Revamping the tax structure

Exactly what needs to happen before the govt realises that the tax collection structure needs a revamp is beyond us

The fiscal year ended on June 30 amid hopes that common sense would prevail in the next one. By that we mean the government realising the country’s biggest hindrance in the way of economic growth — dwindling tax collection and a narrow tax base. It is extremely frustrating to point out time and again, how government dignitaries and elected officials have repeatedly failed to fulfill their promises and only deliver on select commitments made to a select few.



When Finance Minister Ishaq Dar formed the Tax Reforms Commission, there were some who hoped that concrete measures would finally be taken in the area of reforming the country’s tax structure. However, a year later, provisional tax collection stood at Rs2.58 trillion, which is less than what the government projected initially and revised downwards three times. This is also insulting to the taxpaying citizens of the country since the government introduced a host of minibudgets during the fiscal year, and the Federal Board of Revenue (FBR) blocked refunds and kept withholding taxes to inflate its collection figure. Exactly what needs to happen before the government realises that the tax collection structure needs a revamp is beyond us.

Experts say that the best way to increase collection is through direct methods, failing which, the next best option is to impose indirect taxes. This is precisely what the government has done — increase the rates on those who already pay their taxes. It even increased withholding taxes on everyday transactions, hoping that the public will file returns and claim them back. The result showed how wrong this assumption was, since the number of those who file their tax returns actually went down when the FBR published the taxpayers’ directory this year. Complicated procedures to file tax returns, bureaucratic hurdles and deep-rooted corruption that, in fact, help evade taxes have been labelled as reasons for the disaster that is the country’s tax system. But the authorities seem oblivious to this since the IMF, which has given $6.6 billion to Pakistan as a loan to use in implementing structural reforms, has so far remained satisfied. This, however, is about to change. The IMF now seems serious about wanting Pakistan to introduce tax reforms. It remains to be seen whether a push by the IMF will indeed be the tonic that the government needs to shed its lethargy in this area.

Published in The Express Tribune, July 2^nd, 2015.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.