LAHORE: Increase in tax revenue by 18.2 percent in the first nine months of this fiscal is commendable in view of the low average inflation of around 3 percent and stable rupee that also depicts the potential of taxes in the country.
Pakistan is plagued with low tax to GDP ratio which clearly indicates vast tax evasion. Tax revenue targets in Pakistan are mostly set without considering the targets achieved or missed in the preceding year. The targets are aimed at putting pressure on the bureaucracy to increase tax collection either by adding new taxpayers in the tax net or by plugging the under filing of existing taxpayers.
It is also an established fact that besides tax evasion, a wide majority of registered taxpayers conceal their actual sales and production thereby paying lower income and sales tax. At import level, the importers clear their goods at low declared values to avoid multiple import levies. Normally, the tax revenues also register increase if there is higher inflation than previous year and the domestic currency is heavily devalued. Moreover, accelerated GDP growth also contributes to higher tax collection. This is termed as natural growth of the taxes. This year however the average inflation in the first nine months of this fiscal is lower than the inflation during the corresponding nine months of last fiscal. The rupee remained stable and the GDP growth is slightly above last year’s level.
Still, a growth of 18.2 percent in tax revenue from 1.653 trillion in the first nine months of the last fiscal to 1.955 trillion in the same period of this fiscal belies the traditional logic.
Tax collection in Pakistan has a lot to do with the efforts of the tax collectors. The top tax man and the finance minister have to put constant pressure on the tax collectors to achieve even the seemingly unachievable targets. Prudent managers know that the tax collection of previous years is irrelevant and growth in tax collection cannot be based on the actual collection in the previous year.
They fix very high tax collection targets. These targets are termed ambitious or unachievable by some economic experts. What they fail to factor in is the fact that tax evasion in Pakistan is so high that even doubling the tax revenue target is achievable.
The high growth in tax collection during the first nine months of this fiscal is still below the budgetary target but not far off mark.
What is commendable is that a growth of 18.2 percent in tax revenue has been achieved against all odds.
This growth in revenues was achieved because the federal finance minister remained in constant liaison with the tax collecting machinery. He might have missed many meetings with the businessmen and other stakeholders but he never missed his monthly confrontation with the tax machinery.
The addition in tax revenue was not achieved only by squeezing the existent tax payers but also by nabbing tax evaders and under filers.
The pressure on tax collectors should be further increased to enhance the tax to GDP ratio that hopefully would touch 10 percent of GDP after more than a decade
It is expected that the government would do away with most of the tax exemptions in the next budget, and would provide a level playing field for growth.