Regressive Taxation

By Sheraz Zaka

The recent budget given by the finance minister amply demonstrates that the current taxation regime in Pakistan is regressive rather than progressive. Salaried class has to bear the burden for meeting tax collection targets by the Federal board of revenue, whereas the elite privileged class has been enjoying the benefits accorded in the form of exemptions, allowances, zero rating and relaxed enforcement of tax regime. For instance the traders class does not have to bear the burden of tax as majority of them do not have either NTN number nor do they have sales tax registration number. It has been proposed many times that the enforcement of taxation laws have to be very effective in order to meet the fiscal targets. Otherwise majority of the people would remain outside the tax net and hence their burden would fall on the salaried class or poor people who now have to pay petroleum levy as well as carbon levy on the purchase of petrol .

In Pakistan fbr(Federal board of revenue) gets bereft of meeting tax collection targets also due to malpractices of tax evasion and under invoicing. Unless or until the faceless assessment takes place, the menace of under invoicing cannot be curbed. The access provided to custom clearing agent to meet the appraisers regarding valuation of goods for the purposes of duty assessment has to be nailed down and curbed in order to avoid the tax evasion and unscrupulous practices of under invoicing. In this regard faceless assessment is the prerequisite in order to clamp down upon the nefarious activities of customs clearing agent and appraisers who act in connivance with each other which results in under valuation of goods and therefore every year government of Pakistan suffers losses in the form of duty evasion. Hence the government does not meet up its revenue collection targets. Digitalization would only pave the way to stave off the contagious effects of tax evasion and under invoicing when faceless assessment is given utmost priority. Furthermore smuggling activities are stopped with the help of automated digital systems aligned with the track and trace systems. FBR right now not only lacks institutional capability but also is bereft of institutional capacity. FBR needs to enhance it’s capability by strictly enforcing the income tax ordinance 2001 and sales tax Act 1990. Institutional capability can be enhanced by hiring experts in tax law. People with strong background and knowledge of tax laws must be inducted which includes lawyers and chartered accountants. Induction in fbr must be separated from the recruitment which at present takes place through css exam conducted by Federal public service commission. It is a specialised field, hence induction in fbr must be conducted through an independent, transparent, fair and impartial recruitment/examination system comprising  of such people who possess the traits of integrity and competence encompassing knowledge of tax laws.

In order to expand the tax base, track and trace system through geographical positioning system would be very helpful. Secondly no resident without filing a return should be allowed to purchase car, motor vehicle, mobile, sim or allowed to go/travel abroad. This would automatically expand the tax base manifold. Drastic steps should be taken to tax big landlords who escape the tax liability. In this regard, a constitutional amendment should be passed by making agriculture a federal subject. Similarly immovable Property tax must also be made a federal subject. Currently taxes on  immoveable property and agriculture are a provincial subjects. Provinces are at present do not have strict tax enforcement regime. For instance according to former fbr chairman syed shabbar zaidi , bombay Municipal collects property tax worth 619 billion Indian ruppees in a financial year whereas province of Punjab(which lies in the territorial domain of Pakistan) collects only rs 28 billion in property taxes.

By bringing both subjects in the Federal domain would expand the Federal powers and it’s domain to tax wider strata. This would relieve the burden off the salaried class and also the corporations currently paying huge 29 percent corporation tax on taxable income which is one if the highest in Asia. Pakistan’s youth is an extremely capable workforce but unfortunately due to high corporation taxes and energy prices, it is not being able to attract investment. Pakistan’s investment to GDP ratio as well as tax to GDP ratio are one of the lowest in the regions;that is why Pakistan’s government has to borrow from the international institutions and commercial bank in order to overcome its fiscal deficit which further aggravates the crowding out effect as common citizen do not get credit facility opportunity due heavy borrowing from the government .

It’s a ripe time that now government of Pakistan pull up its socks and work for expanding the tax base rather than increasing the burden upon those who are already being taxed.

The writer is a Lawyer,Columnist, Teacher and Activist

Contact email :sheraz.zaka@gmail.com