FINANCE Minister Muhammad Aurangzeb is ready to employ force to make everyone and every sector in Pakistan pay their due share of taxes. Everybody, he said, would have to contribute to the economy. He asserted, “We are going to be very firm, very firm on compliance and enforcement ... because as a country our hand has been forced. ... I am very clear about it and I want everybody to move forward with this clarity,” he said. His remarks came days after an IMF mission wrapped up its unscheduled talks with Pakistan, flagging an increasing shortfall in the tax collection target for the ongoing fiscal year. The FBR is facing a big hole of Rs190bn in its tax target for the first four months, which many fear could force the government to impose additional taxes to meet IMF goals.

The minister’s statement indicates that the government has pinned all its hopes of achieving the enormous target of nearly Rs13tr on strong tax compliance and enforcement as envisioned in the recently approved FBR transformation plan. Indeed, the weak enforcement of tax laws is a major reason behind the poor tax compliance, underreporting and evasion. The reality is that our tax problems run much deeper. It would be, therefore, foolish to assume that our tax woes can be tackled just through enforcement, when in fact, they are rooted in a very narrow base of taxpayers, with over three quarters of the economy comprising the services, real estate and farm sectors effectively outside the system. On top of that, some influential lobbies have scored exemptions on their tax liabilities worth around Rs4tr. While ruthless enforcement is crucial, the authorities cannot hope to boost tax collection without taxing all incomes, irrespective of their source, and abolishing exemptions. For that, the government would have to revamp the entire tax regime and administration to make the system fair, while strengthening enforcement alongside.

Published in Dawn, November 19th, 2024