the salaried class—the government saw a decline in the number of filers.

Senior FBR officials anticipate a significant increase in the amount in March, nevertheless, following the release of the Active Taxpayers List on Monday. The new list will not include the names of any non-filers, meaning that the rate of withholding taxes on their transactions would be doubled.

Information revealed that, thus far this year, the number of associations filing returns has stayed at 91,135 as opposed to 92,704 associations that did so last year. Comparably, the number of businesses that filed returns in the previous tax year—about 77,600—has decreased to fewer than 72,000, indicating a loss of roughly 8%.

According to the sources, business individuals accounted for the majority of the drop in filers, with nearly 1.6 million, or 43%, fewer people filing income tax returns this year. The number of business individuals filing returns has decreased to 2.2 million from approximately 3.8 million in the previous tax year.

In a similar vein, 435,000 fewer salaried individuals, or roughly 22% fewer, filed their taxes this year. Just 1.55% of paid individuals filed their yearly accounts of wealth and income this year, compared to almost 2 million who did so last year.

The sources claim that the finance minister rejected a request from the FBR to tax merchants, instead referring the issue to the upcoming administration. Likewise, a committee was established to halt non-filers’ mobile phone connections; however, no directive was given in this regard.

According to a senior FBR official, this year’s around 840,000 new filers demonstrated the tax machinery’s efforts, even with the low number of filers. The largest group among them was business people, as 510,000 of them filed returns for the first time.

Less than 7 million of the over 11 million people and businesses who are registered with the FBR did not file their annual filings.

Tax Collection

Based on improved performance in the first half of the fiscal year, the FBR was able to collect Rs5.829 trillion, the target it set for itself after eight months. The FBR received Rs. 6 billion on the final day thanks to a prompt ruling by the Pakistani Supreme Court in the super tax case; this enabled them meet their eight-month goal.

For the second time in this fiscal year, the FBR fell short of the monthly goal by Rs33 billion, or 4.6%. Pakistan might be required to submit a mini-budget under an agreement with the IMF if monthly collections are below than the target by more than 1%.

The push by the interim finance minister to reorganize the FBR and the extra vacations in February are the sources of the shortfall in the monthly revenues, according to the tax officials.

According to the FBR’s provisional collection numbers, it has collected Rs5.83 trillion thus far, which is Rs1.34 trillion or 30% more than it did during the same period in the previous fiscal year.

Despite a decline in imports, the FBR’s management remained optimistic about meeting the yearly target of Rs9.415 trillion until December. The amount of income tax collected in the first eight months of this fiscal year was Rs2.76 trillion, an increase of almost Rs800 billion, or 41 percent.

The weakest sectors continued to be sales tax and customs taxes. Over Rs2 trillion in sales tax revenue was collected, an increase of Rs316 billion, or 19%, over the previous fiscal year. The FBR received Rs352 billion in FED, whereas Rs710 billion in customs duties were collected.

Information revealed that the FBR could only provisionally pool Rs681 billion, falling short of the February target of Rs714 billion by Rs33 billion. However, the amount collected increased by Rs162 billion, or 32%, in comparison to the same month in the previous fiscal year.