Towards taming tax troubles

Pakistan has become signatory to the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matter

Pakistan has become a signatory to the Organisation for Economic Cooperation and Development’s (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The development comes as the country seeks to enhance tax enforcement laws and increase revenue to address a chronic fiscal deficit. While the move is welcome, experts suggested that it will be a long-term process, where benefits would be reaped after sustained efforts and a commitment to implementing laws — an area where Pakistan remains weak. The convention, which foresees exchange of information among signatories, will also help Pakistan unearth individuals who have hidden their wealth in tax havens.

A tax expert suggested that the exchange of information would also depend on the countries’ own laws, which could limit the scope of the convention. In Pakistan, domestic banks have resisted the move to provide information to the Federal Board of Revenue given its reputation as well as a general reluctance that stems from protecting customers who have heavy deposits. Additionally, Pakistan’s income tax laws that have legal lacunas will act as barriers towards meaningful action. Generally, economic managers in Pakistan are well aware of the issues. Their failure to act against these elements does not come from lack of knowledge, but from an inability and unwillingness to go after the big guns. Governments have been guilty of handing out tax exemptions in hopes of securing vote banks. The country has relied on indirect taxation and penalised already taxed segments of the economy. The result has been even more devastating — it has caused an increasing informal economy. Failure to hold the population census has only made matters worse. In such a scenario, becoming signatory to the OECD convention conveys the government’s intention. But it is not enough to stop a phenomenon that it has caused in the first place due to decades of ignorance.

Published in The Express Tribune, September 17^th, 2016.

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