While addressing the large taxpayers’ unit (LTU) in Karachi, the Governor, State Bank of Pakistan, stressed the need for broadening the tax base, so that surcharges could be withdrawn, lessening the burden on the common man.

This statement is laudable because this is the only note of realism amidst the self-congratulatory noises regarding the so-called achievements of the highest-ever collection of federal taxes in the country. An accomplishment it is indeed, but at what cost? The statement of the Governor indicates that he is the only one amongst the economic managers who is aware of the cost or, at the minimum, has the grit to express it.

Let us consider for a while the cost of this feat to the poor and the deprived of this country. Out of a total collection of Rs459 billion for the year just ended, the contribution of direct taxes is Rs145 billion or 31.5 per cent of the total collection, down from 33.8 per cent of last year (2001-02). If we exclude the share of presumptive taxes, a component as large as 39 per cent of the direct taxes, the contribution comes down to Rs88.45 billion.

Thus in reality the direct taxes contributed only 19.27 per cent to our federal recoveries. If surcharges on petroleum, gas etc, which are in the nature of indirect taxes, amounting to Rs66.88 billion are also considered the contribution of direct taxes in tax revenues and surcharges further falls to 16.82 per cent. In other words, 83.18 per cent of the burden of the revenues and surcharges is being borne by the masses. The haves who have the capacity to pay contribute only 16.82 per cent in the form of direct taxes.

Under the circumstances, it should surprise no one that poverty in Pakistan is on the rise. According to the Economic Survey 2002-03, poverty in the country has gone up from 26.1 per cent in 1990-91 to 31.8 per cent in the year 2003 (page 49) although, roughly in the same period, it went down from 32 to 25 per cent in other developing countries, (page 47). A greater cause of worry is that the haves, who are enjoying the status of sacred cows by getting scott-free in not paying back their dues to the nation, are not making any fresh investments for the possible operation of the theory of trickle-down effect.

Admirable as the Governor’s remark are, one wonders why did he choose to make these observations before the privileged of the LTU? Does he expect them to devise some magic formula or plan of action by virtue of which the tax base will grow, when the stalwarts, both foreign and domestic, have failed.

The economic history of this country is replete with the formation of reform commissions, task forces and committees. The present set-up, which took control of the country in October, 1999, did not lag behind in these attempts either. It is only appropriate to take a quick look at the various ventures made in this direction.

The present administration proposed to cure the economic ills by a three-pronged attack: One, recovery of the defaulted bank loans of Rs225 billion; two, stamping out smuggling; and three, broadening the tax base. All the attempts made met squalid failures as they were not backed by the political will to achieve them. The first two efforts are outside the scope of this article. So let us examine the measures taken for broadening the tax base.

In June 2000, the Chief Executive appointed a task force to review the tax administration and make recommendations to improve it. Headed by Syed Shahid Husain, a former high-up in the World Bank, the task force formulated its report with the help of 11 members, two advisors, four individual supporters, nine institutional supporters, six contributors, five administrative supporters and 16 consultants with millions of rupees spent. It recommended a complete overhaul of the CBR.

As a result, the number of members of the CBR were increased from original six to a whopping fourteen, responsible for some functions assigned to independent members for the first time in the history of CBR like fiscal research and statistics, human resource management, audit, information management system, taxpayer, education and facilitation, etc.

Many of them were hired at the so-called market salaries which were markedly higher than the salaries of the Members coming from the regular cadres, causing considerable frustration to the latter. More relevant to the issue under consideration, the task force recommended the functional separation of the income tax department. Various functions which were performed by one officer were assigned to six divisions. They are: divisions of taxpayer assistance and facilitation, information processing, audit, enforcement and law and prosecution.

Following pre-conditions were considered essential for the success of the scheme:

* Universal self-assessment scheme; audit to be done at the taxpayers’ premises; each taxpayers profile is to be created in the data base which is automatically updated at each step; centralized record keeping.

In short, the working of the scheme is based on computerization from beginning to the end, which envisages massive purchases of hardware, development of software and the training of staff and officers of the department. Without going into the merits and demerits of the scheme, the question which arises is whether the implementation of the scheme has improved the working of the department or broadened the base of direct taxes. Unfortunately the answer is in the negative.

Another exercise in the direction of broadening the tax base was attempted in the summer of the year 2000 by launching a bold though risky survey of businesses and assets. The profornma for conducting this survey, though contained many mistakes, was comprehensive as it not only covered the enquiry regarding the assets of all individuals and businesses but their expenditures as well. High hopes and great expectations were imputed to it. So much so that the recovery of additional billions were announced before the exercise even commenced.

As expected it met with massive resistance from the citizenry. Initially, the government stood its ground, sure in the knowledge that the army officers were an integral part of the operation and their association will ensure its success. Lamentably, that was not to be. After a few months of ineffective and indecisive drill, the whole project was abandoned.

Yet another effort in this direction was made by the promulgation of Income Tax Ordinance 2001. It aimed at simplification of the law, global taxation of income, monetization of all perquisites and universal application of self-assessment scheme. It is yet to be seen how far the new Ordinance would succeed in achieving its avowed aims. But by itself it can not achieve the most cherished goal of broadening the direct-tax base.

All these exercises and operations undertaken by the . government in the last four years, notwithstanding some of their limitations and shortcomings, embody the potentiality for success. The big question is: why did they fail in achieving their goal? The short answer to this thorny and disconcerting question is: the government lacks the political will. Let us examine this assertion in some detail.

Payment of taxes entails a measure of sacrifice. The human nature being what it is, we all like to avoid making sacrifices. The collective good and national well-being are too vague concepts to be comprehended by an average mind They pale before avarice, to which all humans are heir to, and narrow self-interest.

Therefore, it follows that there has to be an element of persuasion, even coercion, in the effort of a government in collecting its dues. The direct taxes are notoriously unpopular. Recently there has been a prolific and sustained campaign to do away with them. Direct taxes like estate duty, gift tax and wealth tax have already been dropped like hot potatoes. An ill-conceived indirect tax by the name of payment value tax was vigorously advocated as a substitute for income tax.

A preposterous idea was recently floated that there is no difference between direct and indirect taxes as far as the bearing of their eventual burden is concerned against all canons of taxation. Successive governments of this country lacked the will to resist this sustained campaign against the levy of direct taxes and bring to the book those who refuse to discharge their duty in this regard. All governments, including the present one, surrendered before the threat or perceived threat to the campaign of broadening direct tax base.

Or was it the cold feet which the governments experienced in abandoning their efforts in this direction? One cannot be sure. The irony of the situation is that a number of unpopular decisions, outside the domain of fiscal policies and mainly concentrated in political field, were taken and stuck to. This leads to the inescapable conclusion that the reason for withdrawing unpopular tax measures, the recent example being the conduct of survey, was other than the manifest one. The said measures were unpopular with the decision makers as well. If not as much with them, surely with their cohorts.

Broadening the tax base is not such a hopeless task that all governments have so far failed. The present scribe has written a number of articles in suggesting various measures to achieve the goal and is loath to repeat them. They were no earth-shaking revelations, and are surely known to the economic managers of the country. As a starting point the ownership of all immovable properties and vehicles may be ascertained and those owners who do not hold national tax number booked.

Similarly, all those who consume electricity can also be brought to book. All the relevant information in this regard is available with one governmental office or the other. With the help of computer technology (its capacity is mind boggling), the profile of each owner of property, vehicle or electricity consumer can be created to find out whether he is a tax payer or not.

One wonders what Pakistan Revenue Automation Limited has so far done in nearly a decade of its existence. The CBR has now a Member looking after information management system, getting a market-based salary. Together they should be able to create the required data base.

It is futile to exhort the hanger-ones of the LTU (who have their hands firmly tied behind their backs) for broadening the tax base. The devoutly wished consummation can be achieved only by marshalling the political will.