The writer is an
analyst and the
President of all
The Pakistani nation is surprisingly generous. It pays billions of rupees every year to underprivileged, deserving and poor fellow citizens. Yet, the GDP to philanthropy ratio of the country stands after developed countries. Nearly 1 percent of GDP is spent on charity by 98 percent of Pakistanis according to a report. Various charitable institutions backed by resident and overseas Pakistanis are working for various noble causes to support poor across the country. But, Pakistan is one of the countries in the world with the lowest tax-to-GDP ratio standing below 10 percent for many decades. The tax collection is far below the potential of the economy due to weakness in the machinery of the revenue collection authority but it also signifies the prevailing poor tax culture in the country in which people hate to pay their taxes to the government. So if people happily contribute to charitable activities, why not contribute to nation building; once trust is built by the government over its efficiency?
The low collection of taxes, direct and indirect, is the core issue for our ailing economy. The country cannot progress towards economic development and prosperity without addressing it properly. The country needs to enhance its tax-to-GDP ratio up to 20 percent gradually, which is a herculean but a doable task that could be accomplished in phases within three years of sustainable efforts. In many countries of America and Europe, the tax-to-GDP ratio is almost 30-40 percent. It ranges from 40 percent to 55 percent in the Scandinavian countries. Even in India, the ratio currently stands at some 17 percent. Owing to our poor taxation system, the government often fails to achieve even conservative revenue targets. Consequently, the fiscal deficit has become a chronic macro-economic problem in Pakistan. If we, as a nation, are capable of enhancing the tax-to-GDP ratio at 20 percent, we will not need to borrow money from external sources and the socio-economic woes could be addressed effectively in the country.
Improvement in tax collection could be carried out with consistent efficiency in the system of revenue collection and promoting the culture of tax wherein people voluntarily pay their due share of taxes themselves as responsible citizens. The tax culture in Pakistan cannot be promoted unless our parliamentarians contribute to tax collection honestly from all available income sources and assets; whatever they own. It is crucial because if the change does not occur in the parliament, it will simply not translate in the whole country. As many parliamentarian have been identified who did not pay a single penny on the account of taxes even from the monthly income they draw from taxpayers’ money. Of course, the trend discourages a layman including salaried persons, entrepreneurs and businessmen from being loyal and generous to the state of Pakistan when a class of the elite representatives does not bother to file their tax returns.
The most essential aspect to promote tax culture is to spend the taxpayers’ money on socio-economic prosperity and welfare of the masses. This is how developed and progressing countries are scaling up their tax-to-GDP ratio up to 50 percent. This spending is not merely a simple phenomenon of paying back to the citizens but it is investment, in fact, which further multiplies monetary benefits in the economy and will also generate more revenues for the national exchequer. Mega cities which generate the highest taxes in the country should be given priority for the investments, which ultimately will thrive businesses from the macro to micro level and then return back taxes to the government. The present government has taken commendable initiatives to enhance tax collection countrywide and secured notable successes in this regard. Highly-paid professionals including doctors, engineers, teachers were brought into the tax net. Traders of various shopping centres and retail shops were also taxed. Hence, the government collected a handsome amount of Rs50 billion from above the target of current financial year 2020-21 despite the slowdown of the economy following the COVID-19 outbreak.
Paying taxes, as well as collecting them, has never been a pleasant task anywhere in the world. However, we also lack awareness of the benefits of paying taxes. Most people with taxable incomes have no idea that if they file their tax returns they can claim refunds of large amounts that have been withheld by the banks, or sums that they have had to pay on the sale or purchase of immovable property, or money deducted on cellular phones bills, etc. In this era of ICT, authorities need to extract relevant information tactfully, and simultaneously develop effective communication strategies. Electronic, print and social media can be engaged more frequently in this regard. Well-researched and high-quality tax base policies that are pursued proactively with the intention to help business instead of putting restrictions on it are needed.
The menace of the undocumented economy — and its attendant ills such as money laundering and terror financing — can be contained through a verified registration mechanism that, among other things, actually revives efforts to broaden the tax base. The introduction of a mobile application and the use of social media for awareness and filing tax returns seems a very good approach for the government. However, the government should immediately accomplish its task to separate the wings of policy and mechanism of the Federal Board of Revenue. The digitisation and documentation of the economy is also a comprehensive step that will support the government in collecting taxes. Overall if the economy is set to revive, additional tax revenues could be generated on a sustainable basis with a free hand to taxmen, tapping the widespread untaxed areas, release of timely refunds, and improving the tax culture. Nadra can play a pivotal role in devising a refined integrated database with advanced equipment. All revenue administrations in the country must be integrated; the centre must ensure that the provinces too have access to FBR data. Taxation is not meant to kill a business. An excellent tax policy takes into account all elements that are necessary for economic growth. Business-friendly policies, registering whatever is unregistered, using and evolving an integrated database, increasing the number of taxpayers’ facilitation centres, while also conducting awareness campaigns, may pave the way to increasing revenue receipts for the National Finance Commission. The effective execution of audit provisions in relevant laws in certain sectors also helps with strategic taxation.
Tax mentality is an important phenomenon necessarily associated with a tax culture. It includes the attitude and behaviour of the tax-paying citizen vis-à-vis the state. It has two aspects – tax morale and tax discipline. Tax morale shows the level of willingness and tax discipline signifies the capacity and training of the citizens to obey the rules ensuring tax compliance. Therefore, honestly, fair play and a sense of duty exhibited by individuals always help promote a healthy tax culture. It is quite worrisome that only 1.3 percent people pay income tax in Pakistan. In Pakistan, both the governors and the governed seem equally obsessed with the idea of creating a tax-free society. We have often observed the proposed annual budget being declared a tax-free budget by the government, to appease the masses. This tendency makes it seem as though taxes are something very draconian, and that paying taxes is, somehow, an odd phenomenon.
In order to evolve a tax culture, the ruling elite has to become a role model for the masses. Superior government functionaries, ministers and politicians should actively and honestly pay their taxes before asking people to do the same. Regrettably, in our country the very tradition of representation without taxation has long been practiced. Tax literacy is another important tool to promote tax culture. A massive campaign for tax literacy should be launched to make people aware of their basic citizenship duties regarding the payment of taxes. Since a particular culture is always instrumental in giving rise to a particular civilisation, therefore a poor tax culture can, by no means, be the basis of a rich civilisation. Indeed, taxes are the price we pay for civilisation, without an effective and efficient system of taxation, the creation of a civilised and developed society cannot materialize at all.