ISLAMABAD:
The federal government has refused to share taxpayers’ tax returns with provinces due to confidentiality laws amid lack of consensus between Punjab and the Center on the right to tax livestock income.
The denial comes amid the federal government’s proposed amendment to give private auditors and commercial banks access to taxpayer data. Government sources told The Express PAkGazette that the issue of lack of data sharing was discussed during a meeting of the National Fiscal Council (NTC).
The meeting was held earlier this month under the chairmanship of Finance Minister Muhammad Aurangzeb. Sources said the finance minister emphasized the need for two-way data sharing between the federal and provincial governments, including income tax data sharing.
The NTC was informed that Section 216 of the Income Tax Ordinance (ITO) prohibited sharing taxpayer data with other parties. It was further reported that full statements could not be shared due to confidentiality under Section 216 of the ITO, the sources added.
However, the Federal Board of Revenue (FBR) was willing to share any specific data with the provinces that fell under its domain: agricultural income and property income.
FBR Chairman Rashid Langrial assured that the provincial request for rows of specific data of tax returns received from the provinces would be examined to determine its relevance to the revenue generation of the provinces, the nature of the revenue and the category of taxpayers, sources said.
People who own large lands and also conduct other businesses often declare their business income as agricultural income to evade taxes. To address the issue, the International Monetary Fund (IMF) asked Pakistan to bring agricultural income tax rates into line with federal income tax rates.
The current top agricultural income tax rate is 15%, compared to the federal personal income tax rate of 50%. The FBR maintained during the meeting that according to sources, legal restrictions, if any, on data sharing should be taken into account.
The federal government has proposed amendments to Section 216 of the ITO to give commercial banks and private auditors access to taxpayer data. The amendment is part of the Tax Laws Amendment Bill that was introduced in the National Assembly.
During the meeting it emerged that the current memorandum of understanding (MoU) signed between the provinces and the federal government on data sharing needed amendments. The MoUs were signed to share data on taxes collected on cars, property, stamp duty, sales tax and agricultural income as part of the conditionality of World Bank loans.
Even after 15 years of the 18th Constitutional Amendment, the Center and the provinces are yet to agree on a single definition of goods and services. According to the Constitution, the sales tax on goods is a federal subject, while the provinces have the right to collect the sales tax on services.
The FBR chairman told the meeting that the basic problem in data sharing was lack of consensus on the definition of goods and services in some areas. The FBR recommended that a review of the MoUs was necessary for broader sharing of relevant data and digitization strategies.
The meeting decided that memorandums of understanding should be signed between provincial and federal authorities, with clear plans for the expansion of the single portal in various sectors.
The NTC referred the issue of data sharing to its executive committee for further deliberation. The executive committee would evaluate the need to share information based on each tax provision, income category, taxpayer category, etc., for decisions, depending on the decision.
Dispute over livestock taxes
Sources said the Punjab government did not agree to exclude the livestock issue from the ambit of its new agricultural income tax law, which was passed last month as part of the IMF condition.
According to the Constitution, income from livestock farming is a federal matter. Only Punjab has included livestock farming in its agricultural tax law. The FBR chairman said livestock farming is a federal subject and cannot be included in agricultural income tax, sources said.
The finance minister asked the Punjab government to exclude livestock farming from its law. However, the province maintained that the law had already been approved by the provincial assembly. The NTC referred the matter to its executive committee to harmonize the provincial agricultural laws and with the income tax laws of the federal government.
The IMF has imposed a condition that, by October 2024, provincial agricultural income tax rates would be aligned with federal personal and corporate income tax rates. Punjab passed the law but did not mention the rates in the law, while the other three provinces violate the IMF condition.
The meeting also reviewed the status of the rationalization of property valuation tables in order to increase tax collection. There was consensus among stakeholders that there should be a common framework for property taxes across provinces, particularly with regard to valuation methods.
The meeting was informed that Punjab was considering a shift from rental to capital value for urban property tax in line with stamp duty and capital gains tax.
It was recommended to standardize the valuation methodology, digitize property records, and establish a system of regular updates to reduce compliance costs and ensure consistency in property tax assessments.
Minister of State for Finance Ali Pervaiz Malik stressed the need to review the methodology used for property valuation tables. The executive committee was authorized to review property tax issues and submit its recommendations to the NTC regarding a common framework for assessment.
