Every year the government fixes tax revenue targets but fails to reach the mark. Tax-to-GDP ratio has been stagnant at 9 percent, over the last few years, which is significantly low to attain any kind of economic growth. Due to this perpetuating fiscal deficit, Pakistan external debts have ballooned to $60.3 billion, while the domestic debt liabilities have accumulated to the tune of Rs7.726 billion. Basically, tax management deals with both tax collection and tax spending. As of today, the Central Board of Revenue follows the target-oriented approach of tax collection and has not put in place a program with practical approach. Inefficiency of the tax administration apart, tax revenues are highly linked with GDP growth rate and inflation.
Tax collection authority can’t work in isolation, but fiscal and monetary policies have direct and indirect impacts on tax revenues. The concerned agencies must develop synergies to deliberate upon the macroeconomic fundamentals of the economy to maximize not only tax collection but foster economic growth and reduce inflation, increasing tax payers’ ability to pay. The lack of coordination among concerned institutions is a real stumbling block, restraining the ability of the government to improve tax-to-GDP ratio.
Prudent tax spending is an important ingredient of a well-functioning tax management. The golden rule is that tax collected, but not well spent, does not depict the best value for money. Taxpayers are willing to pay taxes once they realize that their hard-earned money is not going to be wasted and they are getting public services in tandem with their tax money. One of the reasons for low tax-to-GDP ratio is the lack of trust between the taxpayer and the government and the responsibility to bridge the trust gap, by demonstrating improved transparency in tax spending, which lies with the government.
It looks odd, for instance when buyers pay indirect taxes in shopping malls, but they read on the wall, ‘Parking is at the owners’ risk’. A commuter who pays tax not only gets disgusted for driving on depilated roads, which waste excessive fuel and damages their cars. It is utmost important to raise the morale of taxpayers with the government demonstrating improved services to the common man. There is a need to put in place an independent monitoring system outside the purview of the Central Board of Revenue to enhance tax compliance and suggest appropriate recommendations for improving tax management from time to time.
Indirect taxes however, add miseries to the poorer, whose income is bound to drag down causing increase in poverty. Poor country like Pakistan cannot afford such a skewed structure of taxes, rather policies with regard to progressive taxes, extending the tax base are more pro-poor and supportive of archiving the MDG goal of halving the extreme poverty by the year 2015.
Tax fairness is the most important rule in tax management. Given the scale of expanding poverty in the country, all those taxes need to be avoided, which have been landing more people into poverty. Being basic needs, there should be less tax on food items and housing and more on luxuries. Food is expensive while cigarettes are cheap in the market.
JAVED IQBAL,
Lahore, April 1.