Every year before the announcement of annual federal budget, plethora of tax proposals are received by the Federal Board of Revenue (FBR) from trade and professional bodies, tax bars and industry’s representatives. These are hardly given serious thought by the tax managers, who have only one concern: how to achieve revenue targets through wickedly drafted amendments and onerous tax regulations.
Taxation should serve as a catalyst for industrial expansion and economic growth. In Pakistan the ill-directed, illogical, regressive and unfair tax regulations for the last many years have caused a dampening effect on the industrial and business growth.. Had the successive governments concentrated on economic growth and industrial expansion, there would have been consequential substantial rise in taxes today. It is impossible to enhance revenues with stagnation in economy, and over-taxing such economy, as has been done in Pakistan, can destroy the revenue system as well. This is a vicious circle in which our policymakers are now trapped. They will have to find ways and means to come out of this tangle to make Pakistan a competitive place where investors find satisfactory conditions to live and invest. In a country where there is no security of life or property, notwithstanding the availability of host of tax benefits and other incentives, investors will never come forward.
It is a curious paradox of our situation that while money for worthwhile industrial and business growth and public benefits is scare, there is colossal unaccounted cash supply circulating in the economy in search of further undercover gains. What is more tragic is that this social evil inherent in tax system gets doubly compounded as it necessitates greater and greater tax burdens on those who are law-abiding. The most crucial problem faced by us in fiscal reform programme is that of devising astute and stringent measures to curb tax evasion so that we can distribute the burden of taxes fairly and justly between different persons in the same or similar walks of life. The honest taxpayers have to be safeguarded as day by day they are being disillusioned by the fact that tax evaders are not paying anything with the connivance of their friends and mentors in tax machinery. The unholy alliance between the tax evaders and corrupt tax officials has to be eliminated as a first and the foremost step if we want to initiate any meaningful change in tax system and achieve the goal of rapid economic growth.
Every now and then the State announces a tax immensity scheme that favours tax evaders, smugglers, corrupt, extortionists, drug barons and criminals. Such schemes are a spank for the honest taxpayers [proving them the most foolish for paying the taxes]. An extortionist in Karachi can decriminalize his ill gotten money through such a scheme but the poor businessman who paid it due to shameless failure or connivance of law enforcement apparatus cannot even claim it as an expense in his tax return! The situation needs to be corrected. The facilitation of whitening the untaxed money should be restricted ONLY for genuine businessmen to bring such capital back into disclosed/formal sector by paying some percentage as tax (as kafara) and not for the criminals, corrupt and unscrupulous elements in society.
There is a national consensus that existing tax policy needs to be reformulated to provide an equitable, pragmatic, investment-oriented and business-friendly tax system, integrating good tax administration with simplified tax laws that are easily to be understood and hassle-free from implementation perspectives. In the absence of a well-designed tax policy, the agenda of tax reform will remain lopsided. The new government should get itself free from the figure game of the FBR. Our tax potential is not less than Rs. two trillion provided the tax base is made wider and equitable, tax machinery is completely overhauled and exemptions and concessions available to the privileged sections of society are withdrawn. The following steps are inevitable if we want to make Pakistan a competitive place in today’s world:
1. Establishment of democratic institutions both in form and substance coupled with a truly independent justice system.
2. Dispensation of justice without delay should be the top most priority of the State.
3. Revamping of entire education system and ensuring revolutionary measure to take society out of jahalat [ignorance]. Our problem is not only illiteracy but also ignorance. Even the so-called literates are jahil of worst order, as they do not demonstrate by their actions any norms of a civilized society. The foremost stress should be on Iqra [knowledge] and technological advances.
4. Elimination of bigotry, religious intolerance and violence by taking concrete measures to ensure social development of society based on higher values of life and humanity.
5. Devising long-term and short-term strategies to break the shackles of debt-trap.
6. Determination and political will to control wasteful, non-developmental and defence expenditure.
7. Strict laws and their effective implementation to curb money laundering, plundering of national wealth, political write off of bank loans and leakages in revenue collections.
8. Reform of technical, institutional and organizational dimensions of public finance.
9. Improvement in public sector effectiveness.
10. Reform and strengthening of management of public finances.
11. Transparent public sector spending.
12. Efficient public sector performance.
13. Revitalization of tax machinery.
14. Simplification of tax laws and procedures.
15. Good governance and corrupt free government structures.
16. Reduction in excessive marginal tax rates making them compatible with other tax jurisdictions of the world, especially in Asia.
17. Substantial reduction in corporate rate of tax.
18. Elimination of onerous tax and other regulations for corporate sector that are the main stumbling block for new direct foreign investments.
19. Sufficient openness and accountability in the government to enable citizens to understand and participate fully in the process of national integration. This includes live telecast of the assembly proceedings.
20. Complete transparency in government and private financial transactions.
The juxtaposition of economic policymaking and political reform [democratization] of society is necessary. The agenda for reform and survival should entail a comprehensive, well-integrated and unified plan that alone can assure its success. The reform in one sector ignoring the ills in the other, resorting to improving something at the cost of leaving aside the one interlinked, will not yield desired results. The case of tax reform divorced to elimination of black economy is the point in focus. The main cause of fiscal deficit is existence of an unprecedented size of underground economy and the share of incompetence and inefficient tax machinery is significant, but reform in tax administration alone without routing the causes of parallel economy is not going to improve GDP-tax ratio [which is below 10% for the last 10 years].
In the same manner mere constitutional changes giving more powers to Prime Minister will not improve the political culture. We cannot achieve the cherished goal of self-reliant Pakistan unless rule of law and democratic behaviour in practice is clearly demonstrated. In the presence of US-imposed and supported President, the goal of independent Pakistan free from the political clutches of Washington cannot be materialized. For a strong economy, resource mobilization through a growth-oriented tax policy is a prerequisite. Tax policy should induce rapid industrial growth, ensure equitable distribution of wealth and incomes and give the provinces due share in national resources and powers to levy taxes within their territorial jurisdictions.
One hopes that in the forthcoming budget, mindless and isolated changes will be avoided to further destroy our tax system unless tax policy imperatives discussed above are given due consideration. The change mania without proper direction can be counterproductive or even disastrous. This is what tax baboos of FBR have been doing for the last two decades.
_______________________________________________-
The writers, tax advisers, are visiting professors at Lahore University of management Sciences (LUMS). They can be reached through their website www.huzaimaikram.com
Tags: Add new tag, agenda for survival, budget, Economy, rapid growth, social justice, tax reforms
