An odd income tax scheme

In a display of misplaced enthusiasm, the Federal Board of Revenue (FBR) has directed Hajj tour operators to pay Rs 1600 per pilgrim as income tax. A Recorder report quotes official sources as justifying the decision saying that the FBR wanted to prevent revenue leakage.
Our report further notes that there are more than 600 Hajj tour companies registered with the Ministry of Religious Affairs, and that out of these, only 40 file their tax returns. Most of these, too, file grossly understated declarations of income. In other words, tax evasion is rampant in the sector. The decision to have these companies pay their income tax dues, therefore, can only be welcomed.
While the rationale for raising revenue is perfectly valid, the collection method makes little sense. To say the least, it is unfair. No wonder, the Hajj tour operators say they have no objection to the decision. It is not difficult to predict that they will simply transfer the tax to the pilgrims by increasing the cost of pilgrimage, thus making one more addition to a heavy burden of indirect taxes ordinary people are already forced to bear. The FBR must revise this ill-advised revenue generation scheme. Instead, it needs to ask all tour companies to file, like other honest and law-abiding citizens, their annual income tax returns, and proceed against those who refuse to comply.
The unfortunate reality is that Pakistan happens to have one of the world's lowest tax-to-GDP ratios due to rampant tax evasion and poor collection system. The target of revenue collection for fiscal 2009-10 was a modest 9.2 percent but the FBR barely managed to achieve 8.9 percent. Leakages - a code for corruption and evasion - further aggravate the situation. Last year the leakages were as high as Rs 550 billion. And as the previous finance minister Shaukat Tarin had publicly stated, a large chunk of the collections was stolen by corrupt FBR officials. It hardly needs saying that first of all, the FBR needs to put its act together and stop the 'leakages'.
Secondly, there are no two opinions on that the tax base needs to be broadened and the collection system made efficient. The tax net must be extended to include, aside from the agriculture sector, traders, wholesale dealers, restaurateurs, etc, who earn huge incomes but pay no tax, thriving as part of the informal economy. The main challenge in this regard is for the government to properly document all economic activity.
Unfortunately, past attempts in that direction failed due to an organised resistance from the traders on the pretext that the documentation system was too complicated and intrusive. Simplifying data collection should not be an intractable problem, provided the will is there to do the right thing. The economy being in dire straits, it is about time the government undertook a fresh exercise and introduced an equitable and efficient income tax system. As far as possible, it must avoid increasing indirect taxes for the common man.