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4,000 corporate entities show Rs0.1m income only

ISLAMABAD: Tax authorities have found that 4,000 corporate sector returns showed an income of only Rs100,000 during the current fiscal year, indicating massive tax evasion with the ‘tax facilitation exercise’ being carried out by the FBR for the last few years.

This startling fact was shared with business tycoons by FBR’s Member Fiscal Research Dr Aather Maqsood during his presentation at a pre-budget seminar jointly organised by the FBR and Federation of Pakistan Chambers of Commerce and Industry here on Monday.

In his analysis on corporate sector returns during tax years 2006 and 2007, Dr Maqsood said out of total received returns of the corporate sector, 23 per cent in 2006 and 17.5 per cent in 2007 declared their income around Rs100,000.

There were 25 per cent return filers in 2006 and 29.6 per cent in 2007 who declared their income in the range of Rs100,000 to Rs500,000, he added. Total registered corporate sector giants were 37,188, he said, out of which the FBR received over 16,000 returns in tax year 2006 and the compliance rate came to 44.2 per cent.

Out of total received returns in 2006, he said only 34pc showed their business as earning profits, 24pc showed losses and 42pc showed zero income. In tax year 2007, out of total received returns, 26.7pc showed their business as earning profits against 34pc in 2006, a 7pc decrease in companies which were making profits.

There were 16pc returns which showed losses and 58pc showed no income. Further analysis done by Dr Aather Maqsood revealed that there were only 299 companies in 2007, which had made losses in 2006, earned profits in the next year (2007). There were 860 companies, which had shown income in 2006, showed nil income in tax year 2007.

Sharing the future vision of the FBR, he said the government had envisaged a rise in the tax-to-GDP ratio of 5 per cent in the next 10 years as “the existing level is just over 10pc and the FBR wants to raise it up to 15pc.”

He asked the incumbent regime to show political will for bringing agriculture income, services sector, transportation and communications under the tax net in order to achieve an increase in the tax-to-GDP ratio.

He criticised the existing National Finance Commission (NFC) mechanism for distributing financial resources among the federating units, saying the provinces were used to get easy money without making any efforts to enhance their capacity for generating revenues and there was a need to discourage the trend. He also proposed the government to do away with the existing tax exemptions in the next budget.

Maqsood said the net 80pc revenue collection generated from indirect taxes originated from 18 commodities. He said people recommended unviable options to the government by asking to waive taxes on petroleum products and they did not know that about 50pc tax collection was generated from five major sectors including petroleum, telecoms, automobile and others.

The major contributors to direct taxes were oil and gas, telecommunications and banking sectors, he added. The business tycoons, while giving their input on the budget proposals for 2008-09, severely criticised the rampant increase in smuggling, under-invoicing, over-invoicing and serious flaws in CARE (customs administrative reforms) system.

A businessman pointed out that petroleum-related chemicals were cleared at the Karachi port at the rate of $600 but these were continuously being cleared at $100 at Quetta. Despite the introduction of CARE system at Karachi, the businessman alleged, corrupt practices were still going on and by getting Rs50,000 per container, customs authorities were clearing the containers.