A MAJOR problem has been insufficient tax revenue required to contain budget deficit and boost development expenditure. Tax is a primary mechanism of revenue generation, meant for meeting development expenditures. But things are not in order.
The basic irritants in the tax system are low tax base, imbalance between direct and indirect taxation, low tax to GDP ratio, insufficient tax revenue and inefficient and corrupt tax officials.
In a population of 151 million, only 1.5 million or one per cent are tax payers. A majority among them is of salaried class whose tax liability is deducted at source. They can not dodge the tax officials.
Our tax system is incapable to generate sufficient amount of revenue. Our tax revenue for any fiscal year has remained well below $10 billion in a national economy of the size of $92.5 billion.
Most of the times the cautiously set tax targets were not met. Our tax to GDP ratio has fluctuated between 12 and 13 per cent. In present year, it has fallen to 10 per cent. The bulk of the revenue comes from indirect taxes that consist of GST, CED, import duties, municipal levies etc. All of these are regressive in nature and justified in those countries where population below poverty line is minimum and where income disparities do not exist.
In Pakistan where more than one third population lives below poverty line and wide income disparities exist, excessive indirect taxation is irrational and illogical. It may be noted that top twenty per cent receives 50 per cent of total national income and bottom 20 per cent receives only 7 per cent of total national income. Here the canon of equality propagated by the economist Adam Smith is called in question.
In order to make tax system a success, it should be based on some sound footing and ground realities.
A good taxation system inter-alia must be adhered to horizontal and vertical equity along with “ability to pay” and “principle of benefit”. The principle of ability to pay manifestly rejects indirect taxation, making rich segment to pay more and sacrifice more in real terms.
The principle of benefit illustrates that people benefiting more from government spending and reaping greater benefit of public services should pay more tax proportionally. It implicitly shifts tax burden from rural to urban class and seems more logical in our case where development is urban-biased.
The tax base should be broadened by registering new potential tax payers who are still out of tax network. The upper 20 per cent segment is main tax evader and it should be made to pay taxes in full. No distinction should be made. They should be made permanent and full tax payers without omission and commission.
Tax officials also need to change their mindset and should not harass the honest taxpayers. Cumbersome and complicated tax payments procedures which result in undue formalities, delays and difficulties for tax payers need to be simplified.
Self- assessment scheme is a welcome step and it should be made universal for all to minimize irritation of tax payers and uncertainty in tax revenue collection. Tax payers should must get distinctive recognition and status in society.
Tax is a contribution for building a civilized society and for the benefit of general public but unfortunately, it is corrupting very fabric of our society. The CBR is a good consumer of stationery and other printing material, producing rules and regulations that create hassles for the tax payers.
CBR is a tax authority in name only where the elite is patronized. It should be turned into an independent tax collecting authority that should not be at the beck and call of any government. This will help to collect tax from the from the large tax evader.
The names of tax defaulters should be made public and they be taken to task in an independent court of law comprising of retired judges of high integrity.
Legislative and administrative organs of taxation system must work in collaboration to produce a viable tax system with simple procedures that is easily understood. Human resource development through staff training, motivation and improvement in service structure is also necessary.
Contact between tax payers and tax collectors should be minimized through computerization and eliminating unnecessary correspondence. But remember, taxation without representation is a tyranny.
