Amid Pakistan’s ongoing financial challenges, the Federal Board of Revenue (FBR) is considering imposing a Rs1 million penalty on various tax evaders, according to a report by The News. This is part of a broader initiative to address significant tax gaps and improve revenue collection. The FBR has proposed six key measures targeting nil, null, and non-filers and has identified ten major revenue-generating sectors for the hiring of independent experts. These sectors include textiles, financial services, insurance, chemicals, fertilizers, petroleum, tobacco, iron and steel, beverages, tea, cement, and real estate.
The initiative comes shortly after the FBR announced it would not extend the September 30 deadline for tax return submissions. This move aligns with Prime Minister Shehbaz Sharif’s administration’s ambitious taxation plan, introduced in the June budget, aimed at securing a fresh bailout deal with the International Monetary Fund (IMF). While the IMF program, a $7 billion Extended Fund Facility (EFF), awaits the approval of the Fund’s executive board, the FBR is grappling with a significant tax shortfall in the first quarter (July-September).
Internal assessments indicate a shortfall of over Rs220 billion against the agreed target of Rs2,652 billion. In August 2024 alone, the FBR faced a deficit of Rs98 billion. The body collected Rs1,456 billion in the first two months (July and August) against a target of Rs1,554 billion, leaving a challenging goal of Rs1,196 billion for September to meet the quarterly target.
The FBR’s annual tax collection target is Rs12,970 billion, as approved by parliament. To address the shortfall, the FBR has outlined strict measures, including blocking utilities for all non-compliant categories, freezing bank accounts, and attaching properties of non-registered manufacturers and wholesale distributors. Retailers, however, are exempt from property attachment. Additionally, the FBR has proposed sealing the premises of manufacturers, wholesalers, and distributors for tax evasion and non-registration. A new penalty of Rs1 million is also proposed for non-compliance in these categories.
For manufacturers with an annual turnover exceeding Rs250 million, the FBR suggests appointing receivers and taking over factory premises if non-registration is found. The FBR also proposes similar enforcement measures for wholesalers and distributors with turnovers exceeding Rs250 million and retailers with turnovers over Rs100 million.
The FBR estimates a tax gap of Rs700 billion in the textile sector and Rs100 billion in the cement sector, covering sales tax, income tax, and customs duties. To address these gaps, the FBR plans to hire independent experts, potentially former CFOs, from the identified sectors to investigate and optimize tax revenue generation according to their true potential.
A presentation by the FBR to the prime minister revealed persistent tax evasion despite increased tax rates and the removal of exemptions and special regimes. The FBR highlighted that its Karachi model taxpayer office alone collects 32% of the total revenue, with 68% of the FBR’s revenue generated by large taxpayer offices in Karachi, Lahore, Islamabad, and Multan.
To bolster its efforts, the FBR plans to fill 1,559 auditor positions in three phases, addressing a significant resource gap that has hindered its enforcement capabilities. This comprehensive approach underscores the FBR’s commitment to tightening tax compliance and improving revenue collection in a bid to stabilize Pakistan’s financial situation.
