Pakistan seeks global assistance to overhaul tax system amidst significant drop in active taxpayers

In a significant development, the count of active taxpayers has dwindled to 3.4 million, marking a 41 per cent decrease from the previous year. The government is contemplating seeking financial support from the Bill and Melinda Gates Foundation to enhance digital services within the Federal Board of Revenue (FBR).

According to Express Tribune, approximately 500,000 individuals were excluded from the Active Taxpayers List (ATL) for tax year 2023 due to delayed submission of annual income tax returns. These individuals will incur a nominal penalty for reinstatement. Newly appointed economic czar, Muhammad Aurangzeb, chaired his inaugural meeting to explore avenues for improving digital services and expanding the tax base.

The gathering, which included representatives from Karandaaz Pakistan, a firm specializing in financial inclusion services, concluded with the decision for Karandaaz to approach the Bill and Melinda Gates Foundation for financial backing in establishing a digital platform within the FBR.

The government aims to streamline interactions between tax authorities and taxpayers, fostering transparency and curbing corruption. This initiative arises as the number of active taxpayers further drops to a mere 3.4 million, compared to last year’s figure of over 5.7 million—an alarming 41 per cent reduction.

The FBR, having received 3.9 million income tax returns, removed approximately 500,000 individuals from the active list due to delayed filings. Consequently, those not on the active taxpayers list will face a 0.6 per cent withholding tax on cash withdrawals.

To encourage compliance, the government allows the reactivation of approximately 500,000 individuals by paying a nominal Rs1,000 fine for late filing of returns. The International Monetary Fund (IMF) is expected to exert pressure on the government to expand the tax base and simplify tax slabs for both salaried and business individuals.

Recent data reveals a noteworthy contribution of Rs217 billion from the salaried class in the first eight months of the current fiscal year, surpassing the combined taxes paid by rich exporters and real estate players by Rs37 billion, or one-fifth.