KARACHI, Dec 11: Mainly because of rampant corruption, in combination with a host of other factors, the country suffers a loss of 64 per cent in income tax, 48 per cent in customs and 45 per cent in sales tax.
Translated into hard cash, it means that for each hundred rupees of genuine income tax payments of a typical Pakistani business, the government collects only Rs 36. “The rest of the money is shared among the three parties — assessor (taxman), the assessee (tax payer) and the middleman (tax practitioner).
A survey carried out by a reputed Lahore based academic institution early this year, as a part of tax reformation drive, has indicated the sharing of Rs64 booty. Out of every Rs100 taxable amount, the highest amount of Rs38, of course goes to the taxpayer, a typical Pakistani businessman. The taxman, an officer in income tax department, gets Rs16 for his services to the taxpayer in helping him to conceal his real income. The middleman who is a tax practitioner, advisor or a lawyer gets Rs 10.
The perceived amount of revenue loss by the government in customs is Rs48 for every Rs100 taxable income is less than the losses being suffered in income tax collection. The reasons being offered for this relatively lesser leakages in customs is the significant reduction in duty rates, which has reduced the incentives to cheat. Customs duty rates have come down in last few years to 30 per cent maximum this year, which will further go down to 25 per cent next July.
Even then, the system offers a lot of opportunity for the importers and customs officers to deny the exchequer due payment and share the pilfered tax amount among themselves. The study estimates a sum of Rs52 going to exchequer out of every Rs100 taxable amount.
Out of the Rs48 cheated from Rs100 payable customs duty, the businessman gets Rs23, the customs officer gets Rs15 and the middleman who may be a clearing agent gets Rs10.
In case of sales tax, the government gets Rs55 out of every payable amount of Rs100. The Rs45 cheat amount is shared to the extent of Rs28 by the businessman while the taxman gets Rs11 and Rs6 goes to the middleman.
“If these estimates are taken as true, then the amount of revenue loss can go over Rs200 billion,” the survey report says. But it cautions to read these estimates with care “as they are summary judgments of a complex phenomenon.” Also these estimates may not capture part of revenue loss due to presence of a large unregistered business segment, on the one hand, and smuggling on the other.
Conceding that it is not possible to predict the precise amount of revenue loss, the report nonetheless assets that the data collected during the survey “is pointing to a very heavy leakage”.
Various studies on corruption in Pakistan quotes a revenue loss estimate by World Bank because of smuggling amounts to 5.08 billion dollars in 1992-93.
Another estimate estimates revenue loss, because of distortionary tax regulations and administrations, at Rs40 to Rs45 billion in 1989-90 and Rs104 billion in 1995-96.
Apart from direct monetary costs of corruption, both Pakistani and international literature is full of many other costs, such as loss of government credibility, spread of injustice, distortions in resource allocations and loss of foreign and local investment.