FOR whatever it is worth, finance adviser Shaukat Tarin’s pledge to tax everyone’s income to boost tax-to-GDP ratio from the existing 9pc to 20pc and reduce the number of levies to just two — ie income tax and consumption tax — doesn’t inspire much confidence. The plans to raise tax revenues and abolish numerous unproductive indirect taxes that people are expected to pay every step of the way aren’t new. And though the adviser sounds resolute, the question is whether he can surmount the challenges on the way to his goal.

Pakistan’s tax regime is structured in a way that it unfairly compels low-middle-income segments to pay a greater ratio of their incomes in (mostly indirect) taxes compared to those with higher incomes and helps the powerful get away without paying their due share. A large army of tax collectors also ends up mostly helping truants and delinquents for their personal financial gains. By avoiding tax payments and securing exemptions, the rich have for long forced successive governments to run large deficits, cut expenditure on social and economic infrastructure and increase the tax burden on the rest of the country. Will Mr Tarin be able to reform and restructure the nation’s sloppy tax regime and administration and break the nexus between the wealthy and the tax collectors as he claims?

Mr Tarin has correctly said that the state has a right to collect tax and that everyone must pay their share if the country is to progress. Pakistan has one of the lowest tax-to-GDP ratios in the world. This is a major reason behind its economic woes and large budget deficits that we have seen over many years. It also means that the government has little fiscal space to spend on human development and infrastructure. And when it borrows money to push growth, it runs into deeper trouble. Mr Tarin claims that people will no longer be able to evade taxes since the government has all the relevant data to accurately assess the real incomes of individuals through the use of AI. But we have seen a reluctance to use technology to increase taxes in recent years because of lack of sufficient political will and strong resistance from tax collectors who have vested interests. With the PTI government at the fag end of its tenure, few believe it is in a position to take tough decisions that may pitch it against powerful lobbies such as traders. Mr Tarin also indicated the government’s reluctance to anger traders — at least at the moment — when he said he would ‘consult them’ before taking decisions. Everybody hates paying taxes. But nobody, no matter how powerful, should be allowed to blackmail the state. If Mr Tarin is to succeed in his plans he must be ready to use the stick against those unwilling to pay their taxes.

Published in Dawn, November 10th, 2021