Taxes – and more taxes

As a wise man once said, the only thing certain in this world is death and taxes -- and if you happen to live in Pakistan, it is even more taxes.

How else do you explain the surcharge of 10 per cent levied on income tax already paid by an individual which has been introduced in the 2024-25 federal budget? It’s nothing more than a tax on a tax, which comes across as nothing more than a (possibly illegal) absurdity.

The budget for the new fiscal year has been condemned by just about everyone – even milk, stationery and books have now been brought under the tax net. However, certain holy cows remain – there is no tax on agricultural income and a tax levied on the sale of property was not extended to the civil-military bureaucracy.

Meanwhile, the number of tax filers in all of Pakistan is less than five million – for a country of over 240 million and with at least half of that population of working age, the percentage is between three and five per cent. The number of tax filers varies from year to year and went down in fact from 2022 to 2023 by a significant proportion.

It would be fair to say that over the years, the massive amount of tax evasion that takes place in Pakistan is continuing. There is not much action to catch it by the federal government and in particular the relevant agency in this regard: the Federal Board of Revenue.

The fact is that to a great extent, tax evasion is related to the fact that the perception of the FBR is that of a corrupt organization whose officers are more interested in increasing their bank balances than in actually helping the government expand its revenue base.

Coming on to revenue, the government has increased its target for revenue collection by 35 per cent in just one year from 2022 to 2023. Of course, that is a worthy objective to have, since a higher revenue would reduce dependency on loans and aid. However, the problem lies in how this increase of 40 per cent from Rs9.4 trillion in 2023-24 to over Rs13 trillion for 2024-25 will be financed. It will not be financed by increasing or widening the tax net as much as it will seek to further increase the burden of tax on a class of Pakistanis that already pays income tax which is cut from their monthly incomes before their salaries are dispensed.

The same economic class of Pakistanis has also seen its electricity and gas bills substantially increase, further eroding its purchasing power. And, while inflation may have marginally slowed down, it is still at a high enough level to continue to cause havoc with household budgets of the middle class.

And even as the federal budget has been roundly criticized by just about everyone and anyone, we have Federal Minister Muhammad Aurangzeb holding forth about how much empathy he has for the salaried class. The minister has said that circumstances are such that the salaried class cannot be given relief for now, but that whenever fiscal space is created, it will be the first segment of the population that will be given tax relief. Of course, there won't be all that many takers for what the minister is saying given that he is seen as one of the main architects of the 40 per cent increase in the tax burden on Pakistan in a single fiscal year.

For a taxation system to work, and -- more importantly -- for it to achieve an ambitious tax collection target, the tax burden needs to be fairly and equitably applied across all earning segments of the economy. Unfortunately, what we see year after year -- and more so in the 2024-25 budget -- is that those who are already paying taxes have been burdened even further.

Several important areas that could yield considerable tax revenue remain untouched and outside the tax net, not least among them agriculture - which incidentally was the economy's fastest-growing segment in 2023-24. In recent years, agriculture has contributed between 20 and 22 per cent to Pakistan's GDP, so it would make perfect sense to tax the income that accrues from it.

Most Pakistanis see the government's inability to tax this sector as clear proof that it is simply not interested in widening the tax net but only in taxing those already in the net with more and more levies. In fact, an unjust and inequitable taxation system provides an incentive to those who are already in the tax net to try and get out of it. They ask why they should pay an increasing tax burden merely because the government/state cannot get its act together and collect the revenue it needs across all earning sectors of the economy. That is probably why the number of tax filers decreased by a staggering 35 per cent from 2022 to 2023.

Given this, it seems unlikely that the ambitious tax collection of over Rs13 trillion for 2024-25 will be met -- unless the finance minister realizes that he can't squeeze the salaried class any further.

The writer is a journalist based in Karachi. He tweets/posts @omar_quraishi and can be reached at: omarrquraishi@gmail.com