FBR – BIGGEST OBSTACLE AGAINST TAX BROADENING / UNDUE TAX COLLECTION TACTICS TO MEET COLLECTION TARGETS.

The recent implementation of SRO 350 by the Federal Board of Revenue (FBR) on March 7, 2024, has sparked controversy and frustration among taxpayers nationwide in Pakistan. This statutory regulatory order stated that sales tax returns submitted by registered individuals would initially be considered provisional upon filing. However, a reassessment of sales tax liability at month-end would result in disallowing input tax claimed by sellers who had not submitted their returns.

However, a technical issue or self-imposed limitation within the FBR’s systems is causing the disallowance of entire input tax claims by all registered persons across the country. This issue has created a ripple effect, with buyers now pursuing their suppliers to submit their sales tax returns promptly. Suppliers who have already filed their returns find themselves in a loop as their submissions are still treated provisionally by the return portal.

The timing of these occurrences is particularly worrying given the recent introduction of the Tajir Dost Scheme, designed to bring undocumented traders into the tax fold. Yet, treating already registered taxpayers as second-tier citizens raises doubts about the efficacy of such initiatives. The FBR’s behavior towards compliant taxpayers calls into question their ability to successfully integrate the undocumented sector into the tax system. Notably, reports indicate that only a small number of traders, approximately 75, have registered for the Tajir Dost Scheme, indicating a lack of trust and confidence among taxpayers.

The ongoing issues caused by FBR’s apparent self-imposed restrictions are causing widespread hardship for taxpayers across Pakistan, with no recourse for addressing their grievances. The FBR’s inaction despite the challenges faced by taxpayers nationwide is a significant contributor to Pakistan’s narrow tax base. This can be corroborated by data showing a stark contrast between the number of registered bank accounts, which exceeds 66 million as of March 2022, and the much lower number of tax filers in the country. Similarly, there are over 4 million industrial and commercial utility connections, yet the number of sales tax registered persons stands at around 200,000, highlighting a significant portion of deliberately untaxed entities.