Pleading for revenue

January 22, 2020

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THE prime minister’s recent meeting with business leaders and chamber presidents featured some of his old rhetoric all over again, despite the passage of a year and a half in power. He asked them to pay their taxes, and reminded them that his government had slashed the personal expenses of Prime Minister House, and that the ‘lavish lifestyles’ of his predecessors were no longer a burden on the government exchequer. He also told them that his government would spend tax money on the Ehsaas programme for the poor, after coming up with whatever was required for defence and debt servicing. The audience, which consisted in significant measure of members of the business community connected with trading, seemed largely unmoved by the presentation.

The prime minister’s rhetoric is ineffectual for a variety of reasons. For one, his personal expenses are not really a factor in people’s decision to file, or not file, their returns, or get their enterprises registered with the tax authorities. Those expenses are miniscule, and besides, the prime minister’s claim that he has slashed them does not hold up to scrutiny. For another, spending on Ehsaas, which basically carries forward the work that began with the Benazir Income Support Programme, is also not likely to motivate people to get their businesses registered. Broadening the tax base is a policy matter and it is not going to happen via emotional appeals. Mr Khan tried this approach all through the first months of his coming to power. By now, it should be obvious to him that begging, pleading, cajoling and demanding that people comply with the laws only signal a weakness. What is needed is a schedule of incentives and disincentives that is designed in a way to get people to step forward and get their businesses registered.

Finding that schedule of incentives has been a policy conundrum for rulers in Pakistan for almost two decades now. We have tried force as well as registration requirements and made aggressive use of withholding agents embedded in the supply chains that span the trading economy. The previous government experimented with a novel carrot-and-stick approach for traders only, slapping penalties on their bank transactions if they were unregistered, while offering them an amnesty scheme if they chose to come into the net. All of these came to nought. Now the government has to demonstrate its seriousness of purpose in its endeavour, and realise that emotional appeals will not achieve anything. The government has already accommodated all the traders’ demands in an ordinance released in the final days of 2019, and now the time has come for it to demand that the trader community live up to its end of the bargain. What will be the cost of failure on this front? Both the government and the trader community should know this clearly.

Published in Dawn, January 22nd, 2020