Broad­en­ing the tax net

Enterprise - - Editor’s desk -

In the midst of gal­lop­ing in­fla­tion and its im­pact on the com­mon man, it is high time that the gov­ern­ment took mea­sures to mit­i­gate peo­ple’s suf­fer­ings and im­prove the sag­ging econ­omy. It is also im­por­tant for Pak­istan to free it­self from the curse of for­eign aid and as­sis­tance and start mov­ing to­wards self-suf­fi­ciency and sur­vival through its own re­sources. It is im­per­a­tive that the gov­ern­ment set it­self se­ri­ously to in­tro­duc­ing fo­cused re­forms to­wards poverty al­le­vi­a­tion, con­trol­ling the non-stop price hike, re­viv­ing in­dus­try and sta­bi­liz­ing the macro-eco­nomic out­look. The gov­ern­ment also needs to al­lo­cate more funds for power and en­ergy projects to bring the closed in­dus­trial units out of forced hi­ber­na­tion and cre­at­ing op­por­tu­ni­ties for large scale em­ploy­ment. The busi­ness com­mu­nity too, in or­der to be com­pet­i­tive, needs re­lax­ation in taxes, un­in­ter­rupted power sup­ply and im­prove­ment in the law and or­der sit­u­a­tion. A fair tax sys­tem lies at the heart of all this.

It is in­ter­est­ing to note that only about 2 mil­lion of 180 mil­lion Pak­ista­nis pay in­come tax. Of them, 1.8 mil­lion are salaried. They paid Rs.27.37 bil­lion in taxes dur­ing fis­cal year 2008-09, ac­cord­ing to a re­port pre­sented to the Se­nate by Min­is­ter of State for Fi­nance and Eco­nomic Af­fairs, Hina Rab­bani Khar. Pak­istan also faces bud­get deficits of around 5% of its GDP, while the gov­ern­ment col­lects less than 10% of GDP in tax rev­enues which is among the low­est in the world. To top it all, a large por­tion of these deficits is funded by for­eign aid and loans.

It is also true that Pak­istan’s tax poli­cies are among the most re­gres­sive in the world. Di­rect taxes make up for less than 3.5 per­cent of GDP, with wide rang­ing ex­emp­tions to pow­er­ful seg­ments of so­ci­ety. The ma­jor part of the tax is col­lected in the form of sales tax, plac­ing the heav­i­est bur­den on the lower-in­come groups who spend al­most their en­tire earn­ings on ba­sic needs.

Pak­istan’s is pre­dom­i­nantly an agri­cul­tural econ­omy but agri in­come, mostly earned by the coun­try’s large land hold­ers – those very peo­ple who also com­prise the rul­ing elite - is en­tirely ex­empt from any in­come tax. Tax eva­sion in Pak­istan is es­ti­mated at a whop­ping Rs. 500 to 600 bil­lion a year. This un­tapped chunk is al­most equiv­a­lent to the coun­try’s an­nual bud­get deficit. There­fore, while Fi­nance Min­is­ter, Dr. Ab­dul Hafeez Shaikh is per­fectly right in seek­ing co­op­er­a­tion of the busi­ness com­mu­nity in broad­en­ing the tax net and rev­enue gen­er­a­tion from all sec­tors of econ­omy, he also needs to make a strong case in the next bud­get for proper tax­a­tion on agri­cul­tural in­come. It was in this back­drop that the for­mer Fi­nance Min­is­ter Shaukat Tarin had stressed back in 2008 that all sec­tors of the econ­omy be brought into the tax net for fair play and pro­mo­tion of tax cul­ture in the coun­try. Can the gov­ern­ment muster enough courage to broaden the tax net in a ma­jor way or will the econ­omy be left to bleed the way it has all through these years?

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