EDITORIAL: It seems that the government machinery in Pakistan is operating in some alternate reality, where the country is not facing an economic crisis of almost existential proportions, where its tax receipts are robust and where the looming financial challenges are merely a distant concern rather than an urgent priority crying out for an early resolution.
What else could one surmise after going through a report in a local daily, highlighting that the Auditor General of Pakistan (AGP) has found all provincial governments involved in tax evasion of mammoth proportions, as they did not deduct and deposit in the federal treasury, taxes worth Rs33 billion from 2017-18 to 2021-22.
Such dereliction of duty at the best of times would be considered a serious concern, but during a period of grave economic difficulties, it is indeed intolerable.
Documents have revealed that the tax evaded by the provinces include federal income tax not deducted from salaries of different categories of officials belonging to various government departments.
In the case of a public sector university in Lahore, it has emerged that while the institution withheld income tax at source from the salaries of its employees, amounting to a massive Rs166 million during the period 2019-23, instead of remitting this sum to the FBR, it was spent instead on managing university operations.
It should be noted that public sector universities in Pakistan are exempted from paying taxes on the income they generate. However, this exemption definitely does not extend to the salary incomes of their employees, and like all other salaried individuals, they are subject to federal income tax on their earnings.
Further details have revealed that the Punjab government did not deduct and deposit taxes to the FBR worth Rs16.3 billion, for Sindh the relevant number amounted to Rs8.6 billion, Khyber-Pakhtunkhwa owes Rs5.07 billion in evaded taxes, while Balochistan is liable to pay Rs2.34 billion.
Following these findings, the AGP Office brought the grave issue to the attention of all the provincial chief secretaries, reminding them of the provinces’ key constitutional obligations related to deduction of federal taxes and depositing them with the FBR.
These communications appear to have fallen on deaf ears, however, as no provincial authority has woken up to its statutory duties, as the relevant tax deductions have not been made, which obviously means they also have not been deposited in the national treasury.
It is imperative that an independent, far-reaching inquiry into the matter is conducted, and if tax evasion on the part of provincial governments is indeed confirmed, measures must be then taken to rectify this immediately.
If the provinces continue to delay performing their legal obligations, then the federal government must take the matter into its own hands, and deduct the relevant amounts from the provinces’ share of the federal divisible pool.
For too long, the provincial governments have already been shirking their responsibility when it comes to introducing new tax revenue-generating avenues, preferring instead to continue their dependence on federal transfers.
On top of that, we now find this entirely unacceptable situation where they have failed to perform as basic a duty as remitting federal taxes into the national treasury.
The federal government absolutely does not have the financial resources or fiscal space at its disposal to tolerate such reckless disregard of a basic legal obligation.
While one has become accustomed to stories related to rampant tax evasion emanating from the private sector, to find the government apparatus itself involved in something similar is truly outrageous, especially considering the inordinate tax burden that law-abiding citizens, specifically those belonging to the salaried class, are expected to bear. All relevant authorities must spring into action immediately to remedy this mess.
Copyright Business Recorder, 2024
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