Tax is the cost of living in a civilized society that people have to pay for economic development and planning. It is the realization of money in the country; tax levied by the government on goods, firms, individuals, and societies. The federal tax in Pakistan is like any other tax systems in the world. Direct and indirect taxes are classified into two broad categories. Direct taxes include salaries, interest on securities, income from property, and income from the business whereas indirect taxes include sales taxes. Unfortunately, only 5 per cent of people in Pakistan pay taxes directly. The remaining 95 per cent either do not show their income or avoid paying by forming a close relationship with a tax practitioner and senior officer. Tax collection is a major economic challenge being faced by Pakistan. There are many reasons behind the poor tax system such as; Poor management in tax offices, unprofessional behaviour of tax officials, complex and ambiguous tax laws, lack of public awareness about the tax system, harassment by the tax administration, and above all People’s hesitation when it comes to paying taxes. Lack of confidence in the state’s ability to handle taxpayers honestly and professionally and to spend their money is perhaps the most important reason why Pakistanis refuse to pay taxes. The number of non-taxpayers in Pakistan is also low because inflation is rising rapidly. On the other hand, more than 90 million people belong to the salaried class. Why doesn’t anyone ask the public leaders who give examples of developed countries that the salaries in those countries are so high that even after paying taxes, people living there get better? While here people are hungry for food. That is why a non-filer is not at all ready to become a filer. There are only 3 million filers in the country.
In the current situation, Pakistan is facing a deficit of payments. The government says financial aid from China, Qatar, Saudi Arabia, United Arab Emirates, and others were used to pay off debts last year. The government cries all the time that Pakistanis do not pay taxes to cover up their incompetence while this is not the case at all. People are paying taxes but none of the financial intellectuals are willing to look at the flow of taxes paid that where they are going? What is the guarantee of tax on daily necessities like tea leaf, milk, sugar, flour, pulses, meat, etc. that it is reaching the national treasury? It is based on the personal character and integrity of millions of businessmen, industrialists, and relevant government officials. Another example is the mobile phone service providers to whom millions of consumers pay billions of rupees in monthly taxes. Are these billions of rupees accumulating in the public treasury? Billions of rupees are being collected from millions of Pakistanis without any discrimination in terms of sales tax. Whose job is it to deliver them to the national treasury in a foolproof manner? In this regard, it is necessary to come up with a mechanism to end the unrest in the hearts of the people.
According to a survey by the Federal Board of Revenue (FBR), Karachi is the highest tax-generating city. The tax collected from Karachi’s six major markets is higher than the combined tax collected from Lahore, Rawalpindi, Islamabad, and Faisalabad’s largest markets. Also, the FBR inspected the markets of Saddar, Tariq Road, Clifton, Golimar, DHA, and Gulistan-e-Jauhar and found that they collectively pay taxes of Rs30.87 billion. In contrast, Lahore’s four major markets paid Rs567 million in taxes, including Anarkali, Mall Road, Hafeez Center, and Liberty Market. Besides, Islamabad’s major markets paid Rs1.93 billion in taxes. These markets include Supermarket, Blue Area, F-10 Center, and Jinnah Super. The survey said that only Karachi pays even more taxes than the entire Punjab. The important thing to consider here is; why the businessmen of Liberty, Shah Alam, etc., which earn millions of rupees every day, are reluctant to pay taxes? It is clear that the performance of tax collectors is much bad in Punjab and it needs to be improved. Comparing Pakistan’s tax system with that of neighbouring India, 40 million Indians file income tax returns (ITRs) every year. So, if we take the taxpayers as a statistic and given that India has 6 times the population of Pakistan, then Pakistan should have at least 6.2 million ITR filers, while at present there are only 2.2 million. And there are millions of registered units or 35 pieces (Professional Corporation) that are nil return filers. Pakistan is far behind in this regard.
However, this tells only one part of the story. The next criterion that is important when looking at taxes as a trend is ‘avoidance’. India spends $70 billion annually on its people while Pakistan spends $6 billion annually on the people. In terms of size, Pakistan should spend $ 12 billion a year on its people. Similarly, by comparing to developed countries, it can be seen that out of 330 million people in the United States, 142.3 million are filers. Other developed countries, such as China, the United Kingdom, and Canada, account for up to 80 per cent of income taxpayers.
Talking about the performance of the government’s two-year tenure, it can be said that the existing dominated system of FBR has failed to perform well in any area. That’s why tax reforms need to be introduced which will increase the tax net through proper documentation while reducing taxes on the formal sector. This will provide access to regular financing for the small and medium enterprise (SME) sector, which is currently only 5 per cent of the bank’s financing. The recently retired former chairman FBR (Shabar Zaidi) had dealt with 16 of his special clients in violation of the law and had given them special tax relief. Honourable Prime Minister (Imran Khan) should take notice of all a lot of these types of departmental issues and take the people into confidence. However, the government of Pakistan should take immediate and meaningful steps to increase loans to the private sector through tax incentives. Private sector credit in Pakistan is currently only 18.8 per cent of GDP, compared to 50 per cent in India. Lending more to the private sector will also have a multiplier effect on GDP growth. Implementing these reforms will enable Pakistan to move on a new path towards a growing country which can depend upon their taxes.
Muhammad Nadeem Bhatti
— The writer is a senior social analyst & Pakistan Columnists Council chairman and can be found at