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FBR’s Historic Acheivment

Primarily, achievement of the tax revenue target assigned by the government remains top priority of the FBR. For the financial year 2020-21, the government assigned a tax target of about Rs.4.7 trillion. Achieving this mammoth tax revenue target was an uphill task due to sluggish economic activity amidst adverse effects of the ongoing Covid-19 pandemic.
Surprisingly, the FBR not only achieved tax revenue but also surpassed it by 18% over the last financial year. The FBR also disbursed tax refunds to the tune of Rs.251 billion compared to Rs.135 billion paid last year, showing an increase of 86%. This is an historic achievement, especially when different quarters were guessing that the FBR will miss tax target by a wide margin. The Prime Minister left no time to congratulate entire team of FBR for this historic achievement.
The improved revenue performance was due to adoption of ‘no-undue’ advances policy as well as effective enforcement by field formations. Below I discuss briefly those factors:
1. Change in jurisdiction of taxpayers
The FBR has adopted a novel idea of transferring jurisdiction of large taxpayers having considerably high turnover to Large Tax Offices (LTOs) and Corporate Tax Offices (CTOs) in the beginning of the tax year 2021. This policy was the brainchild of FBR’s Member Operations, who also transferred officers renowned for professional competence and integrity from different offices to LTOs and CTOs. The LTOs and CTOs with skilled human resource have largely contributed towards realizing tax revenue target.
2. Change in policy of tax audits
The FBR has followed policy of more tax audits in tax year 2021. Member Operations played an active role by motivating field officers engaged in tax audits through video link conferences to create good quality demand. Partial tax demands recovery by the tax authorities also contributed in overall tax collection.
3. Agreed assessments
The government introduced a policy of agreed assessment under section 122D of the Income Tax Ordinance, 2001. A considerable number of tax audits might have been concluded through agreed assessments wherein the taxpayers might have opted to deposit settled tax amounts instead of going into litigation, which is not only time-consuming but also too costly.
4. Increased level of tax compliance
Improved level of tax compliance reflected in increased tax return filing trend has also contributed to improved revenue collection. The FBR has adopted strategic policy to broaden tax base. Increased tax rates on transactions of non-filers coupled with administrative penalties have forced potential taxable persons to file tax returns. As on June 30, 2021, income tax returns for tax year 2020 have reached 3.01 million, compared to 2.67 million in tax year 2019, showing an increase of 12.5%. The tax deposited with returns was Rs.52 billion, compared to only Rs.34.3 billion last year, showing an increase of 52.1% as reported by the FBR on its website.
5. Enhanced use of technology
To control tax evasion, the FBR has made it mandatory for the retailers to integrate their sales points with its system for real-time reporting of sales. According to the information released by the FBR, as many as 11,100 point of sale terminals have been integrated with real-time reporting system of the FBR. Real-time reporting of sales has definitely contributed toward increased sales tax revenue as well as income tax withholding tax revenue.
6. Role of Directorate General of I & I -IR
The Directorate General of Intelligence & Investigation-IR showed commendable performance during the past year as it forwarded 1,608 Investigation Reports and Red Alerts to the field formations involving revenue amounting to Rs.244 billion. Furthermore, 71 complaints under Anti-Money Laundering Act, 2010, involving a revenue Rs.62 billion were forwarded to the field formations. The deterrence effect against tax evasion created by the Directorates Intelligence & investigation–IR through investigations and prosecution certainly has positive impact on overall tax collection during the financial year 2020-21.
7. Role of Customs authorities
Pakistan Customs has collected Rs.742 billion under the head of customs duty in financial year 2020-21 against the assigned target of Rs.640 billion – thus it exceeded its target by Rs.102 billion which is 16% more than the assigned target. An additional amount of Rs.117 billion was collected under the head of customs duty in financial year 2020-21 as compared to financial year 2019-20, showing a growth of 18% from the previous financial year. More importantly, during financial year 2020-21, smuggled goods worth Rs.57.7 billion have been seized as compared to those worth Rs.36 billion in financial year 2019-20 – an increase of 58%.
Besides above factors, the government has withdrawn various exemptions by amending the Income Tax Ordinance, 2001, through ordinances during financial year 2021.
Conclusion
The government announced budget 2021-22 together with Finance Bill 2022 on 11 June 2021. The government has fixed Rs.7.909 trillion revenue target, which will be achieved by collecting Rs.5.829 trillion in tax revenue and Rs.2.08 trillion non-tax revenue. The FBR will certainly achieve this target as a number of policy- and enforcement-related measures have been introduced through the Finance Act, 2022. For example, capital gain tax rates have been enhanced on disposal of immovable properties. The gain arising on the disposal of immovable property with holding period of more than 4 years is not taxable. However, capital gain arising on the disposal of immovable properties is taxable to the extent of 100%, 75%, 50% and 25%, if holding period of property is 1, 2, 3 and 4 years, respectively. The capital gain calculated on the basis of holding period would be taxable at the rates ranging from 3.5% to 15%. Summarily, gifts received from certain persons would be taxable in the hands of recipients. For this purpose, the provision has been broadened to exclude gifts received from relatives to prevent tax avoidance on gifts. Many other provisions of the Income Tax Ordinance, 2001, have been either amended or new provisions have been inserted to enhance tax collection in the forthcoming financial year. Among enforcement measures, where on the basis of material evidence brought on record as a result of audit, the taxpayer has found to be committed the offence of concealment of income which has resulted in non-payment of tax of Rs.100 million and above in case of a filer and Rs. 25 million or above in case of non-filer, the tax authorities have been given powers to arrest such taxpayer(s).
The author is serving as Additional Commissioner Inland Revenue at Federal Board of Revenue, Pakistan. He can be contacted at bilal.hassan@fbr.gov.pk