Against 7.2 million taxpayers registered with the Federal Board of Revenue (FBR), just 2.5 million, or 35%, filed annual income tax returns till the extended deadline that expired on Friday.

The FBR now faces the choice of either going after the remaining 4.7 million people who have valid National Tax Numbers (NTNs) but chose not to file returns or cancelling their registration to force them to enter the tax net.

Under Section 114 (1) b (vii), every NTN holder is required to file the tax return.

About 2.475 million people have filed their annual income tax returns and paid Rs47.4 billion in income tax along with the returns, said FBR spokesman Asad Tahir on Friday.

The amount of Rs47.4 billion is the sum that taxpayers have paid along with their returns, as most of the taxes are deducted on a monthly basis from the salaried class under the head of withholding tax.

The FBR has managed to add another 700,000 people to the tax net during the past two weeks after the original deadline to file the returns ended on September 30. The deadline to submit the returns will not be extended any further, according to the FBR.

Tahir said that non-filers of income tax returns would be exposed to a Rs1,000 fine and two years of imprisonment.

The number of filers was still nearly 536,000, or 18%, less than the total returns filed in tax year 2020.

Tahir, however, said that on an annualised basis, there was a “phenomenal” increase in returns, as only 513,000 people had filed the returns till October last year.

However, the comparison of this year’s number with that of last year is not justified as the FBR had uploaded the return forms in the first week of September 2020. This year the forms became available on July 1.

The FBR said that as against 1.8 million returns and Rs29.6 billion tax paid with returns on 8th December, 2020, that was the closing date of last year, over 2.5 million returns and Rs48.6 billion were paid in taxes.  This signifies 45% growth in filing of tax returns while 64% growth in tax paid with returns, it added.

New FBR Chairman Dr Mohammad Ashfaq is keen to uphold the law and is principally against the concept of giving extensions, taking advance income tax and blocking tax refunds to inflate the collection.

The income tax law sets the conditions for those who are required to submit their annual income tax returns. One condition is that every person having the National Tax Number (NTN) is legally bound to file the returns.

There are 7.2 million individuals and companies that are registered with the FBR and only 2.5 million or 35% of them filed their returns. This has given a huge challenge to the FBR as it can either go after the remaining 4.7 million registered persons or cancel their registration.

New powers of Federal Board of Revenue (FBR) regarding action against non tax filers

Last month, the FBR acquired legal powers to suspend the telephone and electricity connections of the non-filers of the income tax returns. In the budget, the Parliament had also authorised the FBR to arrest tax defaulters. But despite making laws nuclear, the compliance remains very low.

The FBR hopes that it would still receive at least 3.5 million income tax returns during the tax year 2021.

Who is required to file the tax returns in Pakistan?

The Section 114 of the Income Tax Ordinance stipulates conditions for people who are required to submit their annual returns. It states that every company; every person who has taxable income for the year and any non-profit organisation has to submit the returns.

Similarly, every person who owns immovable property with a land area of 500 square yards or more or owns any flat having a covered area of 2,000 square feet or more located in a rating area; owns a motor vehicle having engine capacity above 1,000 CC has to file the returns.

Every person who is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees Rs500,000, a resident person registered with any chamber of commerce and industry or any trade or business association or any market committee is required to file the return.

In addition, professional bodies including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council or any Provincial Bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan are also required to file returns.

A resident person being an individual required filing foreign income and assets statements under section 116A has to file the return.