LAHORE: Data mining and data analysis can improve collection of taxes and provide useful data to broaden the tax base.
This was stated by the Usman Azam Bhatti, Assistant Commissioner Inland Revenue, Regional Tax Office-II (RTO-II) Lahore during an exclusive interview with Customs Today.
Usman Bhatti said, in contemporary world, progress of every country hinges on its economy and taxation is the backbone of economy. Pakistan is traversing through a critical juncture of history; as it is shifting from a dependent to self-reliant economy. Therefore, FBR has to play the most critical role to make this transition a success.
He said the Parliament has approved Rs4.013 trillion tax collection target for tax year 2017-18 which poses a formidable challenge for tax machinery of the country. However, accepting this challenge, FBR has successfully collected Rs 2.26 trillion in revenue during first eight months of current tax year against Rs 1.920 trillion during same period of the previous tax year; achieving a growth of 17.7%; which is indeed a significant milestone, though short of set target. Now its last quarter of tax year 2018 and FBR field formations are determined to achieve this great milestone by reaching the set target, he added.
He said, “However, a matter of grave concern for FBR is steady decrease in number of filers of income tax returns; by mid-February the number of filers could only reach at 1.238 million. Unfortunately, income tax returns filers from all major sections except salary have plummeted during last three years.’’
Usman said, it requires special attention of policy makers in FBR to ascertain causes behind this decline. Preferably, FBR should launch a limited research work to identify those cases where return filing has suddenly stopped. The factors deterring potential taxpayers’ from filing their returns must be ascertained, and all those deterrents must be removed.
FBR should do everything possible to facilitate taxpayers and ensure maximum help and guidance in return filing by making the system user friendly; as most of the people want to file their returns but due to lack of awareness, IT-illiteracy, complications of the system, they are reluctant to file their returns.
He told that net income tax collected by 23 field formations of FBR has revealed that out of total collection of Rs 695.7 billion in income tax, tax amount of Rs 491.5 billion which is 70.6% of the original came from withholding tax regime. This huge share of withholding in total income tax collection provides food and fuel to many conspiracy theorists; as critics regarded it as an evidence of regressive taxation and mal-administration on the part of FBR, simply, neglecting the fact that Pakistan is not an exception in this regard.
This is a compulsion for all under-developed economies. In Pakistan, low literacy rate of the masses, where around 67% of the people are inhabitants of rural areas and economy is largely un-documented and informal, greater reliance on withholding is most viable option. These issues are shared by many other under-developed countries.
He mentioned that starting from indirect taxes to systematic shift to direct taxes is the path being followed around the globe by all developing economies. For instance, in India out of the total tax of Rs 17.1 trillion collected during tax year 2016-2017, tax of INRs 8.63 trillion was collected through means of indirect taxes and withholding tax, which is above 50% of total tax collected. Similar is the case with Malaysia and Indonesia.
However, no one can deny the fact that economic and infrastructural conditions in those countries are much better than that which the tax administration is facing is Pakistan. Therefore reliance on indirect taxes and withholding tax is not a luxury but a necessity and with better documentation of the economy and greater understanding of e-taxation, economy will systematically shift from indirect to direct taxes as is happening in other developing countries.
Assistant Commissioner added, “I am working in withholding taxes zone of RTO-II, Lahore. The worthy Chief Commissioner RTO-II, Lahore is rightly emphasizing on data mining and data analysis because this is a vast untapped area, which has the potential not only to improve tax collection, but also to broaden the tax base. Currently there are 64 types of tax deductions at source, which significantly contribute to collection of tax.”
Therefore many reforms such as simplifying tax structure, strengthening of tax administrator, improving compliance by e-administrator are urgently needed to improve efficiency and service delivery.
To conclude, a tax system is considered optimal if it generates adequate revenue to meet a country’s public spending needs, is efficient, progressive and easy to comply with. As no state can survive permanent economic dependence; therefore, if Pakistan has to move forward as an independent and prosperous state, a strong and efficient tax administration is indispensable.