Every year before the announcement of the federal budget, a plethora of tax proposals is received by the Central Board of Revenue (CBR) from trade, tax bars and industry’s representatives.
These are given no serious thought by the CBR which seems to have only one concern: how to achieve revenue targets through newly drafted amendments.
This year too, tax officials are planning anti-people amendments in the newly-promulgated Income Tax Ordinance, 2001 and the Sales Tax Act, 1990 with a view to imposing new obligations on taxpayers and the citizens. They will do this in the name of the so-called elected Parliament whereas in reality they will be fulfilling the agenda of the IMF and other donor agencies.
The sole stress on meeting revenue targets, without evaluating its impact on the economy, has crippled our trade and industry during the last few years, especially since we have started submitting completely before the dictates of the foreign donors. Had the government concentrated on economic growth and industrial expansion, there would have been substantial rise in taxes today. It is impossible to enhance revenues with stagnation in the economy and over-taxing taxpayers, without expanding the tax net.
By fixing revenue targets in isolation and without making necessary efforts to improve productivity and economic growth, such measures have confronted Pakistan with a dilemma. This has also become a vicious circle for our policymakers who are now trapped. They will have to find ways and means to come out of this tangle to make Pakistan a competitive place where investors find satisfactory conditions to invest.
The CBR has been harming Pakistan’s trade and industry by withholding undisputed refunds payable to taxpayers, making excessive tax demands and resorting to all kinds of negative tactics to meet its revenue targets. Instead of cosmetic changes, what is needed is a paradigm shift at structural and operational levels ensuring not only more tax revenues but also social equity and fairness so that honest taxpayers are not disillusioned.
Countering tax evasion: It is indeed a paradox that while money for worthwhile industrial growth and public benefits is scarce, there is colossal unaccounted cash supply circulating in the economy in search of further undercover gains. What is more tragic is that this social evil gets doubly compounded as it necessitates greater and greater tax burdens on those who are law-abiding. The most crucial problem in fiscal reform programme is that of devising stringent measures to curb tax evasion so that tax burden is divided fairly between various strata of the society. The unholy alliance between tax evaders and corrupt officials has to be eliminated if we want to initiate any meaningful change in the system.
The privileged classes must act as an example for others. Their declarations of assets should inspire the common people to pay their taxes honestly.
Our tax potential is not less than Rs600-800 billion provided the tax base is widened, tax machinery is completely overhauled and concessions available to the privileged sections are withdrawn.
The determination of a tax base capable of measuring an individual’s ability-to-pay is a major problem of our tax system. This rule is incorporated in the form of progressive rate schedule for personal income tax, estate duty, and property tax worldwide. We have moved from this policy to unequal sacrifice rule where the mighty civil and military bureaucrats (now part of the landed aristocracy by getting state lands as awards and rewards), industrialists and businessmen who pay meagre taxes while the poor people are overburdened with taxes.
Tax policy should be used as a tool of distributive justice. The government should launch programmes, financed mainly through taxes, to solve the twin problems of unemployment and poverty. These welfare-oriented schemes may also include subsidized/free medical and educational facilities, low-cost housing, and drinking water facilities in rural areas, land improvement schemes, and employment guarantee programmes. Once people see the tangible benefits of the taxes paid, there will be better response to tax compliance.
The combined effect of the structural weaknesses of our tax system has resulted in low and stagnant tax-to-GDP ratio on the one hand, and tax elasticity and buoyancy on the other. Such a tax system has severely hampered resource mobilization efforts despite a series of discretionary measures taken in almost every federal budget to reduce the widening gap between revenue and expenditure.
It is necessary for us to use the forthcoming budget as a tool for a change and not as protector of status quo.