WB, FBR analyse tax gap of sugar, steel, cement sectors
 

ISLAMABAD: The World Bank and the Federal Board of Revenue (FBR) have analysed the tax gap of three powerful sectors — sugar, cement and steel — and estimated that tax collection could go up by Rs100-150 billion on per annum basis with realisation of true potential.The FBR is now contemplating upon different options to take the required steps in the upcoming budget 2019-20 for these sectors to materialize the true potential on account of revenue collection when it has to collect Rs5,550 billion in the upcoming financial year under the possible IMF programme of $6 billion.According to the executive summary of tax gap analysis done by the World Bank and endorsed by the FBR, the top 15 sugar firms out of 89 contributed 59.3 percent of total annual General Sales Tax (GST) collection, while 80 percent of sugar firms paid less than Rs250 million annual GST individually in financial year 2017-18.The tax gap analysis under input/output methodology provides GST potential of Rs27.163 billion for financial year 2017-18 at 90 percent compliance rate whereas actual collection was Rs19.919 billion.This leads to tax gap of 26.7 percent with an average of 38.5 percent for last six years.The analysis shows that the income tax gap is quite large even at the compliance rate of 75 percent for the same period.The income tax potential stands at Rs10.616 billion against actual collection of Rs3.755 billion. This tax gap increases as compliance rate improves.The analysis under production methodology shows that the GST potential is Rs21.757 billion while actual collection is Rs19.919 billion. The income tax potential is Rs46.707 billion for the same period whereas the actual collection was Rs3.755 billion.The production methodology also provides another insight. It shows that around one million tons of sugar may be unaccounted. This is because if the GST potential calculated under input/output methodology at 75 percent compliance rate is computed backward to find production using productivity ratios, then there should be 7.7 million tons of sugar production in the same period to match this GST potential figures. Whereas the reported figure is 6.6 million tons of sugar. The tax gap analysis done by WB and FBR recommended four steps including capacity development plan, human resource & infrastructure support, data collection mechanism follow integrated approach for data sharing among government departments such as Pakistan Bureau of Statistics, Provincial Agriculture Departments and Pakistan Sugar Mills Association and business process mapping and survey. Cement Sector: The report provides tax gap analysis of cement sector in Pakistan to facilitate policy makers and tax administration to increase tax collection efficiency.The results showed that there is gap of 19 percent in GST on goods while 75 percent in income tax for financial year 2017-18 in this sector considering the compliance rate of 75 percent.There are only five firms in cement sector out of total 25 they contributed 65 percent in annual GST collection in FY 2017-18 while 42 percent firms paid less than Rs250 million GST in the same period.The GST gap is not very significant for last five years at compliance rate of 75 percent. However, incomer tax gap is notable since the potential figure are more than four times than actual collection for the same compliance rate. The income tax potential is Rs46.934 billion whereas actual collection stood at Rs11.811 billion.The major recommendations for increasing compliance are concentrating on books of accounts because it can help overcoming income tax gap.Steel Sector: The result shows that there is gap of 86 percent in GST on goods while 92 percent in income tax considering the compliance rate benchmark of 75 percent.The GST in steel sector increased with annual percentage of 6.5 percent in last five years since 2013-14. Income Tax has increased by an average annual percentage of 31 percent. There are 192 firms out of total 963 total firms contributed 96 in total GST collection while 99 percent firms paid less than Rs250 million annual GST in the same period.In conclusion, the report states that there is significant potential for both GST and Income Tax at prevailing tax rate. “In case of GST, it can be established that the collection mechanism on steel sector through utilities bills is not capturing the true collection”, the report made it clear.The key recommendations included to review collection mechanism of GST and stated that the income tax gap is significantly higher than GST gap hence there is need to impose accounting book controls as compared to production controls.http://feeds.feedburner.com/~r/com/cwEr/~4/hcAilKLcRqQ

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