The tax authorities in Pakistan are gearing up for stringent measures against individuals who have not filed their income tax returns. Starting next month, non-filers will face disconnection of utility and mobile phone connections as part of an effort to broaden the tax base to include over six million individuals in the current fiscal year.
This move is crucial for meeting the International Monetary Fund’s (IMF) set target of Rs4.425 trillion for tax collection in the July-December period, which is a prerequisite for Pakistan to qualify for the last IMF loan tranche of $1.2 billion, expected to be negotiated in February or March.
As of the last working day of the month, the Federal Board of Revenue (FBR) has already exceeded the set target, collecting Rs4.440 trillion. To further boost collection, FBR offices and banks will remain open on the weekend.
According to the agreement with the IMF, the FBR is committed to providing regular updates on revenue collection progress, and in case of any shortfall, backup measures such as imposing excise duties and withdrawing sales tax exemptions will be implemented.
Despite the challenges, the FBR has performed well, and there is optimism that the annual target of Rs9.415 trillion will be achieved. Notably, there is a positive trend showing a shift towards a higher share of direct taxes, reaching 48% in the first half of this fiscal year, driven by improved collections from real estate and commercial banks.
However, efforts to expand the tax base are progressing slowly, with only 3.6 million income tax returns received so far. The goal is to increase this number to 6.5 million by June, aligning with commitments made to the IMF and the Special Investment Facilitation Council.
The FBR plans to issue a circular next month containing the names of individuals whose utility and mobile phone connections will be disconnected due to their failure to file tax returns. This action is empowered by law, targeting those obligated to file returns but failing to do so.
The recent approval of a $350 million loan for budget support by the World Bank comes with concerns about Pakistan’s low tax-to-GDP ratio.
The country faces challenges related to tax evasion, a low number of tax filers, and an insufficient tax-to-GDP ratio, impacting public services and development initiatives. The FBR is actively working to add over 1.5 million new taxpayers to the system, conducting surveys to identify non-compliance and bring more individuals and businesses into the tax net.
