Raising tax revenue

Ever since the new FBR Chairman, Tariq Bajwa, took over, tax revenue has shown a positive growth trend. According to the latest report, there has been a 25 percent increase in tax revenues since the beginning of the fiscal year thanks to a number of new tax collection initiatives taken by the Board. These measures, among others, include a hike in sales tax from 16 to 17 percent. In July, the first month of the fiscal year, the rise in tax collection is estimated at Rs 10 billion. Experts are of the opinion that the new measures have the potential to generate Rs207 billion during the current fiscal year. 

Pakistan has one of the lowest tax collection rates in the world and IMF and other international donors want the government to do more to tackle rampant tax evasion, particularly by its wealthy elite, to ensure long-term economic stability. Needless to say, in any drive to improve tax collection, FBR has the central role to play. But year after FBR has failed to deliver. The new Chairman has been trying hard to change the image of FBR by making it a transparent, corruption-free, efficient and effective organization.  While, on the one hand, he has come down hard on corruption at the operational levels, on the other, he has been bending his efforts to mop up more resources through better assessments, plugging of leakages and better supervision and management. In his numerous meetings with senior level officers he has made it clear that he will not tolerate corruption in FBR. At all key positions, he has appointed officers with a clean record.

But all FBR efforts will come to naught if at the policy level major loopholes are not plugged. Agriculture remaining out of the tax net means colossal loss to the national exchequer. It is also necessary to remove dichotomies, discretions and exemptions like SROs which distort the system and render it weak and unworkable. The rich don’t pay their taxes with no questions asked. According to a newspaper report, about 67 percent of our parliamentarians don’t pay taxes.

In order to remove the anomalies, it is important to re-examine the whole taxation machinery in its totality – its philosophy, objectives, operational mode and existing processes – in order to design and implement long-term remedial measures. A few years back, under the Tax Administration Reforms Programme, millions of dollars given by donor agencies were spent to reform the tax system but no improvements were seen. The effort was in vain. The time has come to make the taxation machinery pro-active, effective and people-friendly. Voluntary tax compliance needs to be encouraged but for this to happen an effective system of deterrence will have to be put in place. At present the privileged classes enjoy huge tax free benefits, with the burden mostly on the middle classes – businessmen and the salaried people. This imbalance should be corrected. Taxes due should be collected from all, whether big or small, and the system should be free of any kind of discrimination. Only then can we expect tax revenue to rise to the desired level.