Tax evasion

Successive Pakistani governments have failed to live up to their promises of curbing corruption and tax evasion. And the sitting government, led by the PTI, is no exception. In FY20-21, a mere 2.5 million individuals – excluding those from the salaried class – and business entities filed the annual income tax returns. There are 7.5 million registered income taxpayers in Pakistan which has a population of 220 million. So a little above 1% pay the income tax in the country. Besides the evasion of income tax, large-scale avoidance of sales tax, excise and customs duties and many other direct and indirect taxes takes place every year in the country – something which deprives the state treasury of billions of rupees in revenues.

This large-scale theft of taxes leaves the government with finances small enough to fund development programmes and cater to public services. Tax evasion and the money pocketed by politicians, government officials and other influential individuals through corruption gives a fairly good idea of the extent of black money in the country. Black money is also made through drug-trafficking and smuggling of goods as well as also through illegal transfer of black money from one country to another. All this ill-gotten wealth remains untaxed and is stashed away in secret accounts in Swiss banks and offshore companies mostly in tax havens in islands.

Black money is converted into white money through money laundering. It is fairly easy as in this process physical transfer of money is not involved. One dealer in a country transfers the money to another dealer in another country. These two do the job through code words. This black money returns to the country of origin in the same way. Thus the black money is safely laundered. Experts say it is difficult to prevent money laundering.

Off and on, the Government of Pakistan announces tax amnesty by inviting investments in employment-generating schemes. Amnesty schemes, as well as lack of stringent punishments, are among the reasons behind the perennial failure of the successive governments to curb corruption and tax evasion. The amount of back money in the country is high. The exact amount remains only a matter of conjecture. One cannot help saying, all is fair in love, war and tax evasion.

 

Published in The Express Tribune, October 18^th, 2021.

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