FBR asked to enhance efforts for Broadening Tax Net

May 27, 2023

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The Reforms and Revenue Mobilisation Commission (RRMC) has strongly advised the Federal Board of Revenue (FBR) to allocate a minimum of 30 percent of its workforce to the crucial task of expanding the tax base.

In its recommendations to the Ministry of Finance, the RRMC pointed out that out of approximately 48,000 villages, around 7,000 of them account for 80 percent of the urban population and 50 percent of consumption. Surprisingly, the FBR has a limited presence in these areas.

To tap into untapped tax revenue, the FBR should establish commission rates in peri-urban areas.

The FBR currently lacks mapping of business establishments or industrial setups.

Section 114 of the Income Tax Ordinance, 2001, contains comprehensive provisions mandating individuals listed in that section to file tax returns.

Unfortunately, there is a lack of data on residential units exceeding 2,000 square feet or immovable property with a land area of 500 square yards or more. Additionally, there is no comprehensive list of professionals listed in section 114(IX) of the Income Tax Ordinance, 2001, who are required to file tax returns. This raises questions about the FBR’s willingness to expand the tax base by enforcing the law. The provided graphical data below illustrates the extent of tax non-compliance and the low tax-to-GDP ratio in the country.

Recognizing the FBR’s absence of a mapping system to geotag commercial enterprises, the RRMC engaged in discussions with Trakker, the largest mapping enterprise in the country. Trakker has approximately three million commercial enterprises geotagged or mapped and has agreed to provide this mapping data to the FBR free of charge. They have also offered to train key FBR personnel in data usage at their own expense. Broadening the tax base cannot be an incidental activity confined to a small number of staff working independently. It requires a serious and committed effort from the entire institution. The RRMC firmly believes that, for the next three years, the FBR should dedicate at least 30 percent of its workforce to the systematic and sustained task of expanding the tax base. This commitment should be institutional, and the RRMC is prepared to serve as a collaborative partner in this crucial endeavor.