THE tax bureaucracy appears to have convinced the government that it can boost revenues simply by taking harsher enforcement measures. If that is the plan — the proposed legislation seeking a raft of restrictions on spending by taxpayers and tax dodgers and giving sweeping discretionary powers to the tax authorities for improving compliance and enforcement indicates as much — the miracle of uplifting the abysmally low tax-to-GDP ratio from below 10pc to 13.5pc is never going to happen. It is not that the policymakers are not aware of the reasons as to why the majority of citizens and businesses are reluctant to become part of the corrupt and iniquitous tax system. It is just that nobody — politicians, business elites, military, bureaucracy, etc — wants to fix the broken tax policy for fear of losing their privileges. Hence, it was odd to see the finance minister and FBR chief telling a parliamentary panel with a straight face that they could pull off the elusive target once the proposed amendments to the tax laws were passed by parliament and implemented.

These claims notwithstanding, it had become obvious at the time of presentation of the budget that the current government did not have the courage to upset the tax apple cart when it balked at effectively taxing incomes from retail, urban real estate, agriculture, etc. Rather, it decided to burden the salaried classes and compliant businesses further with higher and additional taxes. No wonder the government is facing a big shortfall of nearly Rs350bn in tax collection for the five-month period between July and November. According to a World Bank study, the average tax-to-GDP ratio for developing countries stands at around 18pc. This goes to show how poorly Pakistan ranks even among its peers. Countries such as India, Bangladesh, Sri Lanka, and others have not succeeded in enhancing their tax revenues just through harsher enforcement measures or moralising that certain tax evasions were less unethical than the others as the FBR chief did during the Senate panel hearing on Monday. They did it by making their tax policy equitable, fair and transparent, and plugging the loopholes that encouraged tax avoidance and evasion. There are no two opinions about penalising evasion and avoidance. But the exercise should follow a complete overhaul of tax policy and administration, and the abolition of exemptions worth Rs4tr to politically influential lobbies.

Published in Dawn, December 26th, 2024