Broadening the Tax Base

Ali Anwar .. 

The writer has done M.Phil. in Government and Public Policy from National Defence University Islamabad. He has been providing Tax consultancy (e-filing of returns, compliance of notices and application for refund and reduction) since 2012

 Budgetary expansion, increasing debt servicing for internal and external borrowing, and binding contracts under Extended Fund Facility (EFF) with International Monetary Fund (IMF) have instigated the demand for widening the tax base and adding more and more people in the tax net. The total outlay of budget 2015-16 is Rs. 4,451.3 billion is 3.5% higher than the size of budget estimates Rs. 4,235.1 billion of 2014-15. Where is so called ‘prudent expenditure management’? Even the non-productive expenditure can be observed all over the country such erecting city doors, rebuilding the built infrastructure and installation of the road lights which cannot be utilized due to electricity crisis, but adding further to the budget deficit. Why are the authorities unable to understand…?  Does it make any sense to build hospitals without staff and medicine…installation of the road lights without electricity?

Under the Memorandum on Economic and Financial Policies (MEFP) for 2013/14–2015/16, it was planned to reduce Fiscal deficit to 3.5 per cent (excluding grants) of the Gross Domestic Product (GDP) in FY2016/17 and to increase tax share 1 percent of GDP annualized basis. Currently, direct taxes 40.2 percent and indirect taxes (sales, custom and excise) holds 58 percent. Current Tax to GDP ratio is 9.7 percent is lower than 2001. Even, Tax collection by the provinces reduced in FY 2014/15 as compared to 2013/14. 

For this purpose, variety of taxes levied to increase tax to GDP ratio such as; General Sales Tax (GST), corporate minimum tax rate; higher personal income tax, banking transaction (6 percent), higher excises on cigarettes, several with-holdings and sales taxes on motor vehicles and property transfers, and the list goes on.

As far as seriousness of taxation issue is concerned, the very issue led to American Revolution 1750s and 1760s. Revolution may not occur here but the ruling party may suffer the dire consequences. All over the country, traders have already showed an ominous sign.  A higher taxation may lead to tax evasion and force masses to come on the roads. At the moment, prudent expenditure management and efficient tax system are essential.  Whereas the expenditure management is concerned the budget can be revised and its outlay can be decreased like the previous budget.  

There are certain principals which are being followed worldwide while imposing taxes. Efficiency must be kept in view and taxes should not become impediment for economic growth. Innovations and inventions are good but there must be rational policy making. These are easy ways for collection can harm economic efficiency in terms of massive capital flight and contraction in banking business. For instance, innovative people can also use other means of money transfer.

Withal, new method of e-file is speedy and cost effective which is providing administrative simplicity. To file a tax return and reconcile wealth statement is not as simple as using the social media websites. Majority of the taxpayers are not computer literate because they are not from computer age of Pakistan. Whatever, if they manage someone who is computer literate but it doesn’t mean every computer literate understand taxation system. A wrong entry in filing a return can put the taxpayer under litigation. People feel scared while getting National Tax Number (NTN) because if they get registered, they have to file income tax return every year. Even the salaried person who have income with tax deducted at source feel panicked while entering into tax net. Despite they have nothing to pay because taxes already deducted at source. Tax consultants are not cheap and add additional cost to the taxpayer. Therefore, the method is not flexible and not even easy to adopt. What if the consultants are available at district level centers but it charge an additional cost in terms of time and money by moving from a tehsil to a district center. Reluctantly, people avoid fatigue job to save their time and money by using other means according to their power and relations. Federal Board of Revenue (FBR) can hire and train the fresh commerce graduates for the very months of filing the returns to facilitate the taxpayer. Issuance of notices and extensions in the last date without understanding the gravity of the problem will not work. 

Prevalent criticism on the government is about their political responsibility that the funds are not transparently and effectively utilized. Public relation departments can be utilized in this way to inform the public through e-governance and electronic media but the sections of publications on public institutions remain outdated or empty. In fair and good governing systems, there must be rule of law.  Political leaders too have to pay taxes along the general public. Let me quote a most common response by a layman, “Why should I pay tax when the big fish are not paying?” In this regard the government has to show responsibility and introduce a fair system of taxation.