Tackling taxation

No government since Independence has successfully addressed the complex issue of taxation in Pakistan, and the population at an individual level has overwhelmingly rejected any form of mass compliance especially regarding personal income tax. The wealthy with the highest incomes have traditionally been insulated from taxation by successive governments with tax concessions and blind eyes being turned, but the new government seems set to challenge the culture of impunity. It is preparing a wide range of tax-oriented moves with the most difficult of these being the rolling back of the tax concessions granted to the wealthiest by the previous government. It is notoriously difficult to reverse benefits once given.

Paradoxically it was the low-salary earners that were the big winners under the PML-N which raised the exemption threshold three times to its current level of Rs1.2 million, in the process dropping 700,000 out of the tax net. The government seems unlikely to tinker at the bottom end instead looking to increase taxation on the big earners in what it describes as a ‘rationalisation’ of the various tax bands or ‘slabs’ as they are known. High earners currently pay 15 per cent, down from 35 per cent and raising that bar is going to produce howls of rage and pain from the richest people in the country — or at least those among the richest that actually pay any tax at all.

Other taxes up for revision are on cigarettes which again the previous government had let off the tax hook and an upwards revision in terms of penalties for those who do not file tax returns despite liability. Quite how this will be enforced given that they exist in a parallel fiscal reality is unclear. Imported goods are always a popular target for the taxman with a likely increase of tariff on 1,500 products, with a focus on discouraging ‘non-essential’ imports at the luxury end of the scale. Over the last year the import of 700 lines has dropped by 700 as a result of regulatory duties. All of which looks fine on paper. Come back in six months to see how fine the ground reality looks.

Published in The Express Tribune, September 14^th, 2018.

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