Why do people avoid paying tax?

There is reoccurring news coming time and again that the number of taxpayers in our country is very low. Our new Prime Minister Shahid Khaqan Abbasi also lamented in his first address that Pakistanis don’t pay taxes. This is what our every government narrates. But such statements are contrary to the fact and also oppose to a common saying that no one can spare himself from death and taxes, here I want to discuss a story of a chartered accountant read a year ago. “Mr A works in a factory, he goes to work at 8 am and finishes his day at 5 in the evening, at the end of the day the owner gives him 6 apples as his wage. Returning home he encounters a man (Mr B) who asks him to give 2 apples, Mr A asks why he should give 2 apples to him, as a reply B says this is “tax” on his earnings required as per government rule. Despised Mr A gives Mr B 2 apples and goes home. The next day he goes to the factory and says to his master that he needs 8 apples today as 2 will be taken by Mr B as tax. The master refuses and says I have already given many apples to B as tax on his income, and cannot afford to pay 2 more apples to Mr A. Returning home the next day Mr A encounters a Mr C who offers to save him from Mr B by offering an alternate route home, in return he asks for quarter of an apple. Mr A happily agrees to settle for this scheme and goes with him. Later during the month Mr B finds out about this alternate route and catches Mr A on the way, as a consequence Mr B asks for 4 apples per day from the day he took the alternate route otherwise face legal action.

Now in this story we have the following observations like Mr A is the taxpayer, the alternate route home is the tax evasion scheme, Mr C is the facilitator of tax evasion who woes Mr A into this scheme and the reasons which make Mr A opt for the alternate route home will be high rate of tax in the country, sense of ownership on the hard earned wages, availability of facilitators (Mr C), lack of education among tax payers about possible consequences of tax evasion, weak legislation in relation to tax evasion and hoarding of wealth with masters.

Only those who are clever accountants can keep the later one at minimum level. We all know that there is a difference between tax evasion and tax avoidance. Tax evasion is illegal. It involves not paying the taxes one owes. Tax avoidance is behaviour that keeps you from having that legal obligation to pay taxes. This can include using legal tax shelters, tax exemptions and deductions etc. Tax evasion is bad and a criminal offence. Tax avoidance is something different.

There is a grim reality which is not appraised by the government that we are one of the most overtaxed nations in the world. We pay taxes from birth to death. Here are some fine examples of paying the taxes. There are around 58 million people who are doing jobs and get their salary after tax deduction. There is hardly any service in our country that is tax-free. The figure easily dispels the myth in government circles that less than 1 percent of Pakistan`s population pays taxes. If Pakistan`s population is about 200 million then according this figure around 29 percent of the population is paying taxes. Similarly, telecom industry witnessed a boom in last 16 years. According to reports there are around 140 million mobile-phone users in our country which pay more than 20 percent tax on the total amount of load. Same is the case with automobile industry. The number of registered vehicles in Pakistan is in millions and the number is advancing with every day. All these run on fossil fuels which are subjected to multiple taxes. Besides, there are multiple surcharges and duties which are being extracted from the pockets of people. All these facts say that we are a tax paying nation. But, unfortunately, our higher authorities always show grave concerns even after realising the fact that Pakistan’s tax revenue has been increasing consistently. They keep introducing new tax reforms and burdening people with more taxes. One of their major concerns is that our revenues are not enough to meet our expenditures.

The basic reasons why they don’t meet their expenditures are the corruption within the bureaucracy and political administrations, misuse of government funds and tax exemptions for influential people. It is very common in Pakistan for politicians to be tax evaders. We live in a system which favours elitism. The rich in our country don’t pay taxes and there is no one to question them. If Pakistan’s wealthiest do not pay meaningful amounts of income tax then that doesn’t mean to raise taxes on everyone. This is about asking people to pay their fair share and what the law requires them to. On the other hand common people feel seriously burdened and cheated when they see the rich getting richer by hook or by crook, without paying their fair share to the society.

It is not our real issue that we don’t pay taxes but the real issue is the unproductive use of what`s at hand. If the expenditure is productive then it generates increased revenue possibilities for the future. Our real tax problem is that we are poor at managing and using revenues. If we could productively use revenues half our revenues would not have been spent on paying interest on debt. Several studies and articles have pointed to these issues but they have either not been taken seriously or the people who are in a position to address these issues, are themselves part of the problem.

So instead of calling us tax thieves the government should be thankful to the nation and especially the middle class (which is vanishing) for paying taxes. The ministers and tax authorities should understand that to collect more taxes, they need to build trust with the people that the money is used fairly and the they are getting benefit from their tax paid money. Once the government is successful in it their tax collection job will become easier. Besides, the government should look to remove exemptions, simplify the tax collection system and drive out corruption.

The author is based in Lahore and one can reach by email:

hammadahmad1971@gmail.com

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