Towards better Taxation

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Tax reforms seem ruthlessly taxing issues in Pakistan. The appointment of new chairman FBR Asim Ahmed, the fifth one during the last three years, illustrates the bleak dynamics of FBR performance. Notwithstanding the government`s precarious fiscal position, tax revenues have substantially declined over the past three years. Adding insult to injury, the resurgence of corona cases debilitated the embryonic economic recovery, further decreasing the potential tax base. The present government`s resolve to rejuvenate the tax machinery by introducing equitable taxation and eradicating corruption in the tax collection system is burgeoning, despite these gargantuan setbacks. The resumption of the hitherto suspended IMF six billion dollars loan program has rendered the next fiscal year`s tax collection target 27pc more than the current fiscal year.

It`s high time to address the elephant in the room that is revamping crumbling tax machinery to stabilize the national exchequer. Pakistan’s tax-to-GDP ratio remains low at less than 10%, the lowest in South Asia, despite enormous indirect taxes being imposed by all regimes. The contribution of direct taxes has been declined from 38pc to 36pc during the current fiscal year. FBR`s policy board has been propagating commendable suggestions but according to the Policy Research Institute of Market Economy (PRIME), FBR`s policy board merely exists in papers as its policy recommendations have not been applied to operation.

To champion sustainable and better administration of tax machinery, it`s imperative to introduce robust automation concomitant with shrewd utilization of national database to trace tax dodgers. Reducing bureaucratic nuisances, which complicate tax filing procedures, will serve as the biggest incentive to businesses to legalize their undocumented wealth. Furthermore, granting security of tenure to the FBR chief is important to usher in his potential. The introduction of single sales tax, easy tax assessment procedures, and vigorous auditing will significantly increase the efficiency of the tax regime. The government`s initiative of electronic tax payment, to reduce transaction costs, is commendable. Recent research by (PRIME) stressed that in a country like Pakistan with myriad socio-economic challenges and stubborn status-quo powers, reforming tax sector will take substantial time.

 

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