Failing tax collection ‘strategies’

The government got off to a poor start to the current fiscal year, missing the first-quarter tax collection target by Rs20 billion as question marks were raised as to whether the annual target of Rs2.81 trillion would be met. According to provisional figures released by the Federal Board of Revenue (FBR), an amount of Rs549 billion was pooled between July and September against the quarterly target of Rs569 billion. The collection was, however, 14 per cent higher than the one made in the corresponding period of the previous year. But when one considers the fact that the government introduced new taxes in this year’s budget — mostly indirect and regressive in nature — the growth is hardly impressive.



Failing to meet the annual target — let alone the quarterly one — is a routine event that prompts the government to revise it downwards in the latter part of the fiscal year. The FBR has shown time and again that its collection methods are ineffective and its tax policies always have loopholes that evaders can easily identify and exploit. Additionally, tax concessions offered sporadically to hush noisy segments of the economy test one’s faith in the entire system. It is well known that the government placed the most stress on widening the tax base, vowing to bring more people into the tax net to enhance collection. All it did in reality was to increase the rate of tax on those who already pay taxes. This was the government’s idea of enhancing tax collection.

Another strategy that raised question marks over the government’s intention was increasing the rate of withholding tax on various transactions. This is an amount that the FBR is supposed to hand back after one has filed income tax returns. How could that enhance revenue collection if it, seemingly, is a liability? The answer lies in a complicated, lengthy and scary-looking document that is enough to discourage people from filing their tax returns. Even those who pay taxes are unable to file their returns due to the complex nature of the document. Maybe that is where the government needed to start to tapping those who pay taxes. Others have already discovered ways to get out of paying them.

Published in The Express Tribune, October 3^rd, 2014.

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