Taxing times

New punitive measures against non-filers of tax returns are getting a mix of praise and criticism. While the salaried professionals and others who can’t really avoid taxes have welcomed them, some businessmen, especially property dealers, say their industries could collapse. But by making such a point, property dealers are actually strengthening the case for higher taxes.

The property market has long been a convenient arena for money laundering and speculation, both of which leave working-class people unable to buy houses in the cities where they may have worked their whole lives.

It is also worth noting that any economist worth their salt will note that high rates of investment in property — as is the case in Pakistan — are actually bad for the economy and can act as a major hindrance to economic growth and development. High taxes on the real estate sector may help encourage investment in growth areas.

Similar complaints have also emerged from other industries where non-filers will be forced to pay ludicrously high taxes if they want to buy anything. Leading stockbrokers, meanwhile, praised the 45% capital gains tax slab for non-filers. Though they claimed there are barely any non-filers directly involved in the stock market, the high rate will still help clean up other sectors of the economy because of cross investment.

The ban on foreign travel may be one of the most effective measures if properly implemented, because it will actively cramp the lifestyles of the wealthiest non-filers. Also, unlike utility bills and various other services and assets, which can legally be in another person’s name due to the joint family system, ‘benami’ travel is not a feasible option for non-filers.

At the end of the day, the best way to encourage people to file is to make it worth their while. Punitive measures for earners are necessary, but the government should also look into giving some form of guaranteed refund to everyone for filing, if only to get young people into the habit of filing returns.