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Saturday May 25, 2024

Investment hurdles

By Mansoor Ahmad
April 19, 2024
A man counts US dollars in a money exchange shop in Dhaka. — AFP/File
A man counts US dollars in a money exchange shop in Dhaka. — AFP/File

LAHORE: The first thing that the government needs is to restore its credibility both in the country and internationally. The foreign investors should accept its word on promised protection. Tax evaders must take its resolve to document the economy seriously.

Foreign investment would not pour in on government assurances but on its ability to impose its writ. The foreign investors want rule of law, they want documentation of the economy so that they do not face unhealthy competition from undocumented producers. They want a level playing field where every producer of the same item pays the same duty. They shy away from Pakistan if the products they desire to produce by paying all government taxes and duties are smuggled freely in the country without paying any government levies.

They want environmental laws to be fully complied with. They want labor laws of the country to be imposed in letter and spirit. At least the minimum wage is fully implemented on all employees. Their wish list goes on and is genuine and all could be accomplished through transparent good governance. The real problem is on the domestic front. Tax evaders are not prepared to come under the tax net.

All government legislations and directives are scoffed at by them. On most taxation measures the government goes on extending the dates for compliance but nothing happens. Even on settled things with those that are tax compliant the last date for filing of income tax returns every year is June 30.

The last date is extended on a monthly basis or on a fortnightly basis to stretch it to October or November. In all other countries there is a last date for filing income tax return after which progressive penalty is imposed after the filer misses the target date.

For the tax evaders, the government adopts a soft approach advising them to file returns by a notified date and goes on extending it and finally abandons the efforts.

The tax machinery after that does not pursue the known and documented tax evaders. The state has documented proof of millions of tax evaders on the basis of their digital transaction through NADRA software. In any law abiding country there is no need to give tax evaders a chance to file returns. They would face jail terms and penalties above actual taxes. We cannot impose the writ of the government where the government lets non-filers buy real estates or luxury cars by deducting advance withholding tax and let them off. Any prudent and strong government would after charging the withholding tax ask for the money trail. Unfortunately this is not the intention of the government. Their basic aim is to increase revenues.

This way the government parts with most of the revenues that would have come through the money trail. The state always lacks the writ because the evaders are influential and have a say in power corridors.

Since the government almost always lets the tax evaders and law breakers off, it has lost its credibility in the eyes of these unscrupulous elements. The traders are the most glaring example in this regard who have avoided documentation for 37 years and even the recent directive of the Federal Board of Revenue has shied away from documentation but simply increased the tax amount. The traders are in no mood to accept this directive and might get away as well.