One wonders as to why the government had not thought of using its national identity database to build the profiles of potential taxpayers. Surely such a plan should have been drawn up earlier not just by this government but also the administrations installed before — given the dismal failure of efforts to broaden the tax base in Pakistan. The current percentage of taxpayers in the country – less than one per cent of the 210 million-strong population – is a source of national embarrassment. This shows up in our tax-to-GDP ratio which stands at 12 per cent and is among the lowest in the world.
While we hope the latest government drive to expand taxation is fruitful, our past history is replete with sufficient instances of failure – enough to make everybody cynical. Still, Prime Minister Shahid Khaqan Abbasi appears determined to plug leakages, promote accurate valuation of property, introduce lower individual tax rates and offer a tax amnesty. Judging from the fate of the last amnesty scheme which was abandoned in April 2017, the plan drew in a minuscule 0.3 per cent of the three million traders who are registered with the Federal Board of Revenue. It is also impossible to forget how bitterly opposed businessmen were to moves designed to force people to pay taxes.
Any successful initiative to boost revenue should be anchored in overcoming weaknesses in the effective implementation of fiscal laws. One vital but often ignored source is the corporate sector. For instance, ways have to be found to document the service, retail, transport and agricultural business sectors and lure them into the tax net. Tax officials must work harder to identify unregistered industrial consumers of electricity and gas and perhaps introduce a withholding tax against industrial and commercial consumers for natural gas consumption.
Perhaps the most challenging task is to undertake a vigorous and across-the-board tax audit. Both the provinces and the FBR haven’t exercised the will needed to carry out the audit. Considerable skill and expertise is also required for the effort and that is why the FBR must try to build the capacity of its field formation officers – enabling them to handle the audit efficiently.
Published in The Express Tribune, February 12th, 2018.