Tax avoidance in Pakistan

In Pakistan, an insignificant number of people with taxable income pay tax.

1.      Legislators and tax delinquency

The FBR (Federal Board of Revenue) – a state-owned agency –revealed towards the end of the last year that nearly half Pakistani legislators did not pay their tax. Many legislators are not registered with tax authorities. A minuscule amount is deducted from the legislators’ salaries but they, almost all of them, are running lucrative private businesses.

2.      Poor tax collection

Less than one per cent of people file income tax returns in Pakistan. The situation in India is better where 4.7 per cent pay income tax. The French pay 58 per cent and the Canadians pay 80 per cent.

3.      The rich let off the hook

The PML-N’s talk of bringing the rich into the tax net has failed to produce any noticeable result on broadening the tax base. Despite all its efforts, only a few hundred more people filed the tax return voluntarily.

Last year, the government introduced a scheme for whitening the black money. Even though the government offered exemption from surcharges, penalties, audit and questions about the source of money, the incentive scheme did not induce those with taxable income to pay tax.

4.      Taxpayers shrinking

What is more troubling is the fact that the ranks of taxpaying people are shrinking every year. In 2011, 1.4m people filed returns. But in 2013 there were only about 84,000 taxpayers whom the FBR could trace to their homes or workplaces. Towards the end of last year, the FBR witnessed a tax shortfall of over 130bn rupees.

5.      Evil effects of tax avoidance

As successive governments do not collect tax revenues efficiently, they take loans from international donor agencies. The donors give loans with stringent conditions of increasing revenue. So the Pakistani governments increase indirect tax on items like fuel – a move which shifts burdens onto the poor and middle class while the rich are always let off.

6.      Why a crackdown on tax evasion is avoided

Nearly half of all Pakistani lawmakers dodge tax, and more than one in ten lawmakers are not registered with tax authorities. Most of the taxpayers who are in national and provincial assemblies seem dishonest. A small amount of money is deducted from their salaries, but almost all of them have lucrative second careers which they do not reveal.

A corrupt person lacks moral courage. As the parliamentarians do not pay taxes honestly, they have lost the moral courage to impose it on the rich. That is why the government has failed to put into practice its claims of broadening the tax base and taxing the affluent.

7.      Who pays taxes happily?

Indeed, paying tax willingly is a hard thing. Even people in the most civilized countries are not happy to pay tax. Some of them seek ways to avoid the payment of tax, but their governments have made efficient systems where they are made to pay taxes.

A vast majority of the parliamentarians in Pakistan are crooked. The bureaucrats working under them are corrupt like their bosses. Corruption has infiltrated even in the law courts, where one is supposed to get justice. The common people of Pakistan complain that every department of the government is riddled with corruption.