Govt counts losses of tax as companies defy rules

A large number of companies manage to stay out of the tax net due to the revenue authority's feeble enforcement mechanism.
Of the 119,096 companies listed with the Registrar of Joint Stock Companies (RJSC) and Firms, 65,000 have the taxpayer identification numbers, according to data from the National Board of Revenue.
The rest do not have TINs, meaning they do not comply with the rules for submitting annual tax returns.
“Even after having TINs, many companies do not bother to submit returns regularly,” an NBR official said, asking not to be named.
In fiscal 2012-13, some 55,177 companies submitted returns, which, however, is a rise of 7.26 percent from the previous year, according to NBR.
But, another revenue official linked the non-compliance by half of the registered companies to dormancy of entities.
“Active companies cannot operate without TINs as it is required to import or engage in manufacturing,” he said.
Towfiqul Islam Khan, research fellow of Centre for Policy Dialogue, echoed the official's view. "But it is unlikely that such a huge number of companies are not in operation," he added.
Both the NBR and the Registrar of Joint Stock Companies, however, are unclear how many of the companies which do not have TINs are inactive, a situation, which analysts say, creates room for revenue losses for the state.
When asked, Bijon Kumar Baishya, registrar of Joint Stock Companies, said the organisation could not detect the number of dormant companies due to lack of manpower.
He, however, said that RJSC is considering developing a database of dormant companies. “But we can not implement due to inadequate manpower.”
"We, however, have started issuing default notices to companies that do not file annual financial reports and returns for years," Baishya added.
Citing a current study by CPD, Khan said: "We have found that many small and medium companies do not have VAT [value-added tax] registration or TINs. Many entities also do not submit returns regularly even after holding TIN. So, there is a huge scope to expand the tax net."
Muhammad Abdul Mazid, a former chairman of NBR, acknowledged Khan's observations. "It is true that a good percentage of the running companies are yet to come within the tax net of NBR. We can not reach out to all given the workload and manpower shortage.”
When asked, a senior income tax official at the NBR headquarters blamed the lax monitoring on the absence of a TIN database. "It will be easier for us to check and ensure compliance following completion of e-registration by December this year."
As per rule, field officials are assigned with the task of ensuring compliance by companies under their tax circles.
In theory, they are supposed to collect the list of active companies from RJSC and check for tax returns against their TINs. And for those that do not have TINs, the field officers are supposed to assign them one.
But in practice, it does not happen. "After processing returns, we are left with little time to do any sort of monitoring," said a deputy commissioner.
"The work pressure should reduce after the increase in tax offices and cut in work area for officials. Now, the authority should better define the officials' monitoring responsibilities," said Mazid.
The former NBR chairman suggested a tie-up with RJSC to draw out an exhaustive list of registered companies based on region.
Taxmen pointed that there has been improvement in monitoring following expansion of field offices last year. The number circles to oversee companies' tax compliance increased to 90 from 24 earlier.
Meanwhile, allegations of unholy collusion are also present. It has been said that tax officials in many circles bypass their monitoring duties for small companies in return for bribes.