Currently faced with financial woes, Pakistan’s revenue collection stands short of its targets. In order to raise resources to match its needs, a proper tax culture has to be evolved. According to the data available, hardly two per cent of the population pays income tax. Is it then any wonder that we have the lowest, about nine per cent, tax to GDP ratio in the region?

To improve revenue generation it is imperative that the quality of governance and public service is improved to encourage people to pay taxes and thereby contribute to running the cost of the country. “I depend on private guards for security, maintain a generator for power supply, have dug a well in the backyard for water, spend on private education and healthcare and support social causes. I do not feel I owe anything to a government that has more problems for us than solutions,” says Imran Habib, an executive of a company.

Tax experts, however, consider the lack of documentation to be the main culprit for massive tax evasion. “Vast chunks of income in the service sector, bigger in size than agriculture and manufacturing combined, enjoy a tax holiday because their activities are not documented,” a taxation expert who worked in multiple tax reformation committees under several regimes said some time ago.

“Unless the documentation of economy improves I do not see any resource generation campaign yielding results. We know that retail, transport and construction businesses have been growing but their direct contribution to the public exchequer is next to nothing because they have successfully avoided documentation,” Shabbar Zaidi, a tax expert, told Dawn earlier.

Public awareness about minimal contribution to the kitty by rich politicians and other influentials seriously dissuades the public from paying taxes.

Some time ago, a published report suggested that 70 per cent parliamentarians in the last assembly did not file tax returns in 2011-12, implying that wealthy politicians with huge supplementary incomes from property and businesses did not pay a penny beyond what was deducted at source from their parliamentary salaries. An earlier study found that the net worth of Pakistani parliamentarians ran into millions of rupees.

The taxation regime in Pakistan favours the landed aristocracy and private service providers, etc. who virtually enjoy a tax holiday.

“If people feel that through indirect taxation, particularly in the form of levies and surcharges included in the utility bills and gasoline price, they end up paying more than their fair share to the government, they are not off the mark. It explains their collective attitude to resent direct taxes,” another tax analyst commented.

“It is true that people bear the brunt of an inefficient taxation system and lopsided tax policies. The system discriminates against the salaried class who is forced to pay as their income tax is deducted at source,” he added.

The principle of neutrality demands fair treatment, unlike the tax laws in Pakistan. Here laws are used to influence private decision by constantly changing rates to direct wealth towards preferred sectors.

“In every budget and through Statutory Regulatory Orders (SROs), yearround incentives are offered or withdrawn to suit the change in government’s policies. It confuses the taxpayers,” a tax lawyer said. “The sudden issuance of SROs leads to a resentment in taxpayers who then resort to all kinds of practices to dodge and avoid what they feel is an unfair levy,” he added.

The complexity of the tax structure, inefficiency and corruption in the tax collection machinery tempts people to find loopholes in the tax net and pay a fraction of the actual tax liability.

Pakistan has about three dozen government agencies managing as many as 70 different levies and taxes. People prefer to keep clear of  taxation to avoid the hassle of dealing with tax hounds. Besides multiple brackets and qualification introduced arbitrarily make the calculation difficult, thus creating more reluctance for paying taxes.

“A taxpayer likes to know what is being taxed and at what rate. He wants the simple calculation of the total amount that he needs to pay and the cut-off date for the payment. Our system is complicated,” a tax lawyer commented. “The difficult tax regimen makes people feel cheated,” he explained.

Ostentatious spending by the government discredits its position as a trustworthy custodian of public wealth. Add to that, confused government priorities and the lack of transparency in government accounts are enough to dissuade taxpayers.

“As long as people perceive a government to be insensitive, irresponsible and wasteful, they will not pay taxes,” says a lecturer.

A huge gap exists between tax potential and actual collection of direct tax, as shown by several indicators which suggest that the actual size of the economy is many times the reported volume.

“The trend of real growth in Pakistan is not captured in the GDP data that reportedly grew at a moderate pace of about five per cent over the past 20 years as compared to the galloping pace of growth in some other Asian economies.

“The massive expansion in communication and media and stellar performance of auto, drug, textile, engineering and cement companies among others confirms that the pace of wealth creation must be more than what official economic data projects,” said an economist.

“Expansion plans of multinational companies indicate that their profits must be huge enough to cover the risk of operation in the most dangerous country of the world,” a market analyst commented.

Multinational giants, dealing in fast moving consumer goods, are reportedly expanding their operations because of better margins and high potential in the Pakistani market. The visiting executives of their principal told Dawn in an exclusive interaction that Pakistan is their most profitable station globally.

“Doubtlessly, there is more wealth circulating in Pakistan than perceived on the basis of the official data. It also means that an apt fiscal policy, efficient tax collection machinery and improvement in the quality of governance can work wonders and address the revenue generation problem,” concluded an expert.