Undeniably, taxes are the primary source of revenue for any country in the contemporary world. This is the reason each country generally endeavours to improve the general state and quality of its taxation system. Tax noncompliance, in the form of tax avoidance and tax evasion, is the most common taxation problem. However, it is widely believed that a state can overcome this problem by ensuring an efficient tax regime as well as a healthy tax culture.

There are generally two components of a tax regime- a set of stringent taxation laws, and an efficient tax administration to effectively enforce these laws. This sort of tax regime ensures the adequate and prompt collection of taxes. Like most of the countries in the world, in Pakistan too, the tax reforms primarily revolve around the tax regime while ignoring altogether the other important aspect- the tax culture. Usually, in the absence of a healthy tax culture, even an efficient tax regime may also fail to perform well by missing the ‘tax targets’. Therefore, for a tax regime to be successful, it should necessarily be compatible with its tax culture.

A tax culture, in its general sense, denotes the prevailing tax behaviour and tax norms in a particular country. The attitude and behaviour of both taxpayers and tax-collectors form the underlying basis for the tax culture. German professor Dr Birger Nerre defines tax culture as “the entirety of all relevant formal and informal institutions connected with taxation system and its practical execution, which are historically embedded within country’s culture, including the dependencies and ties caused by their ongoing interaction”.

‘Tax mentality’ is an important phenomenon essentially associated with a tax culture. It includes the attitude and behaviour of the tax-paying citizen vis-à-vis the state. It has two aspects – ‘tax morale’ and ‘tax discipline’. Tax morale shows the level of willingness and enthusiasm on the part of citizens to pay taxes. On the other hand, tax discipline signifies the capacity and training of the citizens to obey the rules ensuring tax compliance. Therefore, honesty, fair play and a sense of duty exhibited by individuals always help promote a healthy tax culture.

Some time ago, traders and businessmen in Pakistan reacted strongly when the federal government made a decision to impose withholding tax on certain banking transactions in the country. After observing countywide shutter-down strikes, traders also threatened to march on Islamabad to make government withdraw this ‘harsh and unjustified taxation’. So they reacted collectively as a community to resist the government’s endeavour to tax this affluent section of society in some way. This situation is sufficient to make a prediction about the very fate of the government’s intention to formally bring them in the tax net in the near future. In fact, it is not the business community alone that thinks like this. But every section of society in Pakistan has is inclined to stay out of the tax net by all means.

Owing to obvious reasons, we have failed to evolve a healthy tax culture in Pakistan so far. Consequently, tax non-compliance has somehow become our national character. It is quite worrisome that only 0.3 percent people pay income tax in Pakistan. In Pakistan, both the governors and the governed seem equally obsessed with the idea of creating a ‘tax-free society’. We have often observed the proposed annual budget being declared a ‘tax-free budget’ by the ministers of the government, at the time of presenting such budget in parliament, to appease the masses. This tendency makes it seem as though taxes are something very draconian, and that paying taxes is, somehow, an odd phenomenon.

The tax-to-GDP ratio in Pakistan is one of the lowest in the world. It has been hovering around just 7-9 percent for a long time. In many countries of North America and Europe, the tax-to-GDP ratio is almost 30-40 percent. It ranges from 40 percent to 55 percent in the Scandinavian countries. Even in India, the ratio currently stands at some 17 percent. Owing to our poor taxation system, the government often fails to achieve even conservative revenue targets. Consequently, the fiscal deficit has become a chronic macro-economic problem in Pakistan.

As a matter of fact, the government’s current ambitions to broaden the tax net is incompatible with the prevailing tax culture in the country. The people seem to be disinclined to voluntarily pay taxes to the government. This is the reason traders, businessmen and professionals always strongly resist government’s move to bring them in the tax net. Similarly, they have also not been inclined to file their tax returns as required by the law. In order to get the desired objectives, the government should make some serious endeavours to evolve and promote a healthy tax culture in the country.

First of all, in order to evolve a tax culture, the ruling elite has to become a role model for the masses. Superior government functionaries, ministers and politicians should actively and honestly pay their taxes before asking people to do the same. Regrettably, in our country the very tradition of ‘representation without taxation’ has long been practiced. There have been media reports about the mis-declaration of assets, and the shockingly low amount of tax paid by our legislators. If they don’t declare their true assets and pay their taxes diligently, then how can they ask the common citizens of the country to file income tax returns and pay taxes? Certainly, if the government’s own moral pedestal crumbles, it can hardly compel people to become tax compliant.

Tax literacy is another important tool to promote tax culture. It can go a long way in persuading people to pay their due taxes honestly and promptly. A massive campaign for tax literacy should be launched to make people aware of their basic citizenship duties regarding the payment of taxes. Extensive persuasive messaging can also influence people’s perception and attitude towards paying taxes, which will untimely give rise to tax compliance behaviour.

“Taxes are the price we pay for civilisation”, said legendary American Supreme Court Justice Oliver Wendell Holmes. Indeed, without an effective and efficient system of taxation, the creation of a civilised and developed society cannot materialize at all. Today, if the citizens of the west are enjoying full civic rights and high living standards, it is only because there exists a healthy tax culture in these countries. Every citizen contributes his due share to the system honestly and diligently. Tax evasion is considered to be a great crime in the civilized countries. Since a particular culture is always instrumental in giving rise to a particular civilisation, therefore a poor tax culture can, by no means, be the basis of a rich civilisation.