Published On: Tue, Aug 15th, 2017

Only 29% of NTN Holders File Income Tax Returns in Pakistan


Income Tax ReturnsAccording to the Tax Directory of Finance Minister Ishaq Dar only 29% of the registered National Tax Number (NTN) holders or 1.21 million people filed income tax returns for the tax year 2016, signaling at the weak government.

The Tax Directory for fiscal year 2015-16 that ended in June last year consisted of names and amount of tax paid by the income tax returns filers. The PML-N government released the tax directory for the fourth consecutive year.

The measures taken by the government to increase the tax base were met with success and produced desired results due to which number of taxpayers increased to 1.261 million compared to 1.074 million taxpayers in the directory for tax year 2015. The number increased by 132% or 142,196 people compared with the previous year.

The weak enforcement of the Federal Board of Revenue (FBR) could only make 29% of the NTN holders to file income tax returns. 4.2 million people are registered NTN holders and the FBR could not do anything about the 2.98 million people who are not filing the income tax returns in Pakistan.

The government has set 71 types of withholding taxes and sales taxes for filers and non-filers of income tax returns. The withholding tax covers almost every possible transaction and expenditure.

People obtain NTN numbers to avoid paying higher tax rates on transactions like car purchase and then forget about filing the returns.

Out of the 1.216 million who filed income tax returns, 366,000 or 30% of the filers did not pay any tax as their income was below the annual threshold of Rs400,000 in tax year 2016, said the finance minister. He said 850,614 people paid income tax in the tax year.

Under the law, all citizens of the country are bound to file income tax returns after the close of a fiscal year. Pakistan has one of the lowest tax-to-GDP ratios in the world as the country’s tax system is plagued with exemptions.

A recent report of the World Bank says Pakistan’s tax capacity is estimated at 22.3% of gross domestic product (GDP). At the current market price, this translates into Rs7.2 trillion.

However, the FBR collected Rs3.362 trillion in taxes during fiscal year 2016-17 that ended in June this year. The tax-to-GDP ratio remained stagnant at 10.57% in the year.

The size of tax gap – the difference between actual collection and the potential – is directly related to the extent of tax evasion in the country. The low tax-to-GDP ratio has trapped the country into a cycle of low investment and low economic growth.

The FBR had posted 8% growth in revenue collection in the last fiscal year, which was even lower than the nominal GDP growth, highlighting huge revenue slippages.

The finance minister said when the PML-N government came to power, the number of income tax return filers was just 769,892. This included 40% or 307,000 people who had income below the threshold.

Dar said during the four-year period, the number of real taxpayers, who actually paid taxes along with returns, increased over 50%.

He, however, said there was still a huge potential and the FBR would have to redouble its efforts to raise revenues for meeting defence and development needs of the country.

About the Author

- An enthusiast working in Dubai as an Assistant Operations Manager. Writing about Pakistan and the latest happenings, trends around the globe is my passion. A dreamer, learner and a major foodie.