It began with voluntary applications, then shifted to concentrated campaigns designed to nudge individuals towards those voluntary options. Soon, it will move towards restrictions, and ultimately end with severe penalties for those who resist. This is the trajectory laid out by the Federal Board of Revenue (FBR) and other financial institutions in Pakistan to expand the tax net. The government is applying a steady squeeze, gradually intensifying the pressure, and given the public’s response to the effort to broaden the tax base, this is precisely the type of policy needed.
Recently, the Federal Minister for Finance and Revenue, Mohammad Aurangzeb, detailed the penalties non-tax filers will face. These include restrictions on buying vehicles, properties, mutual funds, or opening current bank accounts. If non-tax filers are involved in manufacturing or selling, the sanctions will be even harsher, including utility cut-offs, property seizures, and the sealing of business premises. On the surface, it may seem extreme for the government to curtail an individual’s ability to engage in economic activities.
However, when we consider that Pakistan’s tax-to-GDP ratio is among the lowest in the world, and that only a tiny fraction of the population pays taxes, such measures become necessary to drive compliance and uphold the proper functioning of the state. The government has faced fierce criticism from associations representing manufacturers and potential taxpayers, which is to be expected. These groups are primarily focused on resisting any government effort to increase taxes in order to protect their profits. The government successfully ignored such protests in the past, and it must continue to do so. As these sanctions begin to impact members of this community, further resistance in the form of protests, strikes, and shutdowns is likely. Regardless, the government is on the right path.
It must remain firm, resolute, and committed to overhauling Pakistan’s tax system once and for all.
