Tax reform

LAHORE: The government is planning to evaluate residential properties on a market rate basis and then tax them accordingly, and rightly so. But how could the rent collected from agricultural land be treated differently than the rent collected from urban property?

It is true that real estate is one of the sectors that is nominally taxed. This sector has become a parking avenue for all illegally earned money. If we analyze the ownership in real estate, big black money owners have stakes in large properties, or they own huge stocks in the capital market that are also nominally taxed. These avenues must be properly taxed, but at the same time, the rent taken on lease of agriculture should also be equally taxed, in line with the principles of equal tax on all incomes.

We badly need taxes, but our government and the tax collectors are awed by anyone playing with money. Instead of confronting them to pay taxes, they meekly accept the graft they offer for not bothering them. In fact, respecting wealthy individuals has now become part of our culture. We respect people on the basis of their wealth and not their character.

It is because of this national attitude towards the rich that inequalities are increasing, but it does not bother our ruling elite because they are not among the have-nots. While we bow before the rich and tolerate their high-handedness, we do not tolerate those not practicing our religion or who are not aligned to our political belief. We must remove these contradictions to move ahead.

The economy is the key to peace, harmony, and prosperity. Economic progress is only possible under a responsible government that takes decisions on merit instead of political influence.

We need a government that is accountable for all its deeds. Civil society activists have been campaigning for decades to convince the citizens that terrorists are not the only element undermining the sovereignty of Pakistan; the tax evaders, smugglers, hoarders, bribe-givers, or acceptors that live like respected citizens also are undermining the existence of the country.

Provinces have the authority to impose a tax on services. In fact, the services tax is the major avenue from which revenues could be collected. Major service providers like doctors, engineers, lawyers, and architects remain outside the services tax. The provinces are not inclined to tax these ‘respected professionals’. But even if they are registered under the provincial GST regime, the problem would not be resolved. The tax collected from these lucrative service sectors would not be reflected in federal government records, and the purpose of the revised GST to document incomes would be defeated. The alignment of federal and provincial revenue departments is essential to move ahead.

We blame global agencies for our woes, and our governments blame the IMF for the reforms they introduce. For decades, the World Bank, IMF, and the Asian Development Bank have been advising governments in power to expand the tax base and get rid of the undocumented economy.

They, however, were forced to make a compromise when the governments in power expressed their reluctance to tax exempted sectors. It seems that a compromise from the IMF is no longer possible if we want to come under its program.

We will have to reform the tax collectors that lack the will to document the economy because this will plug the avenues available to them for taking bribes.

The government itself will have to muster the political will to confront highly influential groups evading taxes. The status quo might suit both the government and the bureaucracy, but it is not feasible now.