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A LAST-MINUTE month-long extension until end October for the deadline to file this year’s tax returns should hardly be surprising.
It followed a repeated delay last year too, with the onus then placed on glitches in an emerging electronic system for filing tax returns. The impetus behind this year’s delay was said to be time consumed by Eidul Azha and travel by many tax payers to Saudi Arabia for performing Haj.
But it underlined once again the powerful reality of Pakistan’s ruling system that is yet to come to speed with reforming what has effectively become one of the world’s poorest performing tax collection networks.
Such repeated delays have already made a mockery of what ought to be an important pillar of any successful state system, where those with adequate incomes must be obliged to also pay their dues. In sharp contrast, Pakistan remains saddled with a significant black economy, while the government’s coffers just do not have enough to meet key national needs.
It is still not clear if the end October deadline is now cast in stone or subject to yet another change. With less than one per cent of Pakistan’s population making up the community of income tax payers, it goes without saying that there ought to be plenty more to be roped into the tax net.
Our officials go after those who are already in the tax net.
Meanwhile, one immediate downside risk of this gap has been ignored for far too long. Pakistan’s taxmen repeatedly continue going after those who are part of the minority and already caught in the tax net.
Irrespective of how bolstered the finance minister may feel following the successful conclusion of a three-year IMF loan programme that recently concluded, there is a great big hole in Pakistan’s economic fabric.
In the absence of more Pakistanis forcefully obliged to become income tax payers, Pakistan will always remain behind in devoting more resources to pay for its fundamental needs, notably for the social sector in areas such as healthcare, education and creation of more jobs. Meanwhile, a mounting national debt burden will likely rise with at least a good part of the $51 billion added through investments in the China-Pakistan Economic Corridor. If indeed kept unaddressed, would this alone summon a national nightmare is an increasingly compelling question.
For years, critics of the tax collection system repeatedly questioned the immunity given to wealthy farm owners from paying their income tax. But with Pakistan’s agriculture caught in a terrible crisis with sharply falling commodity prices of the past year, this may be the worst time to tap into this sector aggressively for a robust rise in income tax collection.
Besides, it is fundamentally far more vital to focus on the broader question of taming the incidence of tax avoidance across the board, irrespective of the sector in question.
The past year has also exposed two interrelated challenges that could perpetually undermine the credibility of a system which is already tainted by widespread corruption.
On the one hand, the global revelations under the so-called Panama leaks and the discovery of millions of dollars of wealth belonging to high-profile individuals across the world, including Prime Minister Nawaz Sharif’s three children, has triggered doubts over the moral authority of Pakistan’s national leaders. Unless there is a forceful push to investigate the Pakistan-related link to this sorry saga, with Sharif’s three children and other high net worth individuals forced to reveal the sources of their wealth, the gap in the moral authority of the ruling elite will continue to undermine already weak popular confidence in their ability to reform the tax collection system.
On the other hand, the visible gap between the apparent incomes of ruling politicians and amounts paid as income tax will do little to encourage mainstream Pakistanis to join the tax net. A tax directory of members of the federal and provincial legislatures released last month presents what could easily be termed as laughably low amounts paid in tax versus the lifestyles of the rich and famous.
Faced with at least a half dysfunctional tax collection system, many Pakistanis have the right to ask if their government is capable of reforming what is fundamentally a crucial building block for any system of government. For the moment, tragically, there is no light at the end of the tunnel.
What is clear is that nowhere in the world do people happily step up to pay their dues unless faced with the fear of being held accountable. In Pakistan, the idea of rule of law applying to the high and mighty simply does not exist. Consequently, the writing on the wall should be very clear.
In years gone by, one regime after another has relied on cutting back funds from key social sectors to simply balance their books. But there must be a limit to how far the poor will suffer, with their increasingly dismal quality of lives, without triggering a major backlash — strongly and, that too, very unexpectedly.
The writer is an Islamabad-based journalist.
Published in Dawn October 19th, 2016
