Editorial

Puny tax culture

Tax -to- gross domestic product (GDP) ratio has substantially declined over the past decade. The current tax-to-GDP ratio is 10.6 percent, whereas the desirable ratio must be at least 17 percent of the GDP. There is significant drop in the number of tax filers. About 65,000 Pakistani’s constitute hardly 6 percent of income tax filers pay 79 percent of direct taxes. It shows the shallowness of already narrow tax base.

Contrary to the mushroom growth in posh housing societies and large number of luxury cars on the roads only 2455 Pakistanis paid more than 10 million in income tax in 2016. These honest and patriotic citizens paid Rs. 59.4 billions or 28 percent of the total direct tax last year. They constitute 0.22 percent of the people who file income tax return. Tax filers have dropped to less than half during the current fiscal year as compared with last one. 580,000 people and companies have filed tax returns. Majority of high net worth individuals remain outside the tax net due to the government policy of encouraging tax evasion. The FBR had a complete data base of 38 million people with lavish living style but neither the previous PPP government nor the present PML-N government decided to impose a symbolic income tax of Rs, 100,000 per year which could have generate tax revenue Rs. 3.8 trillion. This is merely because the ruling feudal and mercantile political elites do not pay taxes because they averse to promoting healthy tax culture.

FBR has 20,000 strong force including 16.000 under the Inland Revenue Service whose only task is income tax collection but their performance is far from satisfactory for various reasons, the political compulsion is the prime one. Tax collection in the first four months (July-October) of the current fiscal year has substantially dropped. The revenue collection target has also fallen short of the target by around 40 billion as compared with the corresponding period of last year. Decline in the tax collection affect socio-economic and security related projects. The politician who do not pay tax serve as a role model for other affluent people to develop aversion to the national duty of honestly paying income tax and corporate tax on their incomes. The tax-to-GDP ratio in Pakistan is lowest in the world. Countries with similar level of development have this ratio around 15 percent. The government has good information on the tax base and capacity to collect it at little cost. But the major challenge is tax evasion for which the major reason is political clout of wealthy individuals and companies owners.

The government continuously defers the imposition of agriculture income tax to provide an effective shield to those feudal who also owns sugar and steel mills. A reasonable amount of corporate income is clubbed with the agriculture income to avoid tax on total income from corporate business. The government is also reluctant to impose broker’s tax because the influential stock brokers have strong political connections with the two mainstream political parties i.e. PPP and PML (N). The legal and medical practitioners do not pay income tax on their income thus depriving the country from a reasonable source of revenue generation from personal income and wealth tax. The World Bank and International Monetary Fund (IMR) have repeatedly urged the government to expand the tax base by direct taxes but it turns a deaf ear to this useful advice encouraging the curse of tax evasion. It is time to pay heed to the sane advice of multilateral donor agencies and abandon the cruel recipe of burdening the poor people more and more by direct taxes.

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The Frontier Post

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