FBR mulls slapping Rs1 million fine, among other penalties, on tax evaders

• FBR estimates Rs700bn, Rs100bn tax gap in textile, cement sector.
  
• Mulls action on non-registration for those with Rs250m turnover.
• Authority identifies 10 key sectors for hiring independent experts. 

ISLAMABAD: Amid the incumbent government's strenuous efforts to address the country's financial woes, the Federal Bureau of Revenue (FBR) is mulling strict measures including imposing a Rs1 million penalty on various categories of tax evaders, The News reported on Sunday.

The tax authority has proposed six key measures against nil, null and non-filers while identifying 10 major revenue spinner sectors for hiring independent experts which include textile, financial and insurance, chemical and fertiliser, petroleum, tobacco, iron and steel, beverages, tea, cement and real estate activities.

The development comes a day after the body announced that it would not be extending the September 30 deadline for the submission of tax returns.

Prime Minister Shehbaz Sharif-led administration in its tax-heavy budget passed in June, set out an ambitious taxation plan to boost its prospects of securing a fresh bailout deal with the International Monetary Fund (IMF) — which it eventually did as the programme now awaits the approval of the Fund's executive board.

However, the FBR faces a monumental tax shortfall in the first quarter (July-September) under the IMF programme of $7 billion Extended Fund Facility (EFF) coupled with its failure to bring 3.2 million retailers into the tax net, the tax collection body has geared up for significant taxation measures against millions.

Sources say that an internal assessment of the FBR has shown a tax shortfall of over Rs220 billion for the first quarter (July-September) against the agreed target of Rs2,652 billion.

The authority faced a shortfall of Rs98 billion in August 2024. The FBR had collected Rs1,456 billion in the first two months (July and August) against the assigned target of Rs1,554 billion leaving the body with the challenging task of fetching Rs1,196 billion during the ongoing month to materialise the first quarter agreed target with the IMF.

The annual tax collection target of FBR envisaged Rs12,970 billion, which was approved by parliament (Rs12,913 billion).

Therefore, the Tax collecting body has chalked out half a dozen strict measures with the first one being the blocking of utilities for all three categories.

Out of the remaining five proposed actions, the freezing of bank accounts would be implemented. The FBR has also suggested the attachment of properties on non-registration from manufacturers and wholesale distributors — however, the attachment of property has not been proposed for retailers.

The sealing of premises for tax evasion and non-registration has been proposed for manufacturers, wholesalers and distributors while retailers will remain exempted from this measure.

The fifth stern action has been proposed for the imposition of a new penalty of Rs1 million for the three categories.

Furthermore, the appointment of receivers only for manufacturers whose turnover exceeded Rs250 million on a per annum basis has also been proposed.

For enforcement measures for non-registration against manufacturers, wholesalers/ distributors and retailers, the FBR has suggested stern action against those manufacturers, wholesalers and distributors who possessed a turnover of Rs250 million and retailers whose turnover exceeded Rs100 million.

Furthermore, taking over the premises of factories having a turnover of over Rs250 million has also been proposed along with the appointment of a receiver if the revenue collector found non-registration in case of manufacturer and imposition of Rs1 million penalty from manufacturer, wholesalers, distributors and retailers.

The tax authority has estimated a tax gap of Rs700 billion in the textile sector in all three major taxes — sales tax, income tax and Customs duty. In the cement sector, the FBR estimates show that the tax gap stands at Rs100 billion.

For the appointment of independent experts for ten selected sectors, the FBR official said the tax authorities would find out former CFOs of the respective ten selected sectors to ascertain alleged wrongdoings and generate desired tax revenues in accordance with their real/ actual potential.

A presentation given to the prime minister by the FBR has revealed that despite raising tax rates and abolishing tax exemptions and special regimes, tax collection remains stagnant showing there was massive tax evasion even in the case of those who are so-called registered sectors or individuals.

The FBR established a model taxpayer office in Karachi which alone collects 32% of total revenues collected by the revenue body.

Currently, 68% of FBR's revenue is generated through these large taxpayer offices located in Karachi, Lahore, Islamabad and Multan. There is a gap of 1,559 auditors across the FBR which would be filled in three phases.