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December 3, 2020

Tax targets

Editorial

 
December 3, 2020

Adequate tax collection is one of the key issues faced by Pakistan over the years. It is also a primary requirement of our dealings with the IMF. For November 2020, Pakistan has done well by collecting Rs347 billion in taxes as compared to the target of Rs348 billion. Coming so close to the target is a positive sign. There has in fact been an improvement in tax collection over the past five months, with more coming into the national exchequer. But, despite this, problems persist.

The assessment for the present time is that by the end of December this year, Pakistan will have collected around Rs2000 billion in taxes. This, however, would mean that to meet the target it has set for this fiscal year, and to satisfy the IMF, it would need to collect nearly Rs500 billion each month for the coming months, from January to June. This appears to be a difficult task in a country where giving taxes is simply not a part of the culture. It is also true that even as we approach the tax deadline for 2020, a small percentage of people have filed their tax returns. This is obviously not good news. The government would need to decide at some point, if it is to take measures against those who fail to file by the time the deadline passes or adopt some other mechanism to ensure tax targets are met.

The IMF is extremely keen to see these targets being achieved. This is also important for Pakistan's economy. Razzaq Dawood, the special advisor to the prime minister on commerce, has noted that Pakistan has in recent months done better on tax collection and the economy in general, with a slight fall in inflation also being seen. However, the rates for food items remain high. And this is obviously a concern. Pakistan would need to keep up the kind of tax collection it achieved in November for the rest of the year and well beyond this to come near the target it has set itself. The fact that the FBR is running on an ad-hoc basis adds to the problems. It is necessary that this important body be made as efficient as possible and run with proper leadership so that taxes can be collected. At the same time, people will also need assurances that their taxes would be used properly and for good cause so that they are more likely to give these in.

Traditionally, very few people in Pakistan file taxes. This is one of the reasons for the poor revenue collection in the country. This culture will have to be changed. Whether the government can succeed in doing this so quickly is a question that remains to be answered. The signs from November and the four months preceding it are however positive. We hope that what was achieved from July to November can be repeated over the coming months so that tax collection targets can be achieved and the revenue increased, bringing the country's economy closer to recovery after the Covid-19 crisis.