New Taxes, Old Story

Once again we are told that the government wants to raise tax revenue after, as usual, failing to meet targets it agreed to with the International Monetary Fund (IMF). In order to secure the next $502 million tranche from the IMF, Pakistan has committed to slap on new taxes worth Rs40 billion.

In return, the IMF has agreed to give Pakistan two waivers after it failed to deliver on two key conditions. The three-year $6.2 billion EFF programme is built on five key conditions, known as quantitative performance criteria and many structural benchmarks.

Speaking at a news conference a few days ago, Finance Minister Ishaq Dar informed the country that the Federal Board of Revenue (FBR) missed its quarterly tax target by Rs40 billion, which in turn meant the quarterly fiscal deficit target was missed by Rs23 billion. However, he added that the government managed the remaining gap by “prudent management of expenditures”.



When asked about new tax measures, Dar said the government will see the results of collection in November and, if needed, would withdraw tax concessions, which the government plans to phase out in the next fiscal year this year. It is believed that the new tax measures were a certainty with only their timing as yet undecided.

This is the same story repeating itself. With a creaking and corrupt tax collection machinery, successive governments have relied on stop-gap arrangements to deal with a problem which requires political will and far-sightedness. We were told over the years that the elected government did not have the required political clout to fix the FBR, but this is a lie that we have lived with.

Our rich and powerful are not willing to pay their due share of taxes. That is the truth. This is a country where the prime minister and the leader of opposition both enjoy billions in assets but pay less taxes than most middle-income salaried taxpayers.

The pool of salaried and corporate taxpayers continues to bear the tax burden while the rich and powerful, which include landlords and industrialists with political connections and clout, manage to get away with paying peanuts. To complicate this system is our corrupt tax collection machinery that encourages payers to bribe them into paying less.

Off the record conversations with foreign diplomats show their increasing frustration when they are expected to contribute to the development of Pakistan or to help with aid for some natural disaster while the Pakistani elite refuse to chip in anything. How long will we live with this farce?



We are a rich country with a poor government. We should not be expecting others to bear our burden when we are perfectly capable of raising taxes through a clean and fair system which will allow us to meet many of our obligations. How long do we live under the tyranny of a tax machinery that punishes those who wish to pay taxes honestly?

Mr Dar has been finance minister for so long and in successive governments to have the understanding to ensure a non-political tax collection machinery. Instead under him there is always a toothless FBR that is ravaged by the political expediency of the finance ministry.

According to finance ministry sources, the government is considering increasing regulatory duties on luxury items and federal excise duties on cigarettes, and imposing certain anti-dumping regulatory duties to meet the IMF condition.

However, the definition used by the FBR for luxury items is interesting. Yoghurt, butter, cheese, cereal, pineapple, guava, vermicelli, tomato paste and chocolates are a few of the hundreds of items treated as luxury items. These items were part of the 282 goods on which regulatory duties were raised by five per cent in June last year to meet the IMF condition.

An increase in duties at the import stage will automatically increase sales tax collection, as the sales tax is calculated by including all duties and levies in the price. This will stoke inflation in the country.



Why can we not put our tax house in order? Why does the IMF have to force us to raise tax revenues? The biggest heart burner for taxpayers is also the fact that the money they give to the national exchequer is used by the bureaucrats and politicians. When will this end?

Published in The Express Tribune, November 9^th, 2015.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.