Wrangling the tax monster

Published: June 2, 2018

Of all the acts that the outgoing government failed to get together and there were many, taxation was the one that stands head and miserable shoulders above the rest. To be scrupulously fair no other government has ever done anything beyond bungle, fumble and fail with taxation so in that respect the PML-N government follows a long and dishonourable tradition. In the current fiscal the Federal Board of Revenue has collected Rs3.27 trillion in taxes leaving a Rs661 billion-sized hole to fill before the end of the financial year in a month’s time.

Over-optimistic governments saddle the revenue collectors with impossible targets. Even though targets have been revised downwards, the FBR has been unable to meet them and has resorted to borrowing in advance taxes from state-owned enterprises and commercial banks in order to meet targets. A strategy that is a version of robbing Peter to pay Paul and ultimately a road to ruin. The incoming government has few choices but to continue in respect of taxation where the last government left off. Taxation is one of those cornerstones of governance that if neglected or mismanaged long enough eventually contribute to a degradation of the quality of the economy that presages collapse. This is no exaggeration.

Political expediency prevents direct taxation of the agriculture sector, there is an over-reliance by the FBR on customs duties — which is on the rise — and little or no transparency when it comes to the refunds which the FBR has withheld. It is reported that Rs320 billion of refunds to taxpayers are still pending though the FBR admits to only about Rs100 billion in sales tax refunds. None of this creates a climate in which any sector of the populace is going to be tax compliant. Nobody likes to pay taxes, but if Pakistan is ever to meet its considerable potential then the tax problem is going to have to be wrangled more effectively than it has thus far because there may come a tipping point. Much is going to depend on the willingness of the incomers to grasp the nettle. An examination of history bodes ill.

Published in The Express Tribune, June 2nd, 2018.

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