Mismatch of new taxpayers, returns submission

Every year new taxpayers enter the tax bracket but curiously, the additions are not accurately reflected in the tax returns submission numbers.

Since 2009, the National Board of Revenue has opened 5.47 lakh files of persons with taxable income through surveys.

It issued another 1.18 lakh taxpayers identification numbers (TINs) at tax fairs, to take the total number of entrants to the tax bracket between 2009 and 2013 to 6.65 lakh. 

However, of the new taxpayers, only 3.6 lakh submitted their income tax returns. In other words, the gap between the number of newly registered or detected taxpayers and the number of returns submission stands at 3.05 lakh.

The discrepancy undermines the revenue authority's insistence on expanding the tax net and make direct tax the biggest contributor to the state coffers, analysts say. Tax collection would have increased had all the newly found taxpayers submitted tax returns regularly, they added.

The main reason the new TIN holders are getting away with not submitting returns is the lack of proper monitoring and follow-ups by taxmen. The taxmen, in turn, blamed it on dearth of manpower.

Change in address of the persons detected to have taxable incomes, taxpayers' non-response of notices issued by field offices, death of some previously compliant taxpayers, and legal impunity from return submission for those who do not have taxable incomes, have also been cited as reasons for the discrepancy.

However, former top officials of NBR said taxmen pay higher attention to monitoring existing filers to achieve their annual tax collection target rather than the new entrants to the tax bracket. 

Some also raised allegations that a section of field officials take bribes from fresh taxpayers and let them skip their obligations of submitting tax returns.

An International Finance Corporation survey reveals that 83 percent of informal businesses that were inspected by taxmen 'had to pay money unofficially' to satisfy the tax officials.

There is a tendency to neglect follow-up activities in cases of individuals who get TINs for the first time through special drives or tax fairs, according to Muhammad Abdul Mazid, a former chairman of NBR.

Around 96,000 persons were made fresh taxpayers through a costly survey in 2006, the year before he joined the NBR as chairman, he said. “I enquired the files of those people but it was very difficult to get any trace of them.”

He said more than two lakh people registered voluntarily to the tax bracket through the countrywide motivational drive during his tenure. “I am not sure how many of their files are traceable now.”

The problem, he said, is that higher attention is given to old or regular taxpayers to achieve the collection targets. There are instances that the same taxpayer faces audit every year, which, he said, is a “regressive policy”.

“We need to see the increase in new taxpayers reflected in the tax return submission numbers,” he said, while suggesting the revenue authority pay greater attention to the big and new taxpayers.

Md Alauddin, who recently retired from the post of NBR's member of income tax, too admitted that new taxpayers are coming but returns submission is not rising in line with enrolment.

“One interpretation may be that some old taxpayers have died or some do not have taxable incomes have got TINs for other purposes. But what is the percentage of them? It should not be too high.”

Before his retirement, Alauddin headed a scheme to detect new taxpayers through a survey. While monitoring was weak in the past, during his tenure he made sure the accounts of newly found taxpayers were looked at properly, he insisted.

Syed Md Aminul Karim, another former member of income tax of NBR, blamed the inadequate manpower at field levels for the absence of follow-up on newly registered taxpayers.

Of the 966 posts for inspectors at the income tax department, only 282 are filled now. Another 440 inspectors are supposed to come, but their appointment is taking longer than two years to materials for on way for delays in rules framing.

Karim also said the Tax Survey Zone, which is supposed to monitor newly found taxpayers, is not functioning properly and there is a lack of effective survey to find out individuals with taxable incomes.

“But, follow-up on newly found persons with taxable incomes are not taking place properly.”

Karim however expects the number of returns submission to rise this year due to scope of better monitoring following the introduction of online TIN registration system.

Asked about the discrepancy between new taxpayers and returns submission, Md Ghulam Hussain, chairman of NBR, said: “I have also asked about the reasons why such gap remains, although it should not be.”

Hussain said he has already instructed taxmen to identify the persons dropping out of the tax bracket and their reasons for doing so.

The NBR chairman too blamed inadequate manpower, particularly inspectors in the income tax department, for slack monitoring.

“Regardless, the existing personnel will have to show performance corresponding to their strengths.”

Hussain said his office is considering forming a permanent tax net cell for monitoring and has taken a five-year project for expansion of tax net from the present 14 lakh to 30 lakh.

Ahsan H Mansur, executive director of Policy Research Institute, also blamed the absence of follow-up on newly found people with taxable incomes for the discrepancy.

He went on to suggest massive automation for effective monitoring of both fresh and old taxpayers.

“Information of a taxpayer has to be stored in a database and the database has to be centralised -- localised database will not be helpful.”

A central data processing facility is also necessary so that taxmen can cross-examine a taxpayers' asset and other information collected from field level and other channels, and thereby go for audit and enforcement, he said.

Aminur Rahman, another former member of income tax of NBR, suggested increased campaigning to create awareness among people.