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Broadening Tax Base: FBR Authorized to Access Bank Info –to Connect the Dots

The World Bank suggests 75 per cent tax compliance as a realistic level for lower-middle-income countries. Presently, the State’s gap between actual and potential tax recovery is less than 50 per cent, mostly because of undocumented transactions.

PKONWEB Report — The Federal Board of Revenue (FBR) will henceforth have access to banking information of non-tax filers– a databank has already been developed with the help of NADRA for ease of tax compliance and recovery.

The development comes as the State and the Government seek to broaden the tax base, streamline tax compliance and improve recoveries.

According to The News, the FBR has been authorized to seek information from all banks without the need to approach the State Bank or bring it into the loop.

first batch of withholding data from all banks will be made available to the FBR in the third week of the month. Once received, the bank information will be used with the databank already developed with the help of Nadra to broaden the country’s narrowed tax base.

The databank includes all kinds of data about potential non-filers but it had a missing link– banking information.

Pakistan continues to have the lowest number of active taxpayers per tax administrator in South Asia — 64. In India, taxpayers per tax administrator share stands at 537, and in Sri Lanka 232; in the United States it’s 1,990 and in Switzerland 3,182.

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The FBR was now confident that the data of withholding deductions would be shared by the banks with the FBR from June 18, 2019, helping the tax machinery to launch pilot project from July 1, 2019 for broadening of tax base.

A top official of the State Bank of Pakistan (SBP) told The News that the FBR was empowered to get data from the banks under income tax law. “Whatever is allowed under the law, the banks will share data with the FBR,” the official said.The SBP, he said, did not have depositors’ data so the FBR could get it directly from the banks under relevant provision of the Income Tax Law.

The commercial banks have account holders’ data and withholding details, and it is expected that it will be shared with the FBR within a couple of weeks.

Independent tax experts say the FBR would have to build up its capacity to effectively utilize data for broadening of the country’s tax base.

First of all, the banks and FBR will have to develop software that must have capability to talk to each other through connectivity. Secondly this IT enabled data should chip into the software to fill the missing links that could be converted into such databank having ability to bring non-filers without creating harassment.

The World Bank recently announced it will provide $400m to the FBR to help improve its capability and capacity for tax administration.

The FBR seeks a $400 million loan from WB for tax reforms. This will however be the second full-scale attempt by the WB to reform the FBR in the past 14 years. Its earlier $150 million assistance to FBR’s “Tax Administration Reforms Project” badly failed to yield the desired results, and the money went down the drain, reported The Express Tribune.

A World Bank project report has revealed that Pakistan needs to increase tax compliance, not new taxes.

The report said that neither the FBR is organized along functional lines nor does it have a clear hierarchical structure, the WB document said, adding FBR has a nationwide presence with more than 21,000 staff, of whom about two thirds work for the Inland Revenue Service (IRS) and one third for the Pakistan Customs. 

The WB project document also said that the country’s existing taxes have the potential to generate the amount the country needs.

Pakistan’s current tax-to-GDP ratio is 12.6 per cent of the GDP, which according to the WB should be 23 per cent of the GDP.

It suggested 75 per cent tax compliance as a realistic level for lower-middle-income countries. Presently, the State’s gap between actual and potential tax recovery is less than 50pct, mostly because of undocumented transactions.

The informal economy, according to an estimate, is two-thirds more than the formal economy.

Presently, Pakistan has 1 percent of its 220m population as tax registrants.