Planners must focus on revenue generation not foreign aid

LAHORE: Pakistani planners spend more time on arranging foreign loans instead of generating revenues domestically, and now as the foreign inflows are drying up the emphasis has shifted to further tax those that are already in tax net.

The revenues are being increased by enhancing the rate of sales tax, penalising high taxpayers with a special tax, imposing excise duties, and increasing petroleum levies. The net result is that those who avoid taxes are living happily, while the tax payers are ruing the day when they decided to pay the government taxes.

It is a pity that out of a total population of 200 million, hardly half a million pay taxes. The situation has worsened over years. When Nawaz government was toppled in 1999, the tax to GDP ratio of the country was 13.5 percent though the total tax collection was only Rs300 billion. The number of tax filers was 1.1 million.

When the Shaukat Aziz government lost election in 2008, the tax to GDP ratio declined to 10 percent but the total tax collection was around Rs2,000 billion. The tax filers were only 1 million.

This shows increasing wealth resulted in letter taxes.  When the PPP government completed its tenure in 2008, the tax to GDP ratio dropped to 8 percent of the GDP. The number of tax filers reduced to 0.7 million and now the number of tax filers is even less, though the tax revenues have crossed Rs3,000 billion.

The entire world, including most trusted friends of Pakistan are now convinced that the solution to Pakistan’s economic woes lies in exploiting the revenue generation potential that is being ignored by successive governments to protect vested interests.

Who is to blame for this sorry state of affairs? It is a known fact that taxpayers around the world adopt all means to avoid taxes. The financial wizards in state machinery knowing this tendency devise rules and regulation, and take assistance from technology to curb tax avoidance. 

Private sector representatives who attended the 2010 meeting of the Friends of Democratic Pakistan in Brussels know that the friends asked the government to tax its rich to generate resources for development.

Much before this meeting, the then  the US secretary of state Hillary Clinton had advised the government of Pakistan to increase its tax base and tax compliance and reduce dependence of external resources for development.

Even the businessmen admit that the international friends of Pakistan have a point. The country has failed to tax rich agriculturists; it is reluctant to document the land record. Real estate remained nominally taxed and it has become the parking avenue for illegally earned money.

The government asks no questions for whatever foreign remittance is brought in the country providing smugglers, drug pushers, corrupt bureaucrats a window to whiten their money.  All incomes world over are treated equally. But it is not so in Pakistan.

“How could the rent collected from agricultural land be treated differently than the rent collected on urban property?” In both cases the earning is the same and the beneficiary earning from rent.

The services sector has mostly been spared from the GST. Now that the exemptions have been withdrawn - on services like doctors, engineers and lawyer - these services come under the jurisdiction of the provinces that are not keen on imposing service tax.

Even if these services came under provincial sales tax, the record of the payments made would not be available with the federal government to calculate their gross income. The revenues might increase to some extent but sustained increase without proper documentation would not be possible.

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 non-documented economy. They however were forced to make a compromise when the governments in power expressed their reluctance to tax the exempted sector.

During the last decade, almost all increase in revenues has been generated by increasing levies and duties on petrol, diesel, phone calls, electricity, and natural gas.  This has impacted the poor more than the rich.

RGST if imposed in the true spirit of value-added tax could have brought a visible change in tax culture. In its present form, this tax might increase revenues for a while, and still keep most of the politically protected sectors out of the income tax net.