Tax evasion

Tax evasion on the scale that exists in Pakistan is not possible without the connivance the FBR.

It had been said by many before, but on February 23 the truth was acknowledged by the government itself: the fiscal deficit is primarily caused by poor revenue collection efforts, not low taxes or high spending. The chairman of the Federal Board of Revenue (FBR) testified before the Senate that tax evasion costs the country Rs1, 270 billion a year, which, coincidentally, is not too far from the finance ministry’s worst case scenario for the fiscal deficit this year: Rs1, 370 billion. In short, the country can all but close the gaping hole in the federal government’s finances simply by making tax evaders pay what they already owe the government.

In all fairness, the FBR seems to have a somewhat more serious attitude towards prosecuting those who violate the law. The agency has prosecuted evaders who owe some Rs100 billion over the past few months, with many more cases still pending in courts. The FBR also outlined a plan to go after over 700,000 people who have not filed their tax returns. These are all fine initiatives but the country needs the FBR to go beyond just outlining the scale of the problem and aggressively go after those who are the evaders. There needs to be a massive push to force every person in the country to pay the taxes that they owe. And the FBR should not be afraid of being maligned or despised.

Yet, as the chairman of the Senate committee on finance noted, tax evasion on the scale that exists in Pakistan is not possible without the connivance of at least some employees of the FBR. Given that the government misses nearly 45 per cent of its revenue due to tax evasion, this is not just a case of a few bad apples and is one assumes, part of an organised racket. If the FBR plans on having any credibility amongst taxpayers and meeting its goal of eliminating tax evasion, it needs to start by cleaning up its own house.

Published in The Express Tribune, February 27^th, 2011.