Whopping decline in tax collection

ISLAMABAD: Income tax collection on demand witnessed a whopping decline of over 35 per cent in the first nine months of 2012-13 from a year ago.

The substantial decline in the collection on demand raises questions about Inland Revenue Services (IRS) efficiency.

According to official statistics, collection on demand, an important component of income tax, dropped to Rs47.560 billion in July-March 2012-13 from Rs73.414bn in the previous year, reflecting a decline of 35.2pc, according to FBRs quarterly report released on Wednesday.

Moreover, the negative growth in the current demand was 39.3pc which apparently shows lack of efforts for conducting timely and effective audits by the department.The tax authority has established 19 regional tax offices and revenue collection is done through at-source deduction which ranges between 80pc and 90pc.

As per statistics, income tax officials efforts only led to 9.6pc, of the total income tax collection, during the period under review over previous year, while a maximum of over 60pc of total tax was received as withholding taxes.

The government has doubled salaries and other perks of officials, and provided vehicles to tax officials hoping that the collection on demand would increase substantially.

The second major component of income tax is voluntary compliance, comprising collection with returns and advance payments. The collection from voluntary compliance recorded a growth of 12.5pc as it stood at Rs181.728bn in July-March 2012-13 as against Rs161.568bn over the corresponding months of previous year.

Advance taxes grew by 12.9pc, but with returns only by 7.3pc.

It shows more reliance on advance payments and lesser focus on tax paid with returns.

Similarly, share of voluntary compliance in total income tax collection is around 35pc.

The withholding tax continues to be the leading source of direct tax receipts.

The collection of withholding tax stood at Rs299.825bn in July-March 2013 as against Rs286.486bn over the previous year, reflecting an increase of 4.7pc.

The major contributors of withholding taxes are contracts, imports, salary, telephone, export, bank interest, electricity, dividends and cash withdrawals.

The highest growth in withholding tax collection has been from electricity bills which stood at 23.3pc followed by bank interest 13.8pc, imports 12.5pc and contracts 8.5pc.

The withholding tax collection on cash withdrawals reached Rs9.089bn in July-March 2013 from Rs8.963bn in the previous year, showing an increase of 1.4pc.

Collection of withholding tax on electricity also jumped to Rs12.237bn in the nine months as against Rs9.926bn over the previous year, reflecting an increase of 23.3pc.

The deduction of tax at source on cash withdrawals and electricity bills is the easiest way of taxation, which will mostly hit the middle and lower middle classes.

The withholding tax is adjustable against the final income of taxpayers. However, filing of tax returns is mandatory for this.

Most of the people do not file tax returns and the tax deducted at source goes unclaimed to the government exchequer as no one files tax returns to claim refund of few hundreds or thousands