Crumbling tax machinery

In a stark admission of Pakistan's crumbling tax machinery, FBR Chairman Rashid Langrial has revealed that only 12 individuals in the country have declared wealth exceeding Rs10 billion. This alarming revelation unveils the systemic failure of the country's tax machinery to expand its narrow tax base, exposing the cracks in a system that has long been exploited by the wealthy while leaving the burden on the average citizen.

Pakistan's tax-to-GDP ratio remains among the lowest in the region, at just 9%. The wealthy continue to evade taxes through legal loopholes and informal channels, while indirect taxes disproportionately impact middle- and low-income earners. This imbalance is suffocating Pakistan's economic potential, exacerbating fiscal deficits and depriving critical sectors like education and health of essential funding. To address this dire situation, the government has proposed linking major economic transactions - such as property purchases and car ownership - to declared wealth. Under the proposed policy, individuals can only make significant purchases if their declared assets justify the transaction. However, this well-intentioned move is fraught with risks. Critics warn that poorly drafted legislation could create opportunities for exploitation by officials, leaving property buyers and sellers at the mercy of bureaucratic corruption. To address this crisis, the government must adopt a bold and transparent approach. Expanding the tax base through modern technology, such as AI-driven audits and better integration of tax records, is essential. Simplifying tax codes and launching an amnesty programme - as a bitter pill though, in challenging times - to encourage voluntary compliance could also help bring undeclared wealth into the formal economy.

At the same time, the FBR must reform itself to eliminate corruption within its ranks. Transparent processes and accountability measures are crucial to restoring public trust in the tax system. For Pakistan's economy to stabilise, the culture of impunity surrounding tax evasion must end.