“Pakistan has one of the lowest taxes to GDP ratio in the region and amongst most of the emerging economies.” This is a common sermon whenever economic woes of the country are discussed by the experts. The IMF has been pointing out this glaring misstep in every programme the country entered. Improving the tax collection has been a juicy topic of the talk shows as well. Imran Khan, the Chairman PTI, before assuming power, championed the claim that he would push tax collection upwards once in power.
Where is the country in terms of its tax base? Here is a good reality check. FBR has recently issued its annual Tax Directory for FY2018 after a one-and-a-half-year delay. That was precisely the period of political transition due to elections. A quick look at the tax directory reveals the indifferent and casual attitude of parliamentarians towards their tax liability despite the political heat. 45 parliamentarians from the National Assembly and Senate did not even bother to file their annual income tax returns; an obligation for every eligible tax paying citizen.
Even those who did; their tax returns offer eye-opening revelations; five of them paid zero income tax. Those poor chaps included Usman Buzdar, Faisal Vawda, Senator Faisal Javed and Fayaaz ul Hassan. Faisal Vawda reportedly clarified that he was not obliged to pay any income tax during the year 2018 as he availed the tax amnesty scheme. Senator Faisal Javed later clarified having paid about Rs46,000 or so during that period and blamed FBR for the omission of his name from the tax directory.
Many parliamentarians graciously paid their income tax ranging from the paltry sum of Rs109 to a few thousand only. Such was the responsibility towards a national obligation; declaring taxable income and paying due tax truthfully.
The state of tax payments by other segments also reveals a similar trend; nearly 81 percent of first-time filers filed a return of zero rupees. During Tax Year 2018 the number of return filers increased by 17.1 percent (from 1.9 million in 2017 to 2.2 million in 2018). This performance in terms of numbers looks satisfactory but payment with returns has a meagre growth of 3.0 percent. Dr Ikram Ul Uaque, an eminent tax expert, described in his recent detailed analysis that most of the new filers have contributed negligible or zero payment with returns just to be on the active taxpayers list to take benefit of waiver or lower tax under the withholding tax regime.
Some of the other startling revelations include; Only five lawmakers paid 60 percent of the total amount paid by members of the lower and upper houses of parliament in taxes. There were over 90,000 companies registered with Securities & Exchange Commission of Pakistan (SECP) as on 30-06-2018 but only 44, 609 filed returns.
The economy of the country has been stuck since long in a low growth trajectory barring a few years. Low growth in almost all sectors coupled with low value addition and corruption has pushed the country into a vicious cycle. The country is facing a situation where revenue collection has perennially been short against the ballooning state expenditures. On the other hand; the economic policies of successive governments have resulted in the accumulation of massive internal and external debt. Most of the political economic policies have ended up at ill perceived development priorities and resource utilisations.
Deficits of all sorts are now overriding economic policy decisions. Trade deficit is more than double the merchandise exports since the last many years. The current account deficit could have been even more disastrous in unison to the trade deficit but thanks to mammoth workers remittances which helped the country to keep it under control. The budget deficit has been on the rise by and large and now touching 8-9 percent of GDP or so; depending upon how you look at it.
The country needs to shore up its tax collection to create a fiscal space for its economic policies. Debt repayment is now the largest single expense in the annual budget since long. Development being mainly financed by borrowed money. Hence, with mounting pressure to increase tax base, FBR has been able to increase the tax filers over the years but tax collection has not increased in tandem. Resultantly, FBR is now resorting to further tighten the formal economic sectors to fill its coffers. The informal economy seems to be escaping unhurt like the past.
It’s about time that the ruling elite of all sorts wake up and contribute towards the tax broadening in letter and spirit. Otherwise, broadening tax culture would remain an elusive dream as it remained in the past. Parliamentarians, businesses and individuals have to understand and shoulder their responsibilities. It’s about time to lead the country by example instead of putting the blame of economic woes on the IMF, previous governments or complaining about the inefficient tax machinery of FBR.