Will the new tax reform policy announced by Prime Minister Shahid Khaqan Abbasi on Thursday be the panacea the country needs? The question will be answered in the coming year but if history is any indicator, this will be another case of incomplete tax reform. What one can give the federal government credit for is that the announcement made by Abbasi is certainly a bold one. The combination of tax reform and a tax amnesty scheme is worth taking more seriously than previous tax amnesty schemes. The point of the tax reforms is to increase the tax base. The federal government has made a five-point agenda: CNIC numbers will be converted into NTN numbers; income tax will be reduced; property tax will be uniform; amnesty will be available on the declaration of untaxed assets; and citizens’ tax records will be monitored with much closer scrutiny. Each of these can be discussed in detail but it is the decision to reduce income tax that suggests that the government is confident that the carrot-and-stick formula it plans to offer will finally work.
The existing tax statistics are abysmal. Only 1.2 million people file their income tax returns each year. Only 700,000 of them pay income tax. Making the NTN and CNIC numbers in sync should bring the number of taxpayers up immediately if done in the right way. Many salaried individuals who have their tax deducted at source simply do not show up in the tax records because they have never bothered to file their tax returns. Abbasi has correctly pointed to the fact that citizens through indirect taxes feel the burden, which is something that tax reform should be able to get rid of. The trouble is that the bulk of high earners have little reason to believe that the government has a strong enough stick. It is hard not to notice that this is a tax reform policy announced by a government about to end its term within weeks. So the question of whether it is another gimmick is a serious one.
Could it be that the first well-thought out tax reform policy in our recent history will never be implemented? Announcing such a policy before the end of its term can be seen as another strategy by the government to secure an election win. The only real impact will be the reduction of income tax without any guarantee that tax collection will increase. Many continue to believe that the real issue is the will to implement existing tax laws. Unless the government shows itself to be strict against non-taxpayers, there is no convincing more people to join the tax bracket. Within this context, an outgoing government announcing a semi-decent tax reform policy is unlikely to get much traction, but then again we may just be surprised in the end.