Healthy tax

The issue of taxing doctors is becoming serious. The Federal Board of Revenue has asked for more information from hospitals regarding their revenue. This is a good development, but the question over how the FBR will manage to get accurate information where it has failed before remains unanswered. The idea is that hospitals will simply offer up information on the private practice of doctors and surgeons. The mechanism that tax authorities have thought up is to cross-check income declarations by hospitals against the individual tax returns filed by doctors. Not only is hospital compliance a serious issue, it is a well-known fact that most private practice occurs outside formal hospitals. These attempted measures continue to confirm that tax authorities know little about the income of self-employed individuals, especially in areas of the economy where cash is dominant. A similar problem is encountered in other such professions.

Self-assessment does not work. The FBR has few options available for assessing the income of doctors and hospitals. It claims it can use spending information to create a more accurate picture of income, but this is more complicated than it appears on paper. If the government cannot assess income accurately, what makes tax officials confident they can assess consumption with any accuracy in a cash-heavy economy? It seems that the approach involves making as much noise as possible before admitting failure – and blaming the public for it. The private health economy is a major area where the government needs to intervene – both for taxation purposes and improving service. For too long have doctors and private hospitals been given a free-hand to fleece patients and not give a penny to the government. There is a need for tax reforms to be credible. Sending notices to a few dozen hospitals in Karachi is not going to stir anyone into accurate reporting. Tax abuse may need to end, but tax authorities will not get away with making empty threats. They need to show that there is a credible threat to those who misreport. Without such, there is little real progress we can expect.