Taxing the untaxed

LAHORE: As political turmoil in the country continues, the finance minister can now be seen actively engaging businesses, trying to convince them that the only way out of the current economic mess is to tax the untaxed, including those who pay taxes but hide their actual income.

Revenue generation faces two issues. The first issue is that there are millions of people living lavishly, but paying no taxes at all. The second issue is that many documented sectors reduce their tax burden by underreporting their production or trading activities.

The government has not been able to effectively control both of these issues. The amount of taxes evaded by beverage companies, sugar mills, tobacco companies, and the cement sector is atrocious. The track and trace system has still not been truly implemented. Tax evaders see their evaded taxes as their rightful income and spend it on luxuries, foreign travel, and shopping, besides parking it in real estate.

Many traders have still not come forward under the Tajir Dost scheme. By end July, the registration under the scheme was fewer than 50,000 from among the 22 million traders operating shops with shutters. They are supposed to deposit their taxes on a monthly basis according to the rates fixed by the FBR. These traders have been defying government instructions since the 1980s, and it seems that they will show resistance to the current finance minister, who insists that they get themselves registered.

Most people, regardless of where they are, do not want to pay taxes. But countries have adopted rigid systems that allow people to comply with their tax liability. The availability of artificial intelligence has made the job of tax collection easier and more transparent. The track and trace system is based on this technology, but some businesses here oppose it, partly because they do not want transparency.

The finance minister is facing stiff resistance from the bureaucracy as well. It is because several bureaucrats are also the beneficiaries of the current system. They continue to create hurdles on procedures that bring transparency, denying them easy money generated through rents they receive from businesses. One thing is good that the finance minister is looking exclusively after the economy and is not involved in the political circus.Let us see how much support the finance minister receives from the ruling elite. Lukewarm support could result in even more poverty.