Taxes are the price paid by civilised societies for the opportunity to remain civilised
Being the lifeblood of governments, there is no concept of governance and socio-economic development without taxes
Paying taxes is our civic duty, along with a requirement of the law and its non-payment is backed by sanctions
Is this really happening in Pakistan? Out of the estimated budgetary spending of government of Rs4,894,879 million for the fiscal year 2016-17 the revenue collection target was estimated at Rs3,621,000 million
This revenue target seems unrealistic and probably will not be achieved; but we have a long history of revising estimates and not achieving budgetary targets
Why is this so? Our total documented GDP of almost $300 billion is about 1/3rd of the total economy – not more
The rest is black or illegitimate economy
Our tax-to-GDP ratio of 11
5% is among the lowest in the world, even worse than our developing world peers
Of the total population of around 200 million, only 1
1 million (0
5%) pay income tax and file a return – one of the lowest in the world
Revenue authorities maximise their focus on indirect taxes, which contribute towards more than 52% of the total revenue
Of the total direct taxes, around 3/4th of collection is from businesses, the rest from individuals
In terms of major segments of economy, industries contribute around 75% of total tax collection whereas the share of agriculture is less than 2%, whose share in the total GDP is more than 21%
Lack of accountability and an availability of illegitimate tax havens all across the country and abroad are promoting a culture of tax evasion which is one of the core issues behind our economic troubles
In the past few years, informal and illicit incomes earned through crook practices have multiplied manifold whereas the formal economy was either stagnant or declining
The convenience in hiding assets from the eyes of law on one end, and increasing tax rates on the other, are catalysing capital flight from formal to informal/black economy
The recent ‘Panama Papers’ scandal have highlighted the names of around 600 Pakistanis running offshore companies in different tax havens to avoid the burden of taxes and accountability
On the reforms end, Federal Board of Revenue (FBR) seems to be lacking and a lot needs to be done
It’s a part of the problem as opposed to being a part of the solution
A well-defined framework is needed to address the core issues of the turmoil
Publishing the tax directories of all tax filers – Active Tax Payers List (ATL) and especially of parliamentarians – was a major breakthrough and praiseworthy step
Also, creating a distinction between filers and non-filers and an incremental tax hike for non-filers will increase their cost of doing business; eventually compelling them to be a part of the tax system
All these measures are appreciable but they still fall far short of what needs to be done
Documentation of economy should be the first step in fiscal planning
Banking channels should be promoted for all transactions; from utility bills to payment of raw materials, salaries and wages
This will not only improve the documentation of economy but also reduce the amount going to waste through corruption
Also systematic analysis of data sought from banks and financial institutions can help FBR trace the real/complete trail of income
Secondly, systematic reforms in FBR need to take place and it should be made an independent and autonomous institution
Following merit and employing properly qualified and trained people will enhance its effectiveness
Whistle blowing should be encouraged; robust audit and transparency will induce confidence in taxpayers
Rewarding honest tax payers will promote a culture of voluntary compliance
Indirect taxation is a regressive taxation system affecting the poor and deprived segment of society the most – resulting in increased income inequality and wealth disparity
Government should shift its focus from indirect and withholding taxes towards direct taxes and widen the gap between filers and non-filers
The share of agriculture in total tax collection (being less than 2%) should be increased
Ongoing computerisation of land record in some areas of Punjab should be extended across all of Pakistan to document the entire agricultural area as this will further facilitate collection
All these steps need a stronger source of commitment from the government and ruling elite to truly meet the objectives
Well documented economic and structural reforms in the FBR will set the stage for a progressive, sustainable and equitable taxation system; resulting in improved revenues
This will reduce the government’s dependence on loans and grants and will boost economic growth and development; paving the path towards real prosperity
| Date: | 14-Oct-2016 | Reference: | View Original Link |
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