Broadening Pakistan’s Tax Net: ICAP Proposes Reviving the BTB Directorate

The Institute of Chartered Accountants of Pakistan (ICAP) has set its sights on bolstering Pakistan’s tax revenue by urging the reactivation of the Directorate of Broadening of Tax Base (BTB).

The BTB Directorate: An Underutilized Resource

While the Directorate General of BTB exists within the tax framework (established under Section 230D of the Income Tax Ordinance, 2001), ICAP contends it hasn’t been fully operationalized. To bridge this gap, ICAP proposes outsourcing investigative activities to qualified Pakistani agencies and organizations.

How Outsourcing Could Boost Tax Revenue

  • Identifying New Taxpayers: The outsourced entities would focus on finding individuals and businesses obligated to file tax returns but haven’t done so. This widens the tax net, bringing in new revenue streams.
  • Performance-Based Incentives: ICAP suggests motivating these agencies with commission based on the taxes collected from newly identified taxpayers. This approach incentivizes efficiency while minimizing fixed costs for the Federal Board of Revenue (FBR).
  • Sharing the Workload: By outsourcing identification efforts, the already stretched FBR workforce can concentrate on core tax administration duties.

Data Analytics: Unearthing Hidden Tax Potential

ICAP emphasizes leveraging data from various government and revenue bodies at national and provincial levels. This data trove includes information from:

  • Banks (withholding tax, cash withdrawals, credit card transactions)
  • Mobile phone companies (withholding tax data)
  • Utility providers (withholding tax data from electricity bills)
  • Banks (withholding tax data on imports, exports, and profit payments)
  • Property registries (construction data)
  • Vehicle registration authorities

Utilizing Data for Effective Assessments

ICAP proposes a structured approach for the FBR to assess non-filers using the collected data. This framework would involve:

  • Defining clear criteria for identifying non-filers.
  • Conducting provisional assessments.
  • Referring cases to relevant authorities.
  • Offering non-filers opportunities to explain their situation and provide necessary information.
  • Implementing best assessment practices based on available data for non-compliant individuals.
  • Enforcing mandatory National Tax Numbers (NTNs) for non-filers meeting specific criteria under Section 114 of the Income Tax Ordinance, 2001.

ICAP’s vision is to empower the BTB Directorate to significantly enhance tax collection and broaden the tax base without straining existing FBR resources. They believe that reviving and optimizing the BTB Directorate is a critical step towards strengthening Pakistan’s fiscal health.

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