LAHORE: A talk that was supposed to be pedantic given its scope that involved the complex issue of taxation in a country like Pakistan with massive tax evasion and a crumbling and corrupt tax collection mechanism, both the moderator, former finance minister Miftah Ismail and the guest, Federal Board of Revenue (FBR) Chairman Rashid Langrial, shed light on the issue in a way that was both entertaining and enlightening.
The session titled ‘Why Does He Tax Us So Much’, opened with FBR head saying that being a poor country 60 percent households don’t have taxable income of Rs50,000. He said that of the country’s 60.7m workforce, the top 1pc have 1.7 trillion tax liability, while its total tax gap in around two trillion.
Mr Langrial said that unfortunately the whole taxation system has been designed to facilitate five percent of the people, who further exploit the loopholes in it to evade their liabilities.For example, he said, the export facilitation policy that allows five-year tax relaxation was being misused.
As Miftah satirically asked whether only the taxpayers are to be blamed, Langrial frankly admitted the issues with regard to the FBR’s capacity, which he said is being improved through a host of measures being currently taken.
To a question by the moderator, that FBR is going to take way roughly 12.5pc of every body’s income, which even includes alms, and what people would be getting in return, in terms service delivery by the state, Langrial said, it is a wider debate that whether Pakistan is a an over-taxed country? “No, it is not the case,” he said.
Admitting that in some areas, including the tax ratio for the salaried class and the GST rate, improvements need to be made, he said among the comparable countries, tax-to-GDP ratio in Pakistan, that is 9pc, is not high. Similarly, he said, Pakistan’s expenditure-to-GDP ratio was also high, saying that it was 24pc in India while in Pakistan it was 19pc. “The problem is that we are able to collect too little (tax),” the FBR chief admitted.
When again prodded by Miftah about what people are getting for paying taxes, FBR chief said that though we are not spending as much on health and education as we should, there are also issues with the way the allocation is used.
In this regard he cited the example of the country’s school education system which, he said, was mainly focused on years of education than the educational outcome, because of its flawed design. “So, neither we are paying taxes as we should, nor we are getting the service delivery as we should get.”
To Miftah pointing out the exorbitant tax ratio for the salaried class and professional, reaching up to 49.5pc in some cases, including on the income of doctors doing private practice, FBR chief said the government is cognizant of the issue but unless there is compliance on part of tax collection from traders and others, there can’t be space for such relaxations.
Mr Langrial said that FBR was focusing on implementation and has taken measures to make it difficult for people to spend money on real estate, vehicles and foreign travel if they have not filed their last tax return.
To a question about physical resistance by traders to the field tax officials, FBR chief said his organization avoids strong-arm measures and treats the issue as a civil matter.
As Mr Miftah asked if any measures are afoot with regard to bringing down government expenditures, Langrial explained that a rightsizing committee was working under the finance minister has already decided to close down at least two federal ministries and multiple attached departments.
Closing the session, Mr Miftah appreciated Mr Langrial for taking effective steps to curb speed money, especially in Customs by introducing a new mechanism for appraisers in Karachi, that would be ultimately expanded to the entire country.
Published in Dawn, January 12th, 2025
