Developing countries face lower tax collection as compared to target amount due to inefficiencies in tax collection system. Due to some major problems like political backwardness, poor economic development, undefined taxation policies and inappropriate institutional capacity, Pakistan is still not successful to implement an efficient taxation system. Sources recorded that tax reform is a policy implementation through the government through which a few alterations are made to the tax system in order to overcome the loopholes and enhance the effectiveness of the tax administration in the country in order to generate higher revenues from taxes as compared to overall spending. Experts recorded that the main objectives of taxation are to enhance revenues in an equitable manner and to provide support to the industrial sector through variations in tax rates. Compare the tax-to-GDP ratio. Compared to states such as China, Egypt, India, and Malaysia, Pakistan has a relatively low tax-to-GDP ratio. However, it is more than Sri Lanka, Indonesia, and Bangladesh combined. High tax evasion, anomalies and concessions in the tax structure, and deficiencies in tax administration have resulted in a decrease in revenues but have also created a poor public perception of the tax system. No doubt, Pakistanis are generous with zakat, donations, etc.-but our moment of concern is that out of a population of 220 million, only 2.1 million people file taxes, and, interestingly, only 9 percent of our population pays direct taxes, while the remaining 91 percent of the country’s population is outside of our direct system. Honest declaration of income is all the more pivotal when we talk about income tax liability. We have not been faithful enough as a nation to uncover what we possess and have. I’m referring to the increasing trend among taxpayers to conceal their genuine income and make false declarations on their tax filings. In the current situation, when the declaration of actual income is not the norm, it is simply not possible for tax authorities to cut tax rates. To broaden the tax base, Pakistan needs more filers. If everyone paid their dues, we could collect twice as much tax as we do currently and spend it on public goods more effectively. According to the Federal Board of Revenue (FBR), the retail market accounts for a whopping 18 percent of the GDP. Meanwhile, its contribution to the national exchequer is a meagre 3.9 percent. There has long been an understanding that the only way to bring these retailers within the tax net was to digitize transactions and keep an eye on buying and selling at these retailers. The latest idea was that under the FBR’s new POS system, details of each transaction would go directly to the board and they would be able to calculate and charge tax accordingly. It is also recorded that the International Monetary Fund (IMF) has demanded that Pakistan fix next fiscal year’s tax collection target at Rs 7.25 trillion, which will require imposition of additional taxes of around Rs300 billion, including withdrawal of agriculture tax exemptions and increase in burden on the salaried class. The Target is nearly Rs 350 billion higher than what tax authorities hope can be generated in FY2023 without imposing new taxes. The Rs 7.25 trillion tax collection target will be Rs1.15 trillion, or 19 percent, higher than this year’s revised target of Rs 6.1 trillion. FBR also recorded that the minister that the collection may remain approximately Rs 6 trillion in the current fiscal year, nearly Rs100 billion less than the target agreed with the IMF by the previous government. The IMF had asked for taking more tax measures to bridge the gap, which was not feasible in the present political circumstances. Sources said that the IMF was asking the government of Pakistan for the Rs 7.25 trillion tax target in addition to completing the commitments made through the previous government of Pakistan to withdraw the tax exemptions and revise the tax slabs for the salaried individuals. The last IMF statement on Pakistan stated that there was a need to remove exemptions to include fertilisers and tractors, which constitute 23 percent of the present GST expenditure and whose removal was under consideration as a 2023 budget measure. Statistics showed that FBR has collected Rs 4.86 trillion in taxes during the first 10 months of current fiscal year, leaving itself with a task to collect another Rs 1.24 trillion in just two months to attain the revised annual target. Tax authorities now need to collect taxes at an average of Rs 20.4 billion a day during May and June to achieve the target. Statistics showed that the FBR’s performance has remained largely dependent on imports that contributed nearly 52 percent to the total tax collection, which camouflaged the weaknesses in the domestic sales tax collection that remained negative. It is also said that the finance ministry is projecting 9.5 percent inflation and 5.5 percent economic growth for FY2023, which could raise the revenue collection by almost Rs 900 billion in the next fiscal year without resorting to additional revenue measures. In last I would like to mention here, tax collection necessitates consistency in implementation, which is only possible with political stability in Pakistan. Indirectly, taxes and the state of law and order are linked. A country with a stable law and order situation would attract more investment and create more jobs, resulting in increased spending power for consumers who are efficiently taxed. People’s awareness of the benefits of paying taxes, which boosts tax morale, should be considered as a long-term policy impact.
