New tax reform panel

Finding balance that allows FBR to add two million filers in a year without taking punitive action will be difficult

Pakistan’s failure to noticeably widen its tax base is one of the main reasons why the state has been under a mountain of debt and has been teetering on the edge of bankruptcy for several decades. The only reason we did not talk about it much before the last few years is that successive governments managed to push the can down the road without resolving the problem.

The move to establish a committee to develop a new plan to expand the base is thus not unexpected, but whether or not it can actually meet its target of raising last year’s total of 4.9 million filers to 6.9 million by the end of the current fiscal year appears an uphill task. The committee, comprising the NADRA chief and three senior FBR members, is also tasked with improving data integration, reducing reliance on foreign aid, and increasing revenue beyond just the expansion of the tax base.

Finding a balance that allows the FBR to add two million filers within a year without taking punitive action will be difficult. However, converting many of them into actual taxpayers will be even harder, since it remains relatively easy to game the system, and the FBR’s own shortcomings — such as its failure to fully enforce proper documentation of companies’ revenue and payroll data — have led to gaps that are ripe for exploitation. Meanwhile, the FBR continues to indulge in its favourite shortcut of squeezing existing taxpayers even more, most recently with its new windfall tax on banks’ income from forex transactions, which could make the provision of such services loss-makers for banks, according to some experts.

Detractors have also noted that it is probably not a coincidence that the committee was formed just a few days before the arrival of an IMF team that will analyse Pakistan’s tax system. Given how broken the tax system is, one of the committee’s unofficial goals will be to come into compliance — or at least make it easier to comply — with the findings of the IMF team, which will be announced in about two months.

Published in The Express Tribune, November 28^th, 2023.

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