Tax Evasion: Tax avoidance under exemptions and facilities available under the tax laws is not illegal. However, tax evasion is illegal immoral and unethical. This has been having telling effect on the finances of the country. Based on research study of Newsweek of 1997, underground economy is fairly large. There were only 1.4 million income tax payers in the country, GDP ratio to tax was 11% - one of the lowest in the world, tow conspicuous groups which were not paying income tax included small businessmen and oligarchs (wealthiest people), tax officials were also corrupt in general, one Karachi based lawyer paid more income tax than the elected parliament and corruption caused loss of more than 60% in tax revenue. The following table 1 presents the declaration of black money in Pakistan.
BUDGET DEFICIT:

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Declaration of Black Money
Year     Black Money
         Declared           Pertinent Comments
         (Rs Million)
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1958        1,350           Rs 1,120 million relates to areas
                            which constituted the then
                            West Pakistan.
1969          920           Rs 780 million relates to areas which
                            constituted the then
                            West Pakistan.
1976        1,500           Rs 270 million was paid as tax on
                            declared income by
                            August 31,1976.
1999      Tax Amnesty       1) Rs 10 billion was collected on
                            truthful scheme
                            announced disclosure of tax evaded
                            assets on 10% on 15-12-1999 payment as tax.
                            2) No black money whitener schemes
                            will be announced in future.
                            3) Immunities, protection and exemptions
                            on existing investments, deposits, bonds,
                            foreign currency accounts etc.
                            will be fully honoured.
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Several kinds of budget deficits are being talked about. Table "B" captures the position of three budget surplus / deficit, namely primary surplus, revenue budget deficit and overall budget deficit.

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Budget 2004-05 Surplus/Deficit
=======================================================================
                                        Rs b                       Rs b
=======================================================================
1) Primary Surplus
Net Current Revenue                                                 557
Less: Current Expenditure:
Other Expenditure                                                   251
Defence                                   194                       445
Primary Budget Surplus                                              112
2) Revenue Budget Deficit
Current Expenditure                                                 701
Less: Net Current Revenue                                           557
Revenue Budget                                                      144
3) Overall Budget Deficit
Financial Requirements                                              903
Less: Available Finance                                             557
Budget Deficit                                                      346
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BUDGET AND CONSTITUTION: The Constitution of Pakistan has identified some vital issues relating to socio-economic matters. These can be addressed by the government through undertaking innovative budgetary measures. There is a crying need for the parliament to address these issues and add a golden chapter to the socio-economic history of our country. A brief position in this respect is tabulated below:
FEDERAL BUDGET 2004-2005: A QUANTITATIVE REVIEW A sum of Rs 903 billion was needed for financing in the above. This consisted of Rs 701 billion as current expenditure representing debt servicing 38% other expenditure 35% and defence 27%.
An all time record ADP for Rs 202 billion was announced focusing five areas, namely federal government departments 48%, provincial governments 27% autonomous bodies 15% and special areas and special programs aggregate to 10%.
Against the above net federal revenue of Rs 557 billion was available - leaving a shortfall of Rs 346 billion. A sum of Rs 156 billion was expected to be mobilised from external resources.

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Selected Articles from 1973 Constitution of Pakistan
Article   Focus
======================================================================
3.        Elimination of exploitation
18.       Freedom of trade, business or profession.
37.       Promotion of social justice and eradication of social evils.
38.       Promotion of social and economic well being of the people.
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A master chart (Table "D") has been prepared to capture the overall position indicated above.

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Federal Budget 2004 - 2005 at a Glance
Particulars                                                  Rs b          %
============================================================================
A: Financial Requirements
Current Expenditure                                          701*         78
Composition                      Rs b           %
1. Debt Servicing                  256         38
2. Other Expenditure               251         35
3. Defence                         194         27
                                  701*        100
Annual Development Plan                                      202**        22
Composition                      Rs b           %
1. Departments of Federal           97         48
Government
2.  Provincial ADPs                 54         27
3. Autonomous Bodies                31         15
4. Special Areas & Programs         20         10
                                   202**      100
                                                             903         100
B: Financial Resources Available
Current Expenditure                                          557**        61
Composition                              Rs b       %
1. Indirect Taxes                          398     50
Composition             Rs b         %
1. Sales Tax              249       63
2. Custom                 103       26
Duties
3. Federal                 46       11
Excise
                          398      100
2. Direct Taxes                            182     23
                                           580     73
3. Non Tax Revenue                         141     18
4. Surcharges                               75      9
                                           796    100
Less: Transfer to Provinces                239
Net Federal Revenue                        557***
Receipts
C: Shortfall                       346****  39
                                   903     100
D: Financing Plan
External Resources                                           156          45
Capital Receipts (Net)                                        65          19
Bank Borrowings                                               45          13
Self Financing of PSDPs by Provinces                          33          10
Changes in Provincial Cash Balances                           32           9
Privatisation Proceeds                                        15           4
                                                             346*****    100
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TAX SYSTEM: PUBLIC PERCEPTION Perceptions of government, tax payers and the society are different. Some of the share concerns by stakeholders are briefly reviewed below:
TAX RATES: Mrs Indira Gandhi, former prime minister of India, checked up during her tenure and it transpired that effective income tax rate was 97%. During the early days (1970s) of late Zulfiqar Ali Bhutto, former prime minister of Pakistan, the effective income tax and wealth tax aggregated together was 100%. The public perception of income tax today is that rates are too high. These need to be reduced to try Lafers Curve application in Pakistan with strong backing of marketing strategies to ensure larger base of income tax payers with substantial increase in the amount of income tax as significant contribution to the national exchequer.
DISCRETIONARY POWERS: Discretionary power can be helpful if the tax officials attitude is positive and constructive. To ensure flexibility, these exist on statute books on global basis. However, their misuse can create great problems. The issue is complex and needs to be properly addressed. However, the general perception of public is that discretionary power need to be reduced to bare minimum.
TAX PAYERS RECOGNITION: Public perception is that genuine tax payers are not being given the recognition which they deserve. At times, the government had been announcing that positive measures will be taken in this respect. However, this appears to be an agenda of the future.
INCOME TAX DEPARTMENT: The tax officials deserve a better deal in terms of remuneration for the services which they, under great stress and pressure, are rendering. Some are dead honest. Others are enjoying their life styles beyond their means. Income Tax return be reduced to one page.
There is room for improvement for simplifying procedures. Qualitative aspects of on-going training programs need to be addressed. Institutional upgrading is needed to strengthen the frontiers of human resource development. Application of modern information technology is the crying need.
EXEMPTIONS: Except for pensioners and widows, all exemptions currently available under the second schedule annexed to the Income Tax Ordinance 2001 need to be carefully reviewed and withdrawn. This will have healthy impact on income tax revenues and will also enable fuller participation of the people of Pakistan who are potential tax payers.
POTENTIAL ASSESSEES: The public perception is that there is a vast scope of potential income tax assesses who need to be brought into the net of income tax. These estimates are: CBR 3 million, various Chamber of Commerce and Industry 5 million, earlier governments 7 million. However a realistic number appears to 3 million.
The Central Board of Revenue needs full political support to tap the hitherto untapped vast net of income tax potentional persons who have not bothered to deposit their income tax returns in the past.
Finance Supplementary Act 1997 contributed an excellent definition of an income tax assessee. The scope of treating persons as tax payer was well defined as under:
1) Telephone subscriber
2) Owner of a motor vehicle
3) Owner of a house or a residential plot of 250 sqr. Yards.
4) Foreign travel (except Haj / Umrah / Ziarat)
There is a need on market front to implement the spirit of the above to expand the base of income tax payers. The earlier this is done the better.
SUGGESTED STRATEGIC INITIATIVES: Domestic resources should be mobilised with quantum jump in all sources of revenue. Some of these have been suggested earlier in this paper. An all-out effort should be made to rationalise expenditure and through using a doctrine materiality expenditure review should be undertaken and wherever possible expenditure reduction should be ensured.
The Institute of Cost and Management Accountants of Pakistan be associated to accomplish this goal. It is suggested that an Expenditure Review Committee be set up to undertake the above exercise.
Indigenous approach to development programs be followed and expertise and technologies within the country be productively harnessed to accomplish the above goal.
Forward looking strategic initiative in the area of agriculture, industry and services sector be initiated to accelerate the socio-economic development of the country resulting in lowering poverty and creating more jobs. A genuine self-reliant approach be undertaken to achieve economic sovereignty and fitting image in the comity of nations. Common man concerns should be reflected in budget proposals-health, education, sanitation, inflation etc.
Along with the financial figures reflected in the budget, an Employment Budget giving an indication of number of jobs to be created arising out of the government effort for creation of jobs through Annual Development Plan and other government initiatives to be included in the above proposed Employment Budget.
The role of professional accountants be given due recognition and their productive association in the preparation of budget be given due emphasis.
(The writer is Principal, Hailey College of Banking and Finance, constituent college of the University of the Punjab, Lahore.)