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“Be wary of strong drink. It can make you shoot at tax collectors … and miss.” —Robert A. Heinlein
THERE is a simple equation for state taxation: tax the rich and spend on the welfare of all and sundry. In Pakistan, there is a strong probability that one might be running for office and not even be registered with the Federal Board of Revenue, or only paying a few thousand coins in symbolic taxes.
More than 70 taxes administered by 35 agencies have made the system a labyrinth, with umpteen forms of taxation and the crisscrossing of several jurisdictions leaving the masses behind. It is the man on the street who ultimately has to bear the brunt through indirect taxation. And resultantly, there is a tendency to curse the tax collector along with the social contract itself. In big cities, it is clear that even business communities have very little confidence in our system of taxation.
Just as democracy has evolved, taxation too has undergone a transformation. But it is a continuous trial-and-error process, especially at the federal level, and it has pushed the whole system into an unfortunate downward slide in terms of tax-to-GDP ratio, which in our case ranks among the lowest when compared to other developing nations.
The world over, revenue collection has never been a pleasant task.
When challenged, the current taxation model (that of manually ascertaining information without proper authentication) does not even pass the test of first appeal. This model is in dire need of an overhaul through the provision of an authentic database.
Almost every public- and private-sector entity is managed to some extent with the use of information communications technology (ICT). Not just assessments, even a high-grade tax policy can be evolved, in which at least all public-sector entities are assimilated through a single national data server. There have been exceptions; for instance, it is encouraging to see that, recently, whosoever (even non-filers) purchased a new car or immovable property in certain cities received a tax notice from an Inland Revenue officer on the basis of such data.
Nadra can play a pivotal role in devising a refined integrated database with advanced equipment. All revenue administrations in the country must be integrated; the centre must ensure that the provinces too have access to FBR data.
The menace of the undocumented economy — and its attendant ills such as money laundering and terror financing — can be contained through a verified registration mechanism that, among other things, actually revives efforts to broaden the tax base. A genuine effort towards this end, instead of the usual platitudes, would go a long way in substantiating tax collectors’ assessments through corroborated data.
Paying taxes, as well as collecting them, has never been a pleasant task anywhere in the world. However, in our case, we also lack awareness of the benefits of paying taxes. Most people with taxable incomes have no idea that if they file their tax returns they can claim refunds of large amounts that have been withheld by the banks, or sums that they have had to pay on the sale or purchase of immovable property, or money deducted on cellular phones bills, etc.
In this era of ICT, authorities need to extract relevant information tactfully, and simultaneously develop effective communication strategies. Electronic, print and social media can be engaged more frequently in this regard. Well-researched and high-quality tax base policies that are pursued proactively (with the intention to help business instead of putting restrictions on it) are needed.
Taxation is not meant to kill a business. An excellent tax policy takes into account all elements that are necessary for economic growth. Business-friendly policies, registering whatever is unregistered, using and evolving an integrated database, increasing the number of taxpayers’ facilitation centres, while also conducting awareness campaigns, may pave the way to increasing revenue receipts for the National Finance Commission. The effective execution of audit provisions in relevant laws in certain sectors also helps with strategic taxation.
On the one hand, the public’s concern that those in the corridors of power are recklessly spending the hard-earned money of taxpayers needs to be allayed. On the other, civil society and academia have a role to play in improving Pakistan’s tax culture. It would be a positive step to remind people to always ask for receipts whenever they pay for goods and services.
Importantly, it is the responsibility of the political leadership to set an example for the public to follow; they should be seen to be paying their taxes. To quote Hillary Clinton, we need to prioritise taxing the powerful. We also need to inculcate in the minds of our next generation (particularly through school and college syllabi) that paying taxes is an essential part of a civilised and healthy society.
The writer is a civil servant and former judge.
Twitter: @RashidJavedRana
Published in Dawn, March 1st, 2018
