More people on airplanes right now than taxpayers in Pakistan

Published: August 26, 2015
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CREATIVE: AAMIR KHAN

CREATIVE: AAMIR KHAN

Only 0.3% of Pakistanis, or a mere 500,000 individuals, pay direct tax, according to a report by advocacy group Research and Advocacy for the Advancement of Allied Reforms (RAFTAAR).

In other words, there are more people on airplanes around the world at any given moment than there are Pakistanis who pay direct tax. (Direct taxes are taxes paid directly to a tax imposing authority, e.g. income tax.) In contrast, roughly 32 million, or 3%, Indians pay direct tax, even though they have a larger proportion of their population in poverty.

The report found that while overall state expenditure has steadily risen, Pakistan’s tax revenue collection has remained flat for most of last decade. With a tax-to-GDP ratio of 9.4%, Pakistan falls close to the bottom in the ranking of countries on the basis of revenue collection.

The main causes of this low ranking, the report says, are a narrow tax base, with only about 10% of those employed paying tax, and a skewed tax structure, with 68% of the tax revenue being generated from indirect taxes. (Indirect taxes work by increasing the price of goods and services, e.g. sales tax.)

Other reasons cited in the report are an inefficient tax administration, a complex and non-transparent tax system, corruption and tax evasion, and a non-supportive political environment.

The debt problem

Naturally, there is a budget deficit because we are not collecting enough taxes. This deficit is funded by expensive borrowing. Interestingly, only a third of our debt is now from foreign sources, i.e. two-thirds of national debt is money we owe to financiers within Pakistan. And they happen to be the expensive ones, with an average interest rate of 10.7%, compared to 1.9% for the overall foreign debt that we have. While foreign debt is cheaper, access to it is limited.

The interest on our debt is Rs1.3 trillion, of which 92% goes to domestic creditors, and only 8% to international lenders.

Meanwhile, Pakistan’s public debt has increased nearly threefold in seven years, squeezing Islamabad’s ability to invest in its people.

The country’s public debt has reached Rs17 trillion, a significant increase from Rs6.3 trillion as of 2008, the report said, adding that the trend would continue unless the state increases its revenues. Pakistan’s economy is fiscally fragile because there is inadequate revenue, it said. “Any state that doesn’t collect enough taxes is unsustainable.”

The government pays almost half, 44% to be exact, of its revenue to debt servicing, which leaves little space for development, finds the research. For example, interest paid per capita (Rs6,684) in the country far exceeds per person health expenditure (Rs1,009), it says.

From 2007 to 2014, the debt burden has risen from 55% of GDP to 63% of GDP.

More than 53% of our government’s expenditure is on interest payments on debt, defence and remuneration of government employees. Another 29% is allocated for subsidies and grants, for example, in electricity and oil. Both these categories of government expenditure are unlikely to decrease in the short run.

As a result, there is not enough funding for public good and services, i.e. inadequate infrastructure is holding back our economic growth. According to a World Bank report from 2013, Pakistan’s per capita GDP has the potential to grow 3.7% only with improvement in quality of infrastructure.

“If Pakistan can raise its own revenues to improve the quality of its infrastructure, it could mean a growth of 3.7% GDP per capita. “If Pakistan can raise its own revenues to address the energy shortfall in the country, it can stem estimated losses to the economy worth Rs1.5 trillion, more than the annual interest payments the country has to make.”

Pakistan’s development expenditure has declined from 7% to 2.5% of GDP, it said, suggesting an increase in tax revenues could reverse this trend.

In spite of only 0.3% filing income tax returns, people feel they are taxed a lot. The report argues that this is because the government has resorted to indirect taxation. Pakistanis pay more for fuel and electricity than other countries in the region because of the surcharges added. The problem with indirect taxes, like sales tax, is that it penalises low-income groups more than high-income.

Better tax collection will pay for itself, the report argues, and that Pakistan’s fiscal fragility will worsen if the taxation crisis is not addressed.

Public perception 

The study also includes a public perception survey of the government’s taxation policy and looks into why people don’t pay taxes in Pakistan — only 900,000 file their income tax returns and 400,000 of those declare nil returns, putting the country’s tax to GDP ratio (9.4%) close to the countries in the bottom list in terms of revenue generation, according to the report.

Lack of trust on state institutions and fear that money collected will be misused are some of the reasons, the survey finds. However, it says there is also a severe information deficit where the social contract between citizen and state and the role of taxation in that regard is not well understood.

Despite an appallingly low number of tax filers, people feel they are taxed a lot, the survey finds. This is partly because the government is unable to collect direct taxes and resorts to indirect taxation, which is 68% of total tax revenue.

Pakistan needs to implant taxation into its education system in order to create compliant taxpayers in the next generation, the report proposed, adding that the state also needs to explain how it delivers services to the people and simplify the system of filing tax returns.

Published in The Express Tribune, August 26th,  2015.

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Reader Comments (42)

  • Neutral
    Aug 26, 2015 - 10:31AM

    I pay 18000 Rupees tax every month . More than NS or any other politician payed in his life time. that’s the fruit of democracy we are bearing. “Tajarba kar team” ?. And they still are importing new fleet of BMWs for PM. Time to leave planet earth. !Recommend

  • Point
    Aug 26, 2015 - 11:17AM

    my dad works at a bank and each month huge amount of tax is deducted. Every-time tax is increased and it causes severe burden on us. My dad pay is finished within 20 days of each month ,and we spend the rest 10 days so roughly. Having no other resources of income its always hard :(Recommend

  • Aug 26, 2015 - 11:28AM

    we are talking about tax,here in our country the whole fata region never payed even electricity bills.in our country every city has lots of new housing societies and lots of real estate business,people in every city are buying plots ,and buildings but no one wants to pay taxes,and blaming the government for getting loans for its expenditure but not ready to pay any tax.and they government ultimately have to rely on indirect taxes and loans on high interest rates.Recommend

  • mujib
    Aug 26, 2015 - 11:31AM

    There is no doubt that the tax system needs much improvement and the tax base should be broadened; but nobody talks about the ever increasing size of the government and their lavish spending which should also be accounted for. The number of ministers and advisers, their salaries & perks – all these needs to be scrutinized and should be declared to the public / tax payers. Recommend

  • Sun Tzu
    Aug 26, 2015 - 11:55AM

    While direct taxed persons are too low; collection by imposing Indirect Tax is not too bad an idea. Only it should be targeted. Say , if you impose 200% tax on luxury cars and a 300% tax on private foreign travel or a 1000% tax on stuff like Hina Rabbani’s Hermes bag and Gucci glasses, Pakistan will still do justice to the poor. In fact this prevents the black money and the corruption – money to still get indirectly taxed. This is called Taxing Consumption rather than Taxing Income — it is good strategy when there are few rich people exploiting a large mass of poor people.Recommend

  • Joe
    Aug 26, 2015 - 11:58AM

    Pakistani Mirage :
    Indians have larger proportion of their population in poverty. Although circumstantial evidence leads otherwise.Recommend

  • Seth
    Aug 26, 2015 - 12:06PM

    Issue tax payer cards to those who are filing tax. Those who do not have tax payer cards charge them indirect taxes on each n every thing. We as tax payers are paying almost 20 percent of our salary as tax every month whereas feudal/landlords are avoiding/evading taxes and worst they are also holding public offices and spending our tax money for buying prados/bmws and foreign tours. Recommend

  • Anoni
    Aug 26, 2015 - 12:07PM

    @Neutral @Point

    100% agree. I pay more taxes than our PM .. They get salary tooo .. how come they don’t have to pay any tax ? and yet they are landlords and mill owner

    While our pay hardly passes the 20 day of the month.

    This is democracy scamRecommend

  • Anoni
    Aug 26, 2015 - 12:12PM

    Is the author also an tax payer according to goverment defination.

    Would be interesting to find out… .Recommend

  • zainab
    Aug 26, 2015 - 12:26PM

    Can anyone explain me why i have to pay a significant amount of GST even on buying a small pack of juice? Isn’t it severe exploitation of poor?Recommend

  • istaburg
    Aug 26, 2015 - 12:44PM

    Non Tax payers should be named and shamed as well has ruthlessly ( but transparently) prosecuted. The (so called) leaders of Pakistan should lead by example but publishing their tax returns.

    All the tax paying individuals can also make things change through how one shops….. don’t do it a non taxpaying outlet ….. unfortunately all of us put convenience about principle and then complain when our tax incidence goes up !!

    No pain no Gain !!Recommend

  • zainab
    Aug 26, 2015 - 12:47PM

    @tasleem ulhaq:
    on every single purchase of a plot tax is being paid to the government but it’s the responsibility of government to bring transparency in the taxation rather than collecting indirect taxes. There also live some fair people in this country mostly belonging to middle or lower middle class, they have to pay both direct taxes which our elite class doesn’t pay and also they have to pay indirect taxes. Isn’t it unfair to these people? Let me give you example of electricity bill there is a list of indirect taxes. It’s our right to know what is the significance of these taxes? Why we are paying these taxes and how long we have to pay these? Let me give you another example, a simple grocery product we buy has almost 1 to 10 rupee tax. Why? Is this a luxury? The company selling this product should pay its tax of it own, why it is being included in the cost? Recommend

  • Np
    Aug 26, 2015 - 12:54PM

    http://articles.economictimes.indiatimes.com/2015-04-22/news/614176021income-tax-pan-cards-tax-payers

    Actually income tax filers in India has increased to 47 million or 94 times that of Pakistan.

    India also has lower infant mortality, maternal mortality, higher literacy rate, lower gender gap in literacy and a lower percentage of hungry. So one wonders how reliable is the data that claims Pakistan has a lower percentage of poor people.Recommend

  • Ahsan
    Aug 26, 2015 - 1:09PM

    There are various reasons for that. Tax payers are not given any incentives and tax evaders have no fear of repercussions. The business class almost pays no tax and have annual revenues in billions. Direct tax is deducted only from the people doing jobs or indirectly from sales tax. The sales tax is totally unjust as poorest and the richest pay alike and a whopping 16.5 is barbaric. The increased tax on bank transactions is again unjust. If i am a tax paying citizen why should i pay 0.3% on each transaction?Recommend

  • Chaiman Wow
    Aug 26, 2015 - 1:25PM

    Every time you purchase a ticket you pay tax, even free loaders like Govt. employees have to pay that tax even though ticket is free. The title is misleading.Recommend

  • Sonya
    Aug 26, 2015 - 1:33PM

    Its not mystery, Pakistanis don’t trust their governments and they think all governments make corruption on the tax money and they don’t get anything back in return (Justice and other services). Moreover, Government take loans (domestic and international) without the consent of the people. Recommend

  • salma
    Aug 26, 2015 - 1:36PM

    As a visiting faculty in private institution, i got my salary check after 6 months or some times after 3 months. Every time the institute deduce income tax from my salary and also the tax the institute have to pay itself. These two things are deduced whether i receive my salary after six months or 3 months. This is done very openly. What’s the purpose of tax over an institute if its teachers have to pay this? For government, only tax collection is necessary, they are not focusing over the exploitation of which class or person this tax is collected. This is not tax this is ‘BHATTA’. They are keeping an eye on if every employee of institute is paying income tax or not? they are not considering how institute is paying tax over its profit?Recommend

  • AJAY
    Aug 26, 2015 - 2:20PM

    Keeping aside the Topic its very funny & humerous to see indian part kashmir in Pakistan MAP in Second photo slide.

    Dreaming…please remember that even baloches are older natives than you.Recommend

  • Pakistani
    Aug 26, 2015 - 3:04PM

    I pay tax every day in general from the low incom which is already taxed. I have to pay 4000 pkr in tax for 6000 pkr electricity use. Get taxed in pension too. Also get taxed in money invested 10 years ago in nationa saving. Don’t forget few army general in Pakistan got paid 47 billion rupees. why is no one talking about them? When will Zardari, Riaz Malik, and other bureaucrats get taxed? I’m still waiting for their earning reports and taxation by the government. Why are elite exempt from tax? Why should a common man who is already struggling to meet ends meet should pay tax when the elite don’t pay a penny? Recommend

  • Perspective
    Aug 26, 2015 - 3:36PM

    10 friends live in a very large house. One pays the rent, the rest of them free-load. When rent goes up, they all come to the 10th friend and tell him to pay up or else… The 10th friend gets no benefits. He lives poorly as most of his income gets spent in paying the bills…. All the other friends live a life of luxury and drive big cars and eat lavish meals… The 10th friends’ kids lose out on the luxuries of life while the 9 friends’ families go on foreign trips and their kids carry the most expensive phones….

    …and when it comes to matters of the household…the 10th friend does not get his say ….because DEMOCRACY IS THE BEST REVENGE!!!!Recommend

  • Necromancer
    Aug 26, 2015 - 3:41PM

    @Joe:
    http://data.worldbank.org/topic/poverty#boxes-box-topiccustsec

    I think this is sufficient evidence
    Glory to India and Pakistan Recommend

  • abcd
    Aug 26, 2015 - 4:54PM

    ECP….allow only tax filers to vote…and watch how the numbers soar!!Recommend

  • Ch. Allah Daad
    Aug 26, 2015 - 5:20PM

    What a stupid comparison. Almost all Pakistanis when they buy retail they pay taxes. More than 2400 billion rupees are collected as indirect taxes from Pakistanis and still some people have nerve to say that Pakistanis don’t pay taxes. The income taxes are always a small portion of total taxes and many countries are working to abolish them completely. In Pakistan, income tax should be abolished completely and all income tax officials should be fired. This step will save government billions of rupees. Recommend

  • Azmat Ali
    Aug 26, 2015 - 6:20PM

    With a salary of about 3 lacs a month, I was paying about 60,000 in taxes, EACH MONTH!!! Then I also paid indirect taxes on everything: from fuel to food. If collection of Direct Taxes is only 32%, why not focus SOLELY on indirect taxes. Remove all direct taxes, and place appropriate taxation on everything: from food to fuel. Tax the “luxuries” like Cigarettes, Cars, Cigars, Restaurants, Imported Goods, etc exorbitantly and remove / drastically reduce taxes from the food chain and medical services. Eradicate the corrupt white elephant of Tax Collection Department and focus on enhanced collection of indirect taxes.
    The experienced team of NS and the 40 courtiers (being politically correct here!) could devise this plan easily. Alternately, the chest-thumping democrats among the PTI and PPP could prepare suggestions in this regard. Recommend

  • Zaida Parvez
    Aug 26, 2015 - 6:30PM

    Pakistan has a dysfunctional society.Recommend

  • ishrat salim
    Aug 26, 2015 - 6:39PM

    While revenue from agriculture is contributing 23% to the GDP, income from agriculture is still not taxed. This is so shameful, because it is a provincial subject, hence it is obvious who else but the waderas, landlords & feudal lords will be taxed if they agree to agriculture income tax & they are same group of people who are sitting in our assembly. While in Punjab, the govt has made diary farms exempted from taxes, hence, most of the elite class, industrialists & factory owners have now big diary farms in name only & shows income from diary farms & transfers the profits of their industries, factories to these diary farms & no tax. Recommend

  • Melange
    Aug 26, 2015 - 6:54PM

    Unrelated but why are non-muslim majority Jammu and Ladakh also shown in Pakistan?
    I thought only Kashmir was the issue and that “azadi” is what they are demanding.
    Very irresponsible graphics from this paper.Recommend

  • Dilip
    Aug 26, 2015 - 8:08PM

    Where is the Head of India in that map. Its missing.Recommend

  • bahaha
    Aug 26, 2015 - 8:13PM

    Useless stats will get us nowhere.Offer them a reward like a refund since the govt has been collecting against CNIC for ten years now. Has it ever refunded anythingRecommend

  • H Chaudhry
    Aug 26, 2015 - 9:47PM

    @Neutral thanks for your Tax but get your facts correct. NS has paid in millions and since 1990, Sharif family has paid over Billion. the Rs 5000 myth needs fact checking and simple google search will lead you to many ET / Dawn articles. Recommend

  • Sandip
    Aug 26, 2015 - 10:27PM

    @mujib: How come you don’t complain about the bloated military complex and the business empire it has built using it’s unbridled powers.
    I read someone complain about the civilians importing Mercs. In which other country of the world do you have Corp commanders and army chiefs riding BMWs and Mercs, except for Pakistan and other such tinpot dictatorships where the army rules the roost.Recommend

  • curious2
    Aug 26, 2015 - 11:47PM

    Comparing airplane flyers to taxpayers maybe colorful but basically meaningless. The real issue is tax to GDP ratio and Pakistan’s is low enough to question whether Pakistan’s economy can remain viable. Pakistan has gotten by through significant borrowings from IMF, ADB and others … but you have only so much debt capacity and your rapidly running out. Now your faced with borrowing money from the Chinese in exchange for “no bid” contracts with Chinese vendors .. you can bet money that the govt isn’t going to willingly provide details on those expensive arrangements.Recommend

  • Ami r
    Aug 27, 2015 - 12:08AM

    I just want to die in shame after this :'(Recommend

  • MSH
    Aug 27, 2015 - 12:26AM

    It is not the people don’t want to pay tax but the government does not want to collect.It is very simple Get the bank statement,telephone and electric bills,No of visit abroad,No of Umras, and property transaction from the respective authorities. But who would do it? corrupt and criminals
    Politicians,senators,MNAs who have amassed billions through looted and plundered. Recommend

  • Aug 27, 2015 - 4:23AM

    We don’t pay tax, because we belongs to FATA. This thing will only end when we stop discriminating people on the basis of land. Recommend

  • Haris
    Aug 27, 2015 - 11:02AM

    Its very easy to make people pay direct taxes….. issue CNIC type card to only those who have a valid NTN and tax filling record…….this card would be required for every service offered by the govt. such as: Hospitals, Universities, Airports, even motorway toll booths….. then we’ll see who’s not willing to pay their taxes.Recommend

  • Haroon
    Aug 27, 2015 - 12:03PM

    ET is a funny place where facts sometimes don’t make a good headline. Every flyer pays airport tax while purchasing tickets? so at least numbers of tax payers is greater than flyersRecommend

  • ptr
    Aug 28, 2015 - 12:05AM

    These Pakistanis don’t need to pay any taxes as they live off U.S and U.K Aid anyways!Recommend

  • Ravian
    Aug 28, 2015 - 9:46AM

    Misleading statement. Every Pakistani who spends around 50,000 a month, pays around 15,000 as tax, though he is not considered a tax payer. These are indirect taxes such as GST. Imagine recharging your mobile phone number and something like 23 per cent is deducted. There is tax on petrol, electricity, gas, and all the grocery items. So everybody is a tax payer and the people considered to be outside the “tax net” are the biggest tax payers in Pakistan. Recommend

  • Najia Omar Jafri
    Aug 28, 2015 - 3:32PM

    @Neutral:
    Please check the facts before posting on the internet. The Tax Directory of all Parliamentarians in available on FBR’s website:
    http://download1.fbr.gov.pk/Docs/201469962916404PARLIMENTARIANSTAXDIRECTORY2013Dt.09.06.2014.pdf
    The record proves that the Prime Minister Nawaz Sharif has paid much more tax than what you have claimed, rather alleged. On the other hand, PTI Lifetime Chairman Imran Khan Niazi (NA-56) pays Rs 16,245 tax every month. Your criticism against Imran Khan could have been justified on his Banigala Palace, Roaming on private jets and having numerous SUVs parked in garage. But your pointation on wrong facts puts your entire statement in doubt.Recommend

  • mahesh
    Aug 28, 2015 - 5:52PM

    So even Aksai Chin is being claimed by Pakistan as pre this map? Your iron brother administers that disputed territory. Why don’t you ask them to give it to you?

    ET – what is problematic with my comment?Recommend

  • IBN E ASHFAQUE
    Nov 10, 2015 - 1:38AM

    Democracy requires investment in elections and dharna. Hence the rich finance democracy and cannot be taxed…….Slaves are the people who pay tax in Pakistan….With democracy, national debt will increase and rich will not pay tax in Pakistan……Suck it up sheeple….Recommend

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