Tax reform

Proof is in the pudding

Pakistan’s tax-to-GP ratio has remained abysmal for over a decade, adding to its many other economic woes. Inadequate tax collection owing to a narrow tax net that the Federal Bureau of Revenue (FBR) has continuously failed to expand, is at the core of the problem. Apart from managerial and structural problems within the FBR, a culture of tax avoidance is rampant within society, perpetuated by the political class that itself does not pay its fair share. Over the course of three years, Prime Minister Imran Khan has taken various measures to address these issues with little success. Bringing in top management at the FBR from the private sector did not result in the necessary actions being taken to reform the troubled institution. Taking on the traders’ community was also short-lived, with the government having to back down on conditions that would have forced the former to declare its revenues. In its latest bid to meet tax targets, a ‘track and trace’ system has been launched to monitor the sugar industry, in particular its production volumes, by affixing tax stamps in real time.

While the introduction of such technology in the taxation apparatus in collaboration with the businesses and industries that are to be taxed is a good initiative, it remains to be seen whether or not it is able to achieve its objective of generating more tax revenue. The government must also realize that such innovative tax collection methods are only implementable with industry-specific partnerships and there are limits to how much additional tax revenue can be raised through these partnerships.

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The more vast and undocumented part of the business community comprises of local traders, sole proprietors and medium-sized enterprises, and that is where the thicker cut of meat really is. Getting this crucial segment of the economy to pay taxes is an arduous task, requiring not only a strict ‘taxman’ but first and foremost the development of a taxpaying culture. As things stand, an increasingly large section of the population believes, not without reason, that taxes are not spent on providing them cost-free benefits like quality health, education and security. Until and unless such concerns are removed, a significant proportion of people and businesses eligible to pay taxes will continue to keep themselves out of the tax net.

Editorial
The Editorial Department of Pakistan Today can be contacted at: [email protected]

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