Increasing tax net

August 23, 2019

To bring more people under the tax net is a mammoth target. It is good that the issue of expanding the tax net is now actively under consideration as a major source of tax revenue and is being prioritized. The potential number of tax payers in the country is very high. At present, only an insignificant percentage is paying taxes. The tax-GDP ratio points to the health of an economy and our country is at the lower end of world rankings. European countries are at the top of the rankings while South Asian nations form the lower rung of rankings. It is not clear how the target will be achieved but aiming higher will certainly help the Federal Board of Revenue (FBR) break out of the historically lower number of people actually paying taxes. However, to break from the past, something needs to be done to make the tax regime more people-friendly. Several steps must be taken by FBR to make the process of paying taxes easier, which will actually help people to file more tax returns. A big majority of the people are of the opinion that the tax system favors the elite while a great number believe that corruption is prevalent in the taxation system and the system overall is very complex. So, there is a negative perception about paying taxes and one that fails to promote payment. The government’s focus revolves around a much higher revenue collection which will help reduce dependence on foreign aid and also help the government to carry out its development work in infrastructure, social and education sectors. The additional resources inevitably have to come from an improved revenue collection. Reshuffling of FBR staff is not enough. Fresh recruitment should be initiated if the government wishes to tap into rural incomes for the purposes of tax collection. Human resource constraints within FBR need to be tackled. Hiring of staff with special skills is mandatory for a modern tax administration. One of the biggest stumbling blocks to getting more people to pay taxes is the fear of the tax man. This needs to be changed and that can only happen if the process of paying taxes can be done in a transparent manner. The general perception that the tax office is not graft-free is a problem. That, coupled with the feeling that taxes are not for the wealthy and well-to-do, has much to do with the generous tax exemptions given to richer groups. People need to feel that the money they are paying in taxes translates into better public services like education, health, infrastructure and social protection. These issues need to be tackled if there is to be a meaningful expansion of the tax net.

At present, only an insignificant percentage is paying taxes. The tax-GDP ratio points to the health of an economy and our country is at the lower end of world rankings.