Time to pay up
NOW it’s the turn of cricketers to be named and shamed for tax evasion or failing to pay their full income tax dues. The Federal Board of Revenue’s income tax division has issued notices to over 20 cricketers for tax dues owed to the state and a sum of at least Rs100m is expected to be recovered. As a percentage of the overall tax revenue — projected at nearly Rs2.4tr in the current financial year — the sums are insignificant, but as a means to alert tax dodgers that the taxman means business, the measure is a public relations coup. The idea stems from the creation last year of an income tax investigation department within the FBR that has been busy accumulating data on wealthy Pakistanis who pay little or no tax. Data drawn from Nadra last month helped assemble a list of 2.3 million Pakistanis who have multiple bank accounts, travel abroad frequently and live a wealthy lifestyle but do not figure in the direct tax net at all. Previously it had become known that of the abysmally low three million people with a national tax number, less than half file their tax returns.
That the system is broken is universally known. That it has forced a highly unjust, unfair and regressive tax system on the public at large is less well understood. State expenditures have to be paid for regardless of whether or not the rich pay their mandated share of income tax. And because the rich don’t pay income tax the less well-off have to carry a disproportionate burden of the tax burden through indirect taxes like the sales tax, customs duties and other levies. Roughly, for every Rs3 raised as direct taxes, Rs7 are raised through indirect taxes. If that were not bad enough, the overall tax collection is disastrously low, forcing the government to borrow heavily from the local market, which creates inflationary pressures at the same time as it crowds out private investment. So it isn’t just a double whammy for the less well-off — higher taxes and inflation — but a triple whammy: the squeeze in credit for the private sector slows down growth and the creation of much-needed jobs.
The picture is even bleaker when the power crisis and circular debt are factored in: the rich still get subsidised electricity because of the tariff structure and even then don’t always pay for it, driving up government expenditure which is largely paid for through more borrowing and the indirect taxes. So if naming and shaming the wealthy produces results, the FBR should go after the real untouchables including politicians and the media.