Revenue mobilisation and digitisation

By embracing technology-driven solutions, we can not only mitigate revenue losses but also foster financial inclusion

Revenue mobilisation and digitisation

The concluding phase of transition from the outgoing assembly to the formation of the new National Assembly is underway. Adhering to the Supreme Court of Pakistan’s directives, the Election Commission of Pakistan has formally released the election schedule. Thousands of political workers have since then submitted their nomination papers that are currently undergoing scrutiny. The general elections are scheduled to be held on February 8, in accordance with the date set by the president in consultation with the ECP.

In the upcoming days, the nation will be gearing up for hectic election campaigns, led by leaders of various political parties. Despite calls for a level-playing field that imply accusations of its absence, it seems that all the major political entities will engage in the forthcoming elections.It is hoped that no boycott will be announced. Regrettably, most of the parties participating in elections have yet to unveil their manifestos. While they claim to be working on it and are promising its imminent release, the parties have yet to share their priorities with the public.

The foundation of a nation’s stability and progress is often attributed to the presence of a stable government. Regrettably, in the current political landscape, societal polarisation runs deep. Fake news and propaganda are seen swaying even judicial decisions.

This complex scenario presents significant challenges in governing a country grappling with the pressing issue of meeting its foreign exchange requirements. The intricate interplay of political polarisation and misinformation poses a formidable hurdle for effective governance, particularly in addressing the nation’s essential economic needs.

Challenges at hand demand a strategic approach centred on fiscal discipline and a proactive drive to augment revenue collection. Sadly, the metrics vital for effective revenue mobilisation are marred by governance shortcomings. The coexistence of the highest inflation rate and a policy rate of 22 percentis a formidable obstacleto stimulating economic activities and consequent tax collection.

The pervasive impact of inflation extends beyond the government, affecting individual citizens. Adding to the strain on our national treasury are non-developmental, wasteful expenditures and subsidies directed towards sustaining financially beleaguered entities. This intricate web of challenges underscores the pressing need for comprehensive reforms to fortify governance, curb inflation and streamline economic policies, fostering sustainable financial growth and inclusive development.

Our primary revenue collection entity, the Federal Board of Revenue, appears to be deviating from the imperative of broadening the tax base. Instead, its emphasis leans towards erecting additional obstacles for businesses and individuals. The recurrent alterations in our taxlaws, coupled with the proliferation of statutory regulatory orders to amend tax regulations, have engendered operational complexities for businesses.

Unpredictability surrounding the tax department’s next move is confusing for both businesses and individuals.Unfortunately, neither the government nor the tax officials themselves exhibit a willingness to overhaul their working methods by embracing technology and innovation, which could potentially yield positive outcomes. Resistance to adopting modern approaches in revenue collection hinders the realisation of efficiency and effectiveness. A paradigm shifts towards a technologically-driven tax system is vital for achieving sustainable and positive results in revenue generation.

In the 2023 International Competitive Index, Estonia secured the top position for the best tax code in the OECD, maintaining its number one ranking. With an impressive overall score of 100, Estonia leads in individual and property tax rankings and has the second spot in the corporate tax ranking. Additionally, it holds 11th position in cross-border rules rank and 15th position in the consumption taxes rank. Latvia and New Zealand follow closely, claiming second and third positions with overall scores of 88.5 and 86.1, respectively.

Estoniahas significantly lower corporate tax rates compared to Pakistan. The country imposes a 20 percent tax on corporations based on their distributed profits. Property tax is levied on the value of land rather than the value of the property. Likewise, a uniform tax rate of 20 percent is applied to individual income, excluding personal dividend income. Estonia’s territorial tax systemalso stands out in that subject to certain conditions it exempts 100 percent of foreign profits earned by domestic corporations.

These policies ensure business stability and allow business owners and investors to confidently devise expansion plans. Assurance of infrequent changes in taxation fosters a conducive environment for strategic business planning. In contrast, Pakistan experiences setbacks and losses stemming from governance failures, which are often met with the imposition of additional taxes, surcharges and extra duties on the compliant taxpayers, including enhancement in already exorbitant indirect taxes.

Instead of introducing measures that promote financial inclusion and encourage business activities, tax officials tend to favour frequent amendments to the already finalised assessments. This is done through the extensive, unfettered and unbridled powers granted to Commissioner of Inland Revenue under various sections of the Income Tax Ordinance, 2001, that he can delegate to his subordinates. Unfortunately, this approach and (mal)practice not only places an additional burden on the already overburdened taxpayers but also misses the opportunity to streamline a centralised system for improved monitoring and counteraction of tax evasion and avoidance.

The recent revelation by the Federal Board of Revenue regarding the evasion of billions in withholding taxes with the help of property registrar and others, specifically collected on property transactions, underscores a significant instance of revenue theft where funds were not deposited in the national treasury. Media reported that the Sargodha regional tax office has recovered more than Rs 388 million from the defaulters. The digital audit of withholding taxes in real estate sector has exposed organised fraud being committed in connivance with buyers/sellers of properties using fake challans.

This serves as just one instance among various challenges, such as smuggling of currency, unregulated trade and an undocumented economy that result in substantial revenue losses for the country. A multifaceted approach is essential to address these issues. Leveraging advanced technologies can play a pivotal role in preventing taxevasion and avoidance, ensuring a transparent and regulated trade environment and systematically documenting economic activities.

By embracing technology-driven solutions, we can not only mitigate revenue losses but also foster financial inclusion, ultimately enhancing the overall financial standing and stability of the country. The reliance on technology and incorporation of technological tools to advance our monitoring and streamlining of our systems can lead to a more efficient and accountable fiscal system, contributing to sustainable economic growth and development.

Dr Ikram-ul Haq, an advocate of the Supreme Court and writer, is an adjunct faculty at Lahore University of Management Sciences (LUMS).

Abdul Rauf Shakoori is a corporate lawyer based in the USA

Revenue mobilisation and digitisation