Business | Opinion
Government 'must tackle issue of widespread tax evasion'
The Pakistani government is hosting an ambitious international seminar in Lahore on Wednesday to discuss ways for the country to reform its tax collection system. The effort comes as the country battles one of the acutest challenges to its economy.
- By Farhan Bokhari, Special to Gulf News
- Published: 23:30 December 16, 2008
The Pakistani government is hosting an ambitious international seminar in Lahore on Wednesday to discuss ways for the country to reform its tax collection system. The effort comes as the country battles one of the acutest challenges to its economy.
While Pakistan's tax to Gross Domestic Product ratio has grown significantly in the past decade, it continues to face a major challenge. Pakistan's community of income tax payers is less than one per cent of its population.
In the past, influential landowners have often been accused of evading their taxes. But the situation is far more complex. Across the board, Pakistanis of different profiles and occupations have been universally responsible for evading their taxes.
Caught in the midst of an international bailout by the international monetary fund or IMF, Pakistan must recognise that its reforms, no matter how strong, will always falter without the backing of adequate revenues for the government. Those revenues will remain insufficient as long as large-scale tax evasion remains a given.
In the short term, president Asif Ali Zardari must take the initiative by making certain that a whole lot of symbolic and real changes begin taking place. This includes ordering a large-scale effort to clamp down on excessive expenditure in government.
One of the conditions of the recently concluded IMF loan programme compels the government to radically reduce its budget deficit by 2010. Aside from the statistical evidence of doing so, there must also be a strong symbolic effort going in tandem. The idea of appointing a large cabinet with a strength of more than 50 ministers recently, just reinforces profligate spending as a central feature of the way the government is run.
There must also be other major changes in the way the government is run. For instance, there must finally be an allocation of significantly larger resources for social services. Indeed, such an increase in social spending is the only way for the ordinary rank-and-file of the Pakistani public to accept that a meaningful change is about to take place, which is the basis of a qualitatively new public-private partnership. Once such a confidence is established, only then will Pakistan turn the corner and begin a new journey where the public is convinced of its obligation to pay its tax dues.
But such an effort can just be characterised as the first step in what is likely to be a long road to reform ahead. The government in the meantime will have to prove that it is committed to tax reforms, undertaking measures such as ordering a tough clampdown on evasive practices.
The success of the tax reform effort ahead will depend in large part on the government establishing its credibility for being truly reformist. Tough action against a core group of large tax evaders would have to be central to this effort. Additionally, there must also be widespread publicity given to cases of evasion.
Cornerstone
Last but not least, the government must also demonstrate its own willingness to force members of the ruling clan to pay their dues. Towards this end, it is vital that ruling politicians followed by other members of the elite in the military and the civil segments of society, be forced to voluntarily pay their tax dues. If such an effort succeeds, that would clearly be a cornerstone to one of the most vital reforms ever undertaken in Pakistan's history.
Without successful reform of the tax collection system, it is possible that Pakistan, aided by the IMF, will return to solvency soon. However, its long-term prospects will remain in doubt and Pakistan will remain potentially exposed to another economic crisis down the line. Without adequate resources, no government and no country can be run with the promise of stability.
- The writer is a journalist based in Pakistan.
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