Pakistan's current tax regime favours elite, says tax reforms report

Published: February 9, 2016
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Asif Ali Zardari, right, widower of Benazir Bhutto and co-chairman of Pakistan Peoples Party, shakes hands with Nawaz Sharif during a press conference in Bhurban near Islamabad, March 9, 2008. — Photo by AP

Asif Ali Zardari, right, widower of Benazir Bhutto and co-chairman of Pakistan Peoples Party, shakes hands with Nawaz Sharif during a press conference in Bhurban near Islamabad, March 9, 2008. — Photo by AP

ISLAMABAD: 

Pakistan’s tax regime is heavily tilted in favour of the elite, says the Tax Reforms Commission (TRC) in its final report and proposed that all perquisites of top office holders, cabinet ministers and judiciary should be subject to tax in order to ensure equity.

The report, which the TRC took almost one and a half year to complete, will now be presented to Finance Minister Ishaq Dar for its application on a fast-track basis.

Pakistan’s corporate tax rate third highest in world

The TRC also proposed the setting up of a national tax agency besides stripping the Federal Board of Revenue (FBR) of its policymaking role. The findings of the commission highlight serious flaws in the tax structure that is burdening the poor and giving a huge relief to the elite.

“In Pakistan, it seems the poor are subjected to heavy and harsh indirect taxation and the elite are enjoying free perquisites and benefits, including purchase of valuable state-owned plots at prime locations and at throwaway prices,” said the report.

The TRC recommended the government to withdraw tax exemptions for residences of the president, governors and chiefs of staff.

It proposed that perquisites of governors of provinces, chiefs of staff and corps commanders, federal ministers and residences of judges and their allowances should also be subject to tax.

The federal government boasts of withdrawing Rs208 billion worth of tax concessions in the last two budgets. However, almost all of these concessions were indirect and the government has so far protected the benefits enjoyed by the elite in the shape of exemption from income tax.

In its report, the TRC called on the government to bring structural changes in the FBR over the short term and set up the national tax agency in the long run. However, it did not give the structure of the new agency.

“There should be one national agency that should collect taxes on behalf of the centre and provinces,” remarked TRC Chairman Masoud Naqvi.

The report stated that Pakistan could not improve tax collection at the national and provincial levels unless fundamental administrative reforms were introduced.

It said a fully automated, professional and efficient national tax agency would alone be in a position to improve capacity by detecting tax avoidance and evasion through the tax intelligence system.

At present, the FBR is collecting 95% of taxes by imposing more and more obligations on organisations and individuals in the form of withholding tax provisions.

It proposed the establishment of an independent tax policy board in the short term under the auspices of the Ministry of Finance headed by the finance minister with the prime objective of debating and formulating the national tax policy in consultation with the stakeholders on a continuing basis.

The board may comprise eminent economists, professionals and other stakeholders. In order to create a link between the board and the FBR, the FBR chairman could be a member of both the bodies to ensure interconnectivity and ownership of the policy decision.

The TRC said under the current scenario, the FBR played a fundamental role in the formulation of fiscal policies, levy and collection of federal taxes. There is a need to ascertain if there is an inherent synergy in these roles to keep them together in the FBR or separate them to achieve greater focus and improved efficiency. It also called for separating the audit function from the rest of the FBR.

The TRC observed that the tax system was marred by evasion, under-reporting, tax fraud, corruption, smuggling and under-invoicing to name a few. This inequity is also hitting hard the compliant taxpayers.

Pakistan’s revenue collection surpasses target

It said despite efforts for reforms in the past 15 years, the FBR had not been able to make any headway and the collection stood at an even worse level than in 2000 in terms of tax-to-GDP ratio.

Published in The Express Tribune, February 9th, 2016.

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Reader Comments (11)

  • Ehs
    Feb 9, 2016 - 9:34AM

    I fully support taxation of the elite VIPs especially parliamentarian, and senior government/ military officials. Taxpayer money is being used for maintaining the lavish lifestyles of these individuals.

    Severe cost cutting on non-essential expenses for government and military is must.

    Rich businessmen should also show some decency and pay their taxes.Recommend

  • Sodomite
    Feb 9, 2016 - 10:05AM

    Wow it needed 1-1/2 year to write what is known for the last 50 years. Poor are screwed by the elite and hence the rich. That’s why they are called the elite and we need democracy to show us the ultimate revenge that it is. Recommend

  • Pakistani
    Feb 9, 2016 - 2:00PM

    What a ground breaking discovery by TRC. The member of the commission deserve special rewards, real estate etc. for their gift to the nation. Simply amazing. Afterall, it must have been really difficult to see the obvious, when one(s) has been away on a deserted island for the past few years!!Recommend

  • nadeem
    Feb 9, 2016 - 2:46PM

    Pakistan’s current tax regime favors the rich

    No kidding! ( and all this time I thought that the poor are not paying enough taxes )Recommend

  • Haseeb Khan
    Feb 9, 2016 - 3:29PM

    The report submitted by Tax Reform Commission (TRC) is about 300 pages and very powerful recommendations have been made to reform the tax system and administration in Pakistan.The reporter of the article has picked up a very very small part of the report for this article.
    An Monitoring and Implementation Committee of the recommendation of TRC has been constituted by the Government and Minister for State on Revenue Mr Haroon Akhtar is chairman of the 8 member committeeRecommend

  • Pro
    Feb 9, 2016 - 4:26PM

    Quite funny, the report against the elite will be presented to the same elite. What result would you expect??Recommend

  • roadkashehzada
    Feb 9, 2016 - 5:49PM

    tax systems globally favour rich and target poor. poor have to pay high income tax and loads of indirect taxes while rich form companies/trusts, pay lower corporate taxes and enjoy vacations in Caribbean under cover of board meetings of the family companiesRecommend

  • Rex Minor
    Feb 9, 2016 - 9:52PM

    Good old days, when the two partners plotted a tax systen very favourable to the peers.

    Rex MinorRecommend

  • hamza khan
    Feb 9, 2016 - 11:37PM

    @Sodomite:
    the report wasnt just diagnosing the ills, it was to diagnose and make recommendations on how to fix genius. Recommend

  • Ajay
    Feb 10, 2016 - 1:11AM

    Look at the smiles on their faces. Brothers in arms :)Recommend

  • np
    Feb 10, 2016 - 5:01AM

    @roadkashehzada: While true, yet it is hought that direct taxes have the capacity to be progressive i.e. someone in hslab paigher percentage while indirect taxare regressive i.e. the same aunt of sales tax on an essenitem would end up g much bigger proportion of a poor person’s budget.

    In India for example 60% of taxes come from direct taxes and 40% from indirect taxes. In Pakistan, 80% taxes are from indirect taxes. With only 1 million paying direaxes, it is clear that implementationis seriously lacking even if pollicy on direct tax maybe proggresive in Pakistan.Recommend

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