Looking the other way on taxes

The sad fact is that nobody in Islamabad is willing to plan for a day when Pakistan can stand on its own two feet.

If the International Monetary Fund (IMF) is curious as to why the Government of Pakistan consistently fails to meet the conditions of its bailout programmes, it need look no further than its own behaviour. Last week, the Washington-based lender decided to accept the Federal Board of Revenue’s (FBR) failure to collect taxes by lowering the tax target by Rs200 billion, nearly eight per cent of the original number. In other words, the IMF has become an enabler of the FBR’s gross incompetence.

If the IMF had agreed to lower revenue targets for fiscal year 2014 in exchange for a more robust tax collection programme that promised long-term gains in government revenue, we would be in favour of such acquiescence. But far from having such a plan, the Nawaz administration has failed to even acknowledge that the government has a problem with tax collection. Finance Minister Ishaq Dar appears to be content with taking symbolic action like publishing the names of every income taxpayer in the country. Such actions generate a lot of press, but are unlikely to help the government catch tax evaders.

The truth of the matter is that the entire tax machinery of the government needs a major overhaul. But far from using its leverage with the government to make such reforms happen, the IMF has happily gone native, with bailouts now effectively serving as a permanent source of liquidity and foreign exchange reserves for Pakistan. The IMF is no longer a lender of last resort for the Government of Pakistan: it is now just one of the many lenders that the finance ministry uses to keep the fiscal house of cards from collapsing.

This cycle of rampant tax evasion resulting in runaway debts leading to an unending chain of bailouts cannot continue indefinitely. But the sad fact is that virtually nobody in Islamabad — not in the finance ministry, not in the FBR, and not even in the IMF, apparently — is willing to plan for a day when Pakistan can stand on its own two feet. The finance ministry and the FBR are the addicts who are now used to free money. But what is the IMF’s excuse for being part of this charade?

Published in The Express Tribune, May 13^th, 2014.

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