Expanding the net

Published April 2, 2024

WITH the budget looming, the new government has reached a fork in the road. One choice is massive restructuring and reformation of the economy — a multi-year project that will require endless hard work. The fruits of the effort may be enjoyed only by future governments. However, the political costs will be immediate and immense, which the ruling parties will bear alone. The other choice — the easy path — will circle back to this same junction in five, 10 or 15 years, but will allow those making decisions today to enjoy the short-term benefits of power. Given what has been sacrificed to install the government in Islamabad, one would assume it has by now chosen the path it needs to take forward. The first test of its resolve begins this week. A drive to get the largely undocumented trade sector registered in the taxation system kicked off on Monday under the Tajir Dost Scheme banner. Armed with incentives and penalties, the FBR is undertaking the campaign to add Rs400-500bn to annual revenues. Although the trader class has long been a solid constituency for the PML-N, it appears that it, too, realises the necessity of expanding the tax base. Defence Minister Khawaja Asif on Sunday has blamed tax evasion by “big fish” as the reason the country was near bankruptcy. The minister specifically pointed to “retailers and wholesalers” as he criticised them for their reluctance to fulfil their tax duties.

Though the finance ministry has so far not spoken publicly on the registration drive, the government seems keen to widen the tax net. From traders to professionals to larger industries, the government looks like it is finally going after undertaxed segments. However, because these efforts seem to be borne more out of compulsion — to win the IMF’s favour — than a desire to make the taxation system more equitable, doubts linger regarding how far the government actually wants to go. With fuel, electricity, and gas prices continuously rising, the salaried class is already under immense stress. It cannot be further burdened. Therefore, Prime Minister Shehbaz Sharif would be well-advised to keep his tax net expansion drive on track. During his last tenure, one finance minister’s efforts to start course correction were hijacked and derailed by another, who had strange ideas on economic management. Mr Sharif should ensure that this does not recur.

Published in Dawn, April 2nd, 2024

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