Only 0.3 percent of the population pays income tax and files a tax return — one of the lowest ratios in the world. Around 7 million Pakistanis are estimated to be eligible to pay income tax, but only less than 0.5 million do so. The solution? Overtax the 0.5 million.
Those at the top of the income ladder are delinquent in paying their due share of taxes, barring a handful, while the burden falls unequally on those at the bottom of the pyramid who pay via indirect taxation. Moreover, around 75 percent of the direct income tax collected is from businesses, and the rest from individuals. However, within businesses, only 21pc of the registered companies paid income tax, with the vast majority being tax non-filers. Tax evasion by individuals is on an even larger scale.
Given this dismal state of affairs, the government has made some noticeable — and perhaps praiseworthy — advancements regarding the tax reform front. They have published tax directories of all tax filers and, separately, of parliamentarians. However, they fall far short of what needs to be done. As a result, the pursuit of delinquent taxpayers is taking precedence over non-filers and an increase in rates of tax is being relied on, including on petroleum products and imports of basic food items, instead of widening the tax base. This is easy to do, but it is crippling the middle and lower classes. What is worse is that there is no discernible incentive for anyone to pay taxes. The government has made a tax policy clear, but what is it going to do with the money it earns? Give people better health care? Free education? More bridges and buses? Is the IMF going to get all this money as loan repayment?
The apparent lack of a strategic grand design in implementing tax reform is becoming painfully obvious. Tax reform in this country will only succeed when it is sequenced properly, and the added revenue to the government will amount to nothing if it is not put into social welfare projects.