Pakistan has one of the narrowest tax bases in the world and one of the poorest taxes-raised-to-GDP ratios. What this means is that only a very small segment of society — salaried professionals whose taxes are deducted at source as well as the corporate sector — is mainly contributing to the national exchequer. No one doubts that we need to raise a lot more tax revenue; the vexing question is how this can be done. The Federal Board of Revenue (FBR) has presented the caretaker government with two proposals, both of which are extremely problematic. Under one scheme, three million identified tax evaders will be given an amnesty by paying a nominal tax ranging between Rs40,000 and Rs70,000. The advantage of this proposal is that it will bring tax evaders into the tax net and they will then have to pay taxes in the future.
But the tax amnesty scheme has drawbacks, too. For one, it was earlier proposed by the FBR to the National Assembly, which declined to approve it. Ramming amnesty through caretaker government when it has already been rejected by duly-elected lawmakers would go against the spirit of democracy. Then, we must ask why the FBR is dangling the bait of amnesty when it has already identified who the defaulters are. Could it not simply demand taxes from these tax dodgers and threaten them with punitive action should they not comply? This question sadly exists only in the realm of the purely rhetorical since the answer is known to everyone. Tax evaders are among the wealthiest and most politically-connected people in the country and so, taking punitive action against them is not that easy.
The FBR’s second proposal is even more worrisome. It would seek to raise around Rs120 billion in revenue by imposing further taxes on the few people who already pay their fair share. There is no question that the government needs revenue but squeezing even more money out of the salaried middle class is essentially an admission of failure. Unable to get the rich to follow the law, those who are without power and influence are being made to pick up the slack. It is an unfortunate fact that the inability to tax the rich may result in a flawed proposal being implemented.
Published in The Express Tribune, April 1st, 2013.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ