May 15, 2006	Monday	Rabi-us-Sani 16, 1427

DESPITE numerous issues still confronting the national economy, the present team of economic managers deserves credit for a number of improvements over last six years. One such accomplishment is increase un tax revenues increasing from around Rs300 billion to now fast approaching towards Rs600 billion mark.

In the first 10 months of the current fiscal year, July 2005 to April 2006, the Central Board of Revenue )CBR) collected Rs536.395 billion against Rs451.112 billion in the same period of 2004-05—an increase of 18.9 per cent.

Though the surging amount collected by the CBR apparently looks impressive, this is much less than what it should be in the phase the high economic growth.

These figures are in no way, a proof that all is going well on this front. A lot remains to be achieved before we can term the situation as satisfactory. Even the surging amounts collected by CBR that apparently look to be impressive, are much less than what they should be.

The tax-to-GDP ratio remains very low, coming down to nine per cent this year— that is far from the level required to put a country like Pakistan on road to progress. The ratio, in fact, has come down constantly from 12 per cent in 2003.

Many factors are responsible for lower tax-to GDP ratio. First, the tax base has not yet expanded to the desired level and number of taxpayers is too small considering population of over 150 million. Multiple taxes and a complicated system play their part. But importantly, one of the most critical issues being faced is evasion of taxes.

According to the 2005 report of Punjab Anti-Corruption Establishment, taxes being evaded in Pakistan are estimated at around Rs218 billion annually. Add to it lack of documentation, inefficiencies of taxation machinery and corruption, the amount could be even higher.

The general impression is that big firms evade most of the taxes payable by them. But those involved in small manufacturing, business or trade activities are not angels either.

Tax evasion is rampant at all levels, as no social stigma is attached with evading taxes. Six years ago, when the government launched a tax survey, tax evaders were at the forefront of resistance against it.

Here one can quote one example on tax evasion. There are 55 licensed cigarette manufactures with a total of 148 brands. Out of these,17 brands manufactured by two leading tobacco companies contributed Rs29.4 billion in taxes. The contribution of all other brands stands at a meagre Rs0.2 billion. Where does all the money go? Tax losses on account of this industry alone are estimated at Rs6 billion annually and are on persistent increase.

There are also estimates of huge tax evasion in cement and sugar industry, the two sectors enjoying windfalls on skyrocketing prices in recent months. Tax evasion is also very high in certain other industries such as paper and board, lubricants and fan industry.

Tax evasion is not limited to business and industrial organizations alone. Unfortunately, the malady is deep rooted within the society. Individual Pakistanis, rich or with limited incomes, unfortunately, are not comfortable with paying what is due and try to avoid the obligation by different means. The tax revenue on farm incomes are very low. The argument generally advanced is lack of trust in the government- as to how the taxpayers’ money will be utilized.

How the rulers have been plundering the public wealth in the past, though a cause of concern and caution, by no means absolves the citizens from their duties. It increases their duty not only to make their contribution, but assert themselves for prudent use of the tax revenues.

Corporate tax evaders deny the nation resources for development programmes and projects. It is an issue haunting us again. The need for improving the resource base becomes important in the face of rising current account deficit.

According to State Bank of Pakistan, the current account deficit may reach 4.7 per cent of GDP, $5-6 billion, by end of fiscal year.

It is time to create a tax culture. The people must pay what they owe to the government. And those not paying heed, should be taken to task. With next budget around the corner, one can hope the government will introduce effective steps to increase tax revenues next fiscal and beyond.