Expanding tax base FBR unconvinced by NADRA suggestion

ISLAMABAD: The FBR has rejected the National Database Registration Authority’s (NADRA) claim for expanding the narrowed tax base through its prepared tax profiles of potential tax dodgers, arguing that such profiles could not be converted into taxability.

NADRA had shared 3,500 tax profiles of potential tax dodgers with the FBR to find out possibilities for expanding the tax base a couple of months back. However, after scrutinising the data, the FBR found that such profiles could not be converted into taxability under any circumstances whatsoever. During the tenure of ex-Prime Minister Imran Khan, the NADRA claimed that its data could make wonders whereby, the FBR failed to expand the tax base. The income tax law at that time incorporated changes for paving the way for data sharing for expanding the narrowed tax base.

Moreover, now when the FBR high-ups were contacted for seeking their version, they asserted that they have analysed NADRA’s tax profiles in detail and found that such profiles could not be converted into taxability.

“The instant results cannot be achieved with the help of details of family trees as the tax machinery will have to scrutinise each and every case with minute details for ascertaining its exact tax liabilities” one official of the FBR commented.

Another official of the FBR elaborated that there was an urgent need for purchasing a software for assigning its field formation to utilise the data, whereby proper track down should be kept in place to verify whether respective chief commissioners in their jurisdictions utilised the data to expand the narrowed tax base. This scribe sent question to the Chairman NADRA Tariq Malik for his version two days back but got no reply until filing of this story on Friday evening. Earlier, a few months back he had told this scribe that they had explained collaborative work on broadening the tax net using modern digital technologies such as the Artificial Intelligence (AI), big data analytics, and predictive analysis to the minister and the chairman FBR. However, the FBR in its study found that the tax gap of Rs3000 billion existed due to policy issues and faulty enforcement. There is a tax gap of Rs3, 000 billion out of which Rs1, 800 billion is a policy gap, as it occurs mainly because of tax exemptions/incentives provided by the FBR to different sectors. There is a remaining compliance gap of Rs1, 200 billion. Under the Finance Act 2022, the FBR and the Nadra have empowered the exchange of information for expanding the tax base.

It is relevant to mention here that such efforts were made in the past also but all these failed to materialise. There is one difference. The exchange of data will be the result of a law approved by the parliament. Tax officials who had worked with the Nadra in the past told this scribe there could be a variety of reasons for an individual case for ascertaining anyone’s lifestyle based on which his, or her, tax liability could be determined. There is no scarcity of data and information but the FBR is facing challenges to convert this information into taxability. The problem arises as to how to convert the information into taxability under the existing law of Pakistan. It is only true that people are earning lofty incomes, but they never come into the tax net.

Under the IMF agreement, Pakistan authorities had committed that they would expand the tax base by bringing 300,000 persons with data on the withholding tax of businesses, third-party data, and physical surveys to book new individuals. The IMF in its last review report said that the FBR will bring the service sector, notably retailers, into the tax net by making better use of data.