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Saturday December 03, 2022

Tax dodgers

November 24, 2022

LAHORE: Policymaking has become a headache the world over because of uncertainties regarding energy prices, Covid-19 related lockdowns in China, and Russian-Ukraine war. These issues have compounded in politically unstable Pakistan, along with floods and bad-governance.

We were an extremely weak economy even before the havoc caused by floods. Governments in Pakistan have been managing to avoid defaults through regular foreign loans. The loans have now dried or if available carry conditions that harm our sovereignty.

Even that option has dried. We must make efforts to generate resources domestically during the brief period of a fresh wave of expected foreign inflows.

Improving an economy is not rocket science. The solution lies in good governance only. Increasing tax rates is not a solution. Instead, it hurts the tax compliant sectors and impacts their competitiveness.

A large population that avoids taxes is the major problem.

Every government functions on the revenues it collects.

These revenues finance the routine government operations, defence, health and education services. We unfortunately generate revenues that merely cover our debt servicing cost and defence budget.

For the rest, we depend on loans from local commercial banks or foreign loans. We are left with nothing to carry out development projects. We dole out subsidies from loans.

Our rulers live in a fantasy. Political elite is rich. Bureaucrats too are well paid and make up for the shortage of funds through bribes.

None has any idea of how miserably a life do the poor majority live. Rulers take populist decisions. They do not allow the Federal Board of Revenue (FBR) to carry out actions again tax evading traders. Also, traders pay tax officials a rent so in case of any possible raids, they are spared.

Rulers restrain the environmental departments to close down industries disposing polluted waste with hazardous material in clean water channels.

In this case too, the staff of the environmental departments get sufficient “gratification from industries” for not reporting the breaking of environmental rules.

There are plenty of examples of bad governance that are clearly visible along the length and breadth of the country, inflicting losses worth trillions on the national exchequer. Many plazas constructed in posh business centres dare the tax officials to ask for their source of income.

One can find thousands of elite driving cars worth Rs2-10 million without paying any income tax. The rate of sales tax, which is a consumption tax, is extremely high at 17 percent.

The poor consumers of toothpastes, beverages, sugar, and edible oil besides other products pay this tax by compulsion. The high rate of sales tax fills government coffers and also of manufacturers or importers who under report their production or import invoices.

Rulers make no efforts to plug the theft in the power sector carried out with the connivance of power sector officials. The theft causes loss of about one trillion rupees per annum.

Similarly, the theft of gas is also neglected. In addition, an amount of over Rs1 trillion is outstanding against private sector defaulters that did not pay their power bills.

The public sector companies continue to post heavy losses and are mostly run either by bureaucrats or political appointees without merit. Government pours billions in these entities to keep them afloat.

We do not need foreign assistance, we simply need to exploit our tax potential through transparent implementation of laws and crackdown against evaders and their abettors.

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