The next month will be crucial for the PML-N government, as they look to set the budget for the next financial year, and change economic policies that will affect the country’s future. For any government, tax collection is ideally supposed to be the greatest source of revenue, but in Pakistan the rampancy of tax evasion makes the government lose out on an important source of funds. Ishaq Dar is issuing bold statements about broadening the tax net and making sure the target of Rs. 2800 billion is met, but this is easier said than done.
The government has conceded to the demands of various businessmen and suspended SRO-351, which was issued by the FBR, making a separate authority which would have the power to audit and enter any business premises suspected of tax evasion. The Directorate General of Intelligence and Investigation Inland Revenue (DGI &IIR) is a branch of the FBR that already exists for this purpose, and even has the power to arrest individuals that are accused of tax evasion, which makes it unclear why the FBR would want two bodies to perform the same function. An independent body that is not politically motivated would have made the task of tax collection from businesses easier, but this is only if we work under the assumption that it would be autonomous, fair and unbiased.
Pakistan has a higher incidence of sales tax, which only needs the registration of all retailers and wholesalers as opposed to every income earning citizen in the case of income tax, and hence requires no careful study into the income histories of the taxpayers of the country. Naturally, the sales tax system is regressive and is higher for the poor than it is for the rich, considering all final consumers pay for goods at a value that is inclusive of the sales tax to be paid. Currently, the rate of sales tax stands at 17% on most local items.
The income tax is fixed at 20%, which would be fine if the collection system was properly functional, but undeclared income and assets that the FBR never manages to uncover means that many people get away with giving only a fraction of the tax they ought to pay. The FBR is failing in its duties to collect the actual amount that citizens owe to the government, and the biggest benefactors of a properly implemented tax system will be the government. The people of Pakistan are used to governments making claims about fixing the tax system, and this PML-N government is not likely to make much headway with its support coming from industry owners and businessmen that hide their assets whenever the tax collectors come calling.