Tax: stick & carrot

October 22, 2019

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WHILE the government is right in its intention to promote a tax culture, it is wrong in its implementation strategy. Tax is the price of sovereignty. The most important factor in achieving this monetary sovereignty is formal economy.

The government strategy to strictly and swiftly impose taxes reflects our societal attitude. We think of our children as naive and do not give them responsibilities till very late.

Afterwards, we all of a sudden realise they need to pull their weight and start pushing them to become bread-winners overnight.

The same is the case with the government’s tax policy. Not everyone was paying all of the taxes that were due from them. We had, and still have, a regressive tax regime. Thus the tax burden fell heavily on the lower income segment of society. There is no denying that we have to generate more revenue to achieve fiscal balance. Borrowing is merely a ‘pain killer’.

The government needs to realise that hard decisions need to be followed by an even harder efforts to collect taxes. While individuals and businesses have to pay taxes, government bodies too need to put in the effort to collect taxes.

Neither buyers nor suppliers are willing to pay all the taxes that they should. The burden of unpaid taxes is imposed upon the businesses, which is not the best of ideas. Instead of putting in extra effort, the government is threatening businesses to do the job for them. This carries the risk of encouraging an informal economy.

Businesses will see this as an incentive to operate under the radar. There will be more benefits in showing underproduction, operating as an unregistered entity and smuggling.

To avoid such undesirable outcomes, the government needs to come up with an action plan that encourages businesses and persuades them to cooperate with the tax regime.

The process of making businesses to also act as withholding tax agents needs to be implemented slowly besides introducing programmes to encourage a tax culture. There is a need for a stick and carrot policy.

Hamid Jadoon
Swabi

Published in Dawn, October 22nd, 2019