Many of Pakistan’s parliamentarians perfectly fit the legendary images of American Wild West. They love their guns and regularly dodge the tax authorities. A recent report by the Center for Investigative Reporting in Pakistan reveals that almost half of the country’s sitting lawmakers and ministers did not pay any taxes this year. Further, severe discrepancies were found in the official income and tax declarations of these lawmakers.
Tax evasion is not new to Pakistan. The culture of tax evasion permeates across all class boundaries in the country, with only about one percent of the population filing their tax returns. Most of these taxpayers belong to the shrinking, salaried middle-class, which is feeling the pinch due to a high inflationary trend. Historically, Pakistan has always heavily relied on the collection of indirect taxes to fill government coffers. On the other hand, a study by the Pakistan Institute of Legislative Development and Transparency shows that legislators with an average net worth of £490,000 in 2010 paid no or tiny amounts of taxes that did not justify their luxurious living standards. Attempts to tax lucrative sectors such as agriculture, real estate and equity markets have always faced resistance from the ruling and business elite. And herein lies the main problem. With the ruling elite not paying their due share of taxes, they lose the moral authority to impose a stricter tax regime and are often found short on making sincere efforts to root out the evil of tax evasion.
However, world bodies are not amused by Pakistan’s lack of seriousness on tackling the menace of tax evasion. The country is battling against serious macroeconomic challenges and trying hard to overcome long spells of darkness, lagging industrial output and security threats that have kept investors at bay. As a precondition to billions of dollars of loans and other financial assistance to Pakistan, the International Monetary Fund (IMF) had asked Pakistan to take concrete measures to increase its tax to GDP ratio. Aid from other countries, such as Britain, may also be in danger of facing a cut or total suspension if the government fails to encourage the country’s elite to pay their taxes. Injection of cash from these agencies and friendly nations remains key to revitalizing Pakistan’s economy that is struggling to cope up with significant internal and external threats.
Instead of heavily penalizing the criminals, the government has once again launched an amnesty scheme to encourage more people to file their income tax returns. While the scheme has been launched with a good intention, it has been heavily criticized for discouraging honest taxpayers. There is no doubt that by concealing their true income levels, Pakistan’s lawmakers are trying to cheat the general public and causing a loss to the national exchequer. By defrauding official tax authorities, they are setting a poor example for ordinary citizens and engaging in corrupt practices. The tax authorities must deal with tax evaders in a stern manner and at the same time, work on simplifying the country’s tax collection and filing system. The government of Pakistan faces an arduous task of increasing its tax and revenue sources in the coming years. It must undertake drastic tax reforms not just to appease donor agencies, but for the sake of Pakistan’s own long-term sustainability and development. The tax authorities should restore the confidence of ordinary citizens by going after the nation’s wealthiest and most influential people, who have evaded taxes and stashed millions of dollars in foreign bank accounts.