Tax It Right

The new government, and especially the Prime Minister, appear very serious and determined when it comes to mending the tax system. We are not far away from a new budget and the government is also simultaneously altering systems to adjust to the requirements of the International Monetary Fund (IMF). The tax collection and revenue remain central to what we achieve as an economy. The suspension of a senior official of the Inland Revenue Service pertaining to delay in legal cases of taxation tells us the urgency with which Pakistan’s Premier is looking at the taxation system. When Rs. 3 trillion are stuck in mere legal procedures, delays are nothing but a collective punishment for people surviving in a difficult economy.

Though the suspension gives an air of strong, proactive inclination, it doesn’t abet the question of tax reforms and expanding the tax base. The FBR has experimented with creating incentives for good behaviour, for big businesses and individuals. The last straw in that cycle of positive motivation is the very recent and unsuccessful drive to bring traders and retailers into the tax net, in six cities. Not even fifty traders registered themselves voluntarily. This speaks enough of why a voluntary system is set to fail, no matter how huge the incentives are. In a system where criminal charges hardly deter people from evading taxes, expecting the cultivation of civic sense overnight is too romantic to be true. What happens at the end of the day is that when amnesty and clemency schemes fail to give the desired outcome, the burden falls on the salaried class and the ordinary consumers who do not even have stable sources of income. Begging the rich to enter into the tax cycle and forgiving them of all their past sins is proof enough of the weakness of the FBR and the tax structure, at large. You show the system’s weakness and you provide more reason for the rich to evade taxes through the loopholes.

Forcefully bringing people and businesses who earn a certain amount, even if it requires restructuring the FBR, into the tax base is the solution. Expanding the tax base, punishing the evaders, doing away with amnesty clauses, dividing the burden of taxes along lines of equity, and not bending the rules for the rich are the way out of Pakistan’s dragging flawed taxation system.

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