Pakistan is working on all round strategy to reform country’s tax structure. The government has planned to lower tax slabs for individual taxpayers. The government is planning to increase the tax net through technology-related measures and in this regards, the government will soon announce a one-time tax amnesty scheme.
The concerned authorities like Federal Board of Revenue (FBR) should use CNIC (Computerized National Identity Card) for tracing all individuals involved in various kinds of transactions including banking, utility services and buying and selling activities. Notices should be issued to these people through the use of technology with the cooperation of National Database and Registration Authority (NADRA).
Pakistan desperately needs to reduce its dependence on indirect taxation. The issues related to taxation will not be resolved as long as the government continues collecting 74 percent of taxes indirectly. There is burden of taxes on manufacturing sector which needs to be reduced.
Increase in imports leads to increase in the collection of tax by FBR as a whole the economy faces losses. The manufacturing sector was bearing a huge burden of tax in the country which hinders growth in the sector.
Corruption is the root cause of Pakistan’s downfall. The methodology of the customs, income tax, revenue and police departments are too well known to describe here. Their opulent life styles, government functionaries and their associates misappropriate as much as 75 percent of the annual development plan.
Every government must oust like minister of state, advisers, and special assistants with perks. This must be done away forthwith. There are ministries, which are not required, and a section officer could do their job. As such, the cabinet should be reduced to the minimum.
Accountability should be irrespective of personalities. There is a lot of material regarding corruption submitted by the Federal Anti-Corruption Committee (FACC) which is lying in the office of Chief Ehtesab Commissioner which will give a clue to the corrupt and the methodology applied by them.
The feudal lords, who are the 2 percent of Pakistan’s population, have been holding power in this country in one form or the other and no government, right from day one has been able to lay their hands on them. The Waderas (feudal lords) even have their personal jails. This is the democratic society present in the Islamic Republic of Pakistan. Every government so far has requested the provincial governments to levy farm tax which has not been collected as yet.
The federal government takes a plea that this is a provincial subject and they cannot do a thing about it. The feudal lords are the real cause of all the economic ills and curses that afflict Pakistan. They enjoy the fruits of Pakistan, but do not pay any tax. There is no dearth of efficient and honest people in Pakistan, but there is absence of sincere, honest and selfless leaders, whose place has been usurped by the greedy politicians.
Tax is the principal source of government revenue. Revenues earned by the government are then reassigned for federal government’s and provincial government’s expenditures. Revenue generation has always been the greatest problem for Pakistan’s economy. The problem is with the tax base that is largely very narrow as compared to other countries. The low tax base are large due to number of exemptions given in sales taxes, excise duty, income tax and custom duties and huge number of incidences of tax evasion.
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The overall level of fiscal effort is low and tax-to-GDP ratio has always been sluggish. This is the reason why there is the deficit budget. There is the persistent change in tax legislation changes are done to provide incentives to certain mafias. These approaches have contributed towards narrowing the tax base and lowering an overall tax effort.
The major problem with the tax system is the inability to raise adequate revenue to finance the public-sector budget. Tax laws are such that the individuals with same income, businesses and profits are treated very unequally. One fifth of the GDP comes from agriculture and a good amount of revenue could be generated by taxing the income from the particular sector.
The tax base is not extended to tax the income from agriculture. The shortfall in agriculture and services puts a burden on industrial sector. There is too much dependence on indirect taxes which until recently accounted for a share in revenues of over 80 percent. The nature of taxation is regressive. This is in general, imposed uniformly to everyone regardless of individual income. There is the problem of the poor tax administration of tax system. People while filling their returns, provide incomplete information.
Our tax system uses primitive procedures to analyze the data. It makes it very complex to highlight the offenders (tax evaders). The alleged reasons behind the lag are corruption and institutional inefficiencies. According to the statistics only 1.21 million citizens pay income tax making it less than 1 percent of the total population.
According to State Bank of Pakistan’s annual report, 57.5 million people are employed and are paying income tax one way or the other. According to Economic survey of Pakistan 61.4 percent population is of working age making 122 million people fall into the working population. The 57.5 million tax payers constitute of 48 percent these working people. Approximately 140 million mobile users pay more than 20 percent taxes on their consumption. People use automobiles which use fossil fuels that are subject to different taxes and consequently people end up paying them. These are the kind of taxes that no one can evade.
The problem lies with the imbalance between government expenditure and government revenue. We are helpless at managing our resources. People evade taxes primarily is due to absence of trust towards the administration. People do not see their efforts being paid back. There is a lack of transparency and accountability within the system that makes public question themselves whether their money is actually being used for their benefit or is gone into satisfying someone else’s vested interests.
Reforms in system, use of modernized ways to analyze data, ensured trust, accountability and transparency would be a good step towards the solution of the tax problem of Pakistan.