Will the government blink?

LAHORE: Tax collectors are apparently sitting on cracking down on 4.9 million tax evaders who have long enjoyed luxurious lifestyles while escaping their tax duties. Once these people are brought into the tax net, it can immediately transform the revenue landscape of our country.

This is not the first time that this data has surfaced. The Federal Board of Revenue (FBR) had earlier formed teams to settle accounts with these evaders and tax them accordingly. However, after years of non-compliance on the part of tax evaders, the rulers finally realized that some tax evaders were being facilitated by certain people within the FBR.

Federal Minister of Finance Muhammad Aurangzeb has also acknowledged discrepancies in the working of the FBR. In a recent press conference, he said that notices would be issued centrally and be pursued through technology, asking evaders to file tax returns promptly.

Field formations would then be asked to collect taxes from them.This seems like a better way. Tax evasion is enormous. If successful, this crackdown could potentially generate an additional Rs808 billion in tax revenue annually.

We can assume that the minimum average tax would be based on at least a minimum earning of Rs200,000 per month. Tax on the salaried class earning Rs2,400,000 annually (Rs200,000 monthly) is Rs165,000.

Though in many cases the tax should be much higher, even if the tax based on earnings of Rs200,000 is received, the total collection would be Rs808 billion. This is a huge amount, and the government must take all steps to bring this amount under the tax net.

The nation is paying high taxes because the elites who enjoy lavish lifestyles refuse to pay taxes. Successive governments shied away from confronting the influential elites. But the current finance minister has expressed resolve to bring tax evaders into the tax net. Let us hope that he succeeds.

But this will partly resolve our financial woes. We need to do much more. Some relief will come if fake sales tax invoices are eliminated and false refunds of Rs600 billion are recovered. Moreover, the issue of underinvoicing has to be effectively checked. Still, our financial needs are much higher, and we need to do more. The ‘do more’ mantra does not mean increasing tax rates. We need to take steps outside taxation to spare our finances.

The minister of power has indicated that free electricity for judges and government officials is likely to stop. If this is done transparently, the financial loss of the power sector will appreciably reduce. Again, this will not resolve the power sector’s woes.

The elimination of theft and corruption in the sector is a greater issue.The state must immediately take steps to bring transparency in procurement, power transmission, in realization of pending bills and controlling theft.

The issue of capacity charges will continue to haunt the sector, but if other issues are resolved, this would become manageable. Increased economic activities can reduce the issue of capacity charges. Some IPPs’ agreements will mature next year; this will also bring some relief.

The finance minister expressed hope that the government's reform agenda, including measures to improve transparency and accountability, will lead to tangible improvements within the next two years.

The nation is watching closely to see if the government can deliver on its promises to address these long-standing challenges. We might see some improvements after at least two years if the government does not falter.