Lack of Tax Base Keeps Pakistani economy on life support

Pakistan has long suffered from a stagnant tax base and Pakistan’s tax-to-GDP ratio of 10 % is one of the lowest in the region and in the world. This low tax base is at the heart of the country’s chronic economic and financial woes. Only 2.5 mn or 35 % of the 7.2 mn total registered taxpayers have filed their returns for tax year 2021.

As an editorial in Dawn points out, “The large majority of those who should be paying their due share of taxes on their incomes and filing their returns regularly do not do so because few believe that the FBR will take punitive action against them. Little wonder then that tax compliance is declining in spite of the laws prescribing fines, arrests and imprisonment for non-filers. Recently, the FBR also got the powers to cut off the electricity and telephone connections of non-filers of tax returns. But what is the use of such powers if these aren’t or can’t be exercised to punish tax cheaters?”

The Imran Khan led government “has proved no different from its predecessors. It has also been struggling to boost the tax-to-GDP ratio through indirect taxation without addressing the difficult challenge of expanding the base of taxpayers. This strategy hasn’t worked in the past and is unlikely to deliver in future. The challenges of tax compliance and mobilisation cannot be dealt with without effectively and directly taxing incomes irrespective of their source, and punishing the tax evaders.”

As Dawn notes, “instead of focusing on reforms, successive governments have chosen the easier path of expanding and increasing indirect levies, which spare the wealthy and directly burden the man on the street.”

Author: Ahsan Kureshi

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