‘Low tax base induces wrong fiscal policy decisions’

LAHORE: Low tax base in Pakistan turns the budget making process difficult, compels governments to explore local and external fund sources to reduce fiscal deficit and induces wrong policy decisions, said economists. “The low tax base is often seen as a problem for budget makers,” a senior economist Naveed Anwar Khan said, referring to mere a little over 0.8 million in the active taxpayers list. “Poor tax compliance has political implications. Narrow tax basemeans a fragile contract between citizens and the government.” Khan said this harms the economic progress of the country. The incentive to pay taxes will increase if the tax money is properly consumed on citizen welfare instead of high cost foreign tours and lavish spending by political and bureaucratic elite, he said. The argument that such expenses hardly consume 2 to 3 percent of the budget and therefore are justified is unfair, he added. In societies where health facilities are almost nonexistent, even 50 percent saving in unnecessary expenses could more than double the health budget and increase the outreach of health facilities to millions. Khan said the Prime Minister can travel on a regular flightwith a personal secretary or two to three officials. The bureaucrats should attend conference in Islamabad through video links instead of traveling from/to all corners of the country via air and staying in five star hotels. Foreign trips should be curtailed and officials should stay in the embassy premises instead of hotels. E xperts agreed that a taxpayer desires that the state efficiently uses the tax money. The government disappoints both the electorate and the taxpayer as it is unable to provide even basic facilities like health, education and infrastructure to them. Economist Faisal Qamar said being starved of funds, the government borrows them from the bond market and banks or print notes to fund its profligacy. “This often results in frequent public debt crisis that we witness in Pakistan,” Qamar said. “Inflation is a result of this relentless public borrowing that all economists agree is an implicit tax on the poor.” He said high tax evasion and low state credibility have a connection. “The contract between the citizen and the government could only be strengthened through accountability and institutional development,” Qamar said. Economist Amina Usman wonders if it is possible to break this ice. She said the uneducated poor do not realise that small favours or jobs they get fromthe politicians will keep them poor forever.