The Prime Minister Imran Khan hosted the top tax payers of the country to show respect to them and encourage others to pay tax. It was a good symbolic move by the government to recognise the contribution of the highest tax payers in the national development.
The Prime Minister Imran Khan made the usual speech of fixing the economy and to overcome the current economic crisis. He once again targeted the previous government for the economic mess. But PM Imran khan once again failed to present the vision to fix the economy and to broaden the tax base. No concrete plan was laid out to document the informal economy.
Symbolism is good to send the message and make the intentions clearer but it is not enough to fix the decades old economic problems. Symbolism is not the alternate or substitute of serious reforms. Pakistan needs to undergo serious economic reforms to broaden the tax base, fixing the economic problems and to document the economy.
Simplifying tax forms and ceremonial awards for taxpayers is fine, as it will made the life of taxpayer much more easy and streamline the filing process and perhaps create a culture of respecting those who are paying their taxes. But it cannot be considered a vision for broadening the tax base.
Unfortunately, we have failed to develop the culture of paying taxes and to document the economy. The corruption, mismanagement, high handed tactics of tax authorities and repressive tax system encouraged the undocumented economy and avoidance of taxes. What is really needed to fix these problems is to reform the tax system instead of simplifying the tax forms and personal appeals to pay tax because PM Imran Khan is honest and living a simple life.
The government should work out the reforms package and a clear vision to address these chronic problems. The real issue is to bring the retail and wholesale trade under tax net. The retail and whole sale trade sector accounts for nearly half of the country’s GDP and yet pays very little in taxes other than indirect taxes. The real test is to start documenting this huge sector to collect taxes. But this requires a more sophisticated approach instead of threats and intimidation.
Tax collection is an art. It needs continued innovation and modern techniques instead of colonial culture of repression and harassment to collect taxes. The government needs to introduce progressive tax system in the country. Reduce the number of taxes and abolish double taxation at different levels. The overhauling of tax system and culture is the need of the hour. Nothing will improve without taking drastic measures to reform the tax system.
The culture of imposing indirect taxes needs to be changed. The indirect taxes should not be used as a short cut to collect revenues from ordinary people instead of imposing direct taxes on high earners.
The tax amnesty schemes and halfhearted punitive measures failed to broaden the tax base and to bring the new tax payers in the tax net. Maintaining an active taxpayer list and creating an increasingly restrictive environment for non-filers is another way, but ongoing experience with this approach is showing that it is effective only when coupled with other incentives.
The government needs to shed its political approach to every policy question. Symbolic moves like showing off one’s simple lifestyle are not going to broaden the tax base. Nor will pandering excessively to the business community do the trick. A vision would involve a structure of incentives and penalties in the shape of a larger policy.
The second quarter of the fiscal year actually saw a net decline in revenue collection from the corresponding period last year, which is highly anomalous especially in an environment of rising inflation. If this trend continues, the government will be forced to take some very unpleasant steps in the near future.
Pakistan needs a vision and plan to reform the tax system from the PTI government instead of just continue to blame the previous rulers. Symbolism and mere rhetoric will not do it. But the vision and political will needs to fix these problems. Pakistan can overcome the economic and financial problems if it can broaden its tax base and bring everybody in the tax net who earns profits and money beyond a certain level.
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17 November, 2019