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Documentation of economy: Third Phase

"CBR must come to the expectation this time"

From Shamim Ahmed Rizvi,
Apr 09 -15, 2001

The 3rd phase of tax survey and documentation of national economy which was to start with effect from March 1, 2001 as per earlier schedule has now been postponed to July 1. The reason for this postponement, as disclosed by the spokesman Mr. Wakil Ahmed Khan, member sales tax Central Board of Revenue (CBR) is that the work related to the first two phases has not yet been completed as over 300,000 forms out of 9 lacs distributed in the second phase are still to be retrieved from the tax payers. The argument hardly sounds convincing.

This delay, mainly due to the inefficiency of the CBR officials will however provide a justification to them for their failure to meet the tax collection target for the financial year 2000-2001 ending on June 30 next. For this financial year revenue collection target was initially fixed at Rs. 450 billion which was later revised to 435 billion and then further down to 417 billion. Although the spokesman insists that CBR will be able to achieve the revised target but it seem rather impossible as during the first nine months July-March the actual collection has been approximately Rs. 285 billion. According to experts they would hardly meet the figure of Rs. 400 billion.

Presiding over the meeting of the Ministry of Finance and CBR officials to review the progress on the ongoing tax survey in Islamabad in Nov last the Chief Executive Gen. Pervez Musharraf exhorted the participants that they must ensure an increase of Rs. 100 billion on the revenues during the current fiscal year as targeted in the budget. He, however, assured that the ongoing tax survey for documentation of economy will continue as planned at all costs. The CBR will be provided full support in their task but they must come to the expectation this time.

The Central Board of Revenue (CBR) expected a collection of revenue of Rs. 435.6 billion during 2000-2001 against the actual collection of Rs. 345.51 billion during the last financial year an addition of Rs. 90 billion to be raised through on going tax surveys during the current financial year. They expected to increase revenue to Rs. 550 billion in 2001-2002. The CBR officials assured the Chief Executive that these targets could be achieved provided the task of documentation of economy was carried out in all sectors of economy with full backing and support of Armed forces.

While the budget estimates for the current fiscal year were generally believed to be too optimistic, both the CBR and Minister for Finance Mr. Shaukat Aziz sounded more than confident that will not only achieve but exceed the target fixed. Finance Minister told newsmen that the projected 24 per cent rise in tax revenue "was aggressive but not unrealistic" pointing out that without much effort this year there was a 17 per cent increase in revenues. If we don't plan aggressively we will never get out of this quagmire we are in, he added.

In Oct. 2000 when the initial exercise of first phase of tax survey in 13 major cities was nearing completion the CBR bosses appeared more than happy as, according to them, they had detected massive income tax evasion by those who had declared their assessable income through tax survey forms. On the basis of the information provided by a senior official of the CBR, this correspondent reported in Page (Aug 21-27/2000 issue).

For the year 2000-2001 the government has fixed a target of Rs. 435 billion which is Rs. 90 billion more than the actual receipts last year. There was almost a consensus between the CBR and the Finance Ministry that the revenue generation would exceed by over Rs. 100 billion as a result of the ongoing tax surveys. The authorities sounded so confident that they made CE to believe that revenue generation could be increased to Rs. 550 billion for the year 2001-2002 when the tax survey exercise would be completed throughout the country. According to the CBR the initial survey of the first 13 big cities which was completed by end Oct 2000 had revealed massive tax evasion and the optimism that revenue generation could be increased to Rs. 600 billion during the next 2 years (during which period all tax evaders will be brought into tax net) was fully justified. A senior member of CBR confided to this correspondent in Oct last, "We never thought tax evasion was of that high level. Now there should be no problem in adding Rs. 100 billion to the national revenues during the current financial year".

During the first phase of tax survey of around 700,000 households and business houses in 13 big cities were given survey form and about 542000 were received back before 15 Oct which included about 400,000 from residential areas. The automation wing of the CBR announced in Nov. that only as a result of scrutiny of around 400,000 houses in posh areas of 13 cities, about 100,000 notices are to be issued to either tax dodger, non filers and under filers. The survey forms received from commercial and Business Community are yet to be checked and scrutinised where chance of tax evasion are much larger. According to the initial scrunity by Pakistan Revenue Automation Ltd. (PRAL) more than 25000 owners or tenants of houses built on a plot of 1000 yards or more are just not in the tax net although they are getting rents or paying rents that warrants tax liability of the owner or tenants, which is taxable. Similarly the analysis showed that of all property owners 25 per cent declared the income to be less than Rs. 50,000 the 60 per cent said their income was less than one lakh rupees and 15 per cent declared the income to be less than three lakh rupees. Obviously, PRAL suspects, that there was gross under reporting. This would involve examination of tax records and subsequent action on defaults. Similarly PRAL found that of the one lakh new national tax numbers given to individuals, 75,000 persons did not pay tax in the past and it is to be ascertained if they filed any tax return for 2000-2001 assessment year or not.

A different picture was however, presented when CE was briefed on tax survey estimates and revenue generation position last month. He was reportedly told that because of slow response on tax survey the projected increase of Rs. 90 billion may not be achieved during the current fiscal. The new estimate was put at Rs. 50 billion to which CE did not agree and he directed the CBR Chairman to speed up the process, take his staff to task and come up with the desired level.

CBR Chairman Riaz Hussain Naqvi, while responding to the Chief Executive Pervez Musharraf's question of revenue shortfall, told him that slow-economic growth, lesser imports, especially of edible oil, problems with the sugar industry, expectations of tax payers to further extend income tax returns date, concessions given to various classes, especially the traders and delay in start of tax survey were the main causes. Explaining the reasons he said that economic growth, a factor in determining the revenue collection could not reach the targets. Furthermore, the imports were also lesser than it was envisaged when the policies were drafted. Especially, the edible oil import was much less than the anticipations. In the sugar industry, late start of crushing season caused delay in their filing of returns. CBR did not extend final dates of filing returns in spite of their strong demand.