ONE of the major issues with Pakistan’s tax administration is the lack of fairness. The system has been designed in such a way that it punishes those who are documented and in the tax net either by choice or compulsion and rewards those who remain outside it legally or illegally. This means that documented persons — businesses and individuals both — have to bear a greater burden of tax payments to make up for the revenue loss due to tax exemptions, theft and evasion. Simply put, taxpayers are punished for being in the net and non-taxpayers are rewarded for avoiding it. In fact, the latter have also been able to compel successive governments to give them amnesties every few years to legalise their dirty money by paying a negligibly low amount as tax. Little wonder that Pakistan’s tax-to-GDP ratio remains below 9pc, the lowest in the world. Even many poor African countries have a much better tax-to-GDP ratio.

The PML-N’s policy of creating a parallel tax regime for tax filers and non-filers in the name of increasing the tax base and revenues is just another way of extorting more taxes from filers while letting the deviants get away with paying only a fraction of the amount due in taxes. Take the example of separate tax rates for filers and non-filers purchasing land or property. A parliamentary panel was informed on Friday that the changes in the income tax law requiring both filers and non-filers to pay 1pc tax on the deemed rental of the value of properties and assets other than the one for personal use of the taxpayer has widened inequity. The demand is that this tax should be imposed on non-filers but must be abolished for filers because they are already paying 35pc tax on their incomes and have purchased new assets through tax-paid savings. The additional tax on deemed rental actually raises the applicable tax rate on them to 40-45pc. In contrast, the non-filers get away with the payment of just a tiny fraction of what the filers have to pay. It isn’t surprising that only 1pc of the country’s population files tax returns, with almost a third of them showing zero tax liability. Who would want to join the tax net by choice when they can, in fact, reap large rewards if they are not paying their dues?

Published in Dawn, August 6th, 2023