Unfair taxation

Pakistan's tax system has ceased to be a mechanism for raising revenue fairly. It has instead become a system that punishes those who comply while rewarding those who do not. No group illustrates this distortion more clearly than the country's salaried class, which once again finds itself carrying a disproportionate share of the tax burden even as the latest budget extends generous concessions to sectors that have historically contributed far less to the national exchequer.

Recently released figures estimate that salaried employees paid roughly Rs630 billion in income tax during the last fiscal year, more than double the amount collected from the real estate sector in the same period. Yet while the government reduced the tax burden on salaried individuals only marginally, it granted the property market tax relief worth well over Rs100 billion. This reflects a fiscal philosophy that finds it easier to tax those whose incomes are fully documented than to confront sectors which are influential and where enforcement is difficult and resistance is organised. The approach is politically unfair and economically self-defeating. Any modest tax relief announced in the budget is quickly erased by the relentless rise in the cost of living. The irony is that those who play by the rules are expected to finance a state that repeatedly fails to enforce those rules elsewhere. Pakistan's tax base remains among the narrowest in the region because governments have consistently avoided meaningful reforms where political costs are highest.

A tax system perceived as inequitable weakens the social contract between citizens and the state. People are more willing to pay taxes when they believe the burden is shared fairly and public policy rewards compliance. The opposite occurs when honesty becomes the most expensive option. The government must abandon taxation by convenience and embrace taxation by equity. Pakistan's fiscal challenges cannot be resolved by repeatedly returning to the same well of compliant taxpayers.