Achieving tax revenue target remains the top priority of the Federal Board of Revenue (FBR). For this purpose, the FBR employs conventional and unconventional methods. However, historical data indicate that the FBR missed the tax targets for the most of fiscal years (FYs). For example, the FBR could not achieve even the revised tax revenue target of Rs 3.5 trillion for FY2016-17 as the actual tax collection stood at Rs 3.3 trillion.
The shortfall in tax revenues could be attributed to numerous factors; major two of them are discussed hereunder:
1. Poor Taxation Policy
An immediate reason behind failure to meet the tax revenue targets is inadequate tax policy that allows the taxable persons to escape taxation under one pretext or another.
1.1 Tax evasion on account of foreign remittance
Undoubtedly, huge untaxed money is being converted into foreign currency through money changers or other sources to avoid taxation under the pretext of foreign remittances which are exempt from income tax as per Section 111(4) of the Income Tax Ordinance, 2001. Likewise, the possibility that the taxable persons might have parked considerable untaxed money in foreign currency accounts within the country could not be ruled out as the tax authorities are barred from obtaining information regarding foreign currency accounts under the Protection of Economic Reforms Act, 1992.
1.2 Tax evasion owing to money laundering
It is also not out of place to mention that money laundering through hundi/hawala or over/under invoicing has been a lucrative business activity in the recent past. Just look at the evidence. More than 200 cases involving transactions of billions of rupees have been reported by the Financial Monitoring Unit (FMU) to the FBR for initiation of proceedings under the Anti-Money Laundering Law. Money laundering has severe consequences for the economy and the society as a whole.
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