EDITORIAL: If only the government did half as much work on tax reforms as private institutions do, we would not have one of the world’s lowest tax-to-GDP ratios; which becomes even worse when you consider that we also boast the fifth-highest population of any country on the planet.
Once again, on the heels of a “special budget” that is supposed to suit the IMF bailout programme that will begin with the new fiscal year, we have a flurry of proposals and ideas from very respected outfits that the finance ministry will ignore only to the people’s peril, if not its own as well.
That Tax Reforms Commission (TRC) – jointly constituted by the Pakistan Institute of Development Economics (PIDE) and Policy Research Institute of Market Economy (PRIME) – in particular, has worked out in extensive detail how reducing rates of all major taxes, cutting GST to around 10 percent and also decreasing the number of slabs for income tax can actually generate revenues of “Rs 4 trillion in three years over and above nominal growth in revenues”.
These are very important points. There’s no doubt, as TRC rightly pointed out right at the beginning of its proposal, that the “existing tax system is neither citizen-friendly, transparent, stable, nor predictable”. And, “faced with increasing budgetary difficulties, reliance on ad hoc measures has grown, leading to arbitrary withholding income taxes, turnover taxes, taxes on deemed incomes, and arbitrary revisions of tax rates”.
Now the big question is whether the government is really open to this sort of progressive thinking. There’s every reason to get creative about tax policy, after all, since the old way isn’t working and the IMF itself has recommended homegrown solutions.
But the general impression is that the new finance minister is just going to do what old finance ministers did and simply jack up indirect taxes to meet the Fund’s “upfront conditions” even though everybody knows how they hurt the poor a whole lot more than the rich.
And the same cycle will not only repeat itself but get much worse because with the same people paying more taxes when they earn less and spend more in times of historic inflation and unemployment, it’s only so long before something will snap and a lot of them will not be able to meet the tax obligations forced on them.
Besides, there’s nothing really new about any of the proposals that are rolling in. Suggestions like “automation and digitisation to eliminate direct interaction between taxpayers and the tax authority” and “changes in the human capital of FBR” have been floated since forever.
It’s just that no government has ever paid any attention to them. Each one of them, without exception, has also criminally left the politically connected and powerful big fish out of the tax net, squeezing more and more out of the middle- and lower-income groups that do not have the muscle to evade taxes.
Now we have reached a breaking point. And the tax structure of the coming budget will be the litmus test of the government’s self-proclaimed, much trumpeted “people-friendly” credentials.
Everybody knows what needs to be done. It’s just that nobody has ever bothered to put in the hard work that is needed. We do not need to reinvent the wheel because, in terms of tax structure, we have yet to invent it.
Copyright Business Recorder, 2024