Why don’t we pay our taxes?

The official number of taxpayers in Pakistan is one of the most depressing economic statistics to read. It is a heavily cited number in writings on Pakistan – both local and foreign.
I have no qualms in admitting that I have also quoted this statistic profusely to bemoan the lack of commitment of the people of this country. But of late, I have had to modify my perspective. Quoting mere statistics does not do justice to this vexing issue as its evolution over time involves more than just statistics. I would also like to propose that in reality Pakistanis pay more than their fair share of taxes. But there is little recognition of this fact since the definition of taxation is bookish, limited in its scope and only revolves around filing returns with the FBR.
It’s pertinent to start with the accepted bifurcation of taxation. In general, taxes are bifurcated into the direct (coming directly from income) and indirect categories. The number quoted by government officials is the one related to direct taxation. Whatever comes from other sources is not mentioned in the tax filer statistics. So if I don’t fill one of those overcomplicated FBR forms at the end of the fiscal year, I fall into the category of non-payers. This is not just a thought but a reality.
For example, I work as a consultant and as a part-time teacher, and over the last few fiscals I have taken up various projects and taught at a few places. Before I get my salary, the organisations deduct taxes from it. The tax is then relayed to the government along with my name and CNIC. Yet in the FBR’s statistics, I appear as a non-payer because I don’t fill the return forms. Try making sense of that.
Even more astonishing is the ridiculous situation whereby indirect taxes (the largest source of government revenue) are not counted as taxation on income. All this implies that the gazillions of taxes that Pakistanis have to pay on hundreds of categories of consumption and leisure is not coming from their income. So, for example, the taxes paid on petrol, food items, buying airtime (aka ‘easy load’), travel (toll), electricity and gas bills etc, do not appear to government officials as taxes on income (why else would the government keep parroting the low numbers?). This gives rise to the interesting question that if people don’t pay these taxes from their income, then where do they pay them from? Thus in reality, the majority of people in one form or another end up paying taxes from their income. It’s just that clinging to unrealistic definitions prevents us from recognising this reality. If a person does not fill an FBR form, that in no way implies that s/he is not paying taxes. As for why people don’t fill out income-related forms, more on this issue later in the column.
I am only talking about legal taxes. Almost none of us take into account the billions of rupees that the overburdened people of this country end up paying as illegal taxes every day. Take two prime examples – inflation and corruption. Inflation in Pakistan is largely a result of the government printing too much money, most of which goes into non-development work. The burden of rising prices falls squarely on the income of the people. Similarly, billions of rupees per day are extracted from people across Pakistan through corrupt practices. Where else does this illegal extraction come from other than the income of the people?
By now we should be able to transcend the myth of Pakistanis not paying taxes. It’s time to move towards another important aspect – the evolution of relations between the state and its citizens over taxation. In no way will the following few lines do justice to the history of this evolution, but I would like to simplify it for the purpose of this article. The notion of taxation, at least in a modern-day nation state, is a sort of a mutually agreed exchange between the citizens and the state apparatus. In short, over time, an institution (government) representing the people of a geographical locality came into being as disparate groups within that geographical confine realised that in many instances (like trade deals), it is advantageous to have a government than have none. It was advantageous (politically, diplomatically, socially and money wise) to have a government represent and negotiate on behalf of the people rather than disparate groups trying to hammer out agreements.
As representatives came to represent a group of people (a nation), people became willing to support them through taxation. In return, the representatives were supposed to do their best to safeguard not only a nation’s interests, but also undertake certain duties. Three of the most important were (and still are) law and order, provision of justice and enhancing the standard of living of citizens. The bitter truth is that of these three critical functions, governments in Pakistan over time (both military and civilian) have failed miserably to carry out any of them. And all the while they governed at the expense of the people (through taxation). It’s this failure of various governments on these (and other) fronts that leaves their call for more taxes on a weak moral ground.
Moreover, those in power would do well to recognise that the failure to carry out these kinds of basic functions leads to a culture that is counterintuitive to tax payments. For example, a lack of law and order translates into a fear in terms of declaring income because a wealthy person can then easily become a target. This is precisely what is happening in the major cities of Pakistan (especially Karachi and Peshawar) where being wealthy means being in danger of being abducted for ransom. This point should help explain (to a large extent) why people are so hesitant in filling out the FBR’s income declaration forms.
Let me opine, in terms of stated arguments, that the real problem is not the intent and the ability to pay but the broken trust between the government and its people. For example, despite the difficulties in making ends meet, Pakistanis spend a substantial amount in terms of charity for which they don’t find any moral opposition in their hearts and minds. The reason is that, for them, this exemplifies money well spent for a worthy cause. The same moral compulsion is missing (and for good reasons) when it comes to giving money to the government.
Let me close my argument by clarifying that in no way am I trying to paint Pakistanis as angels when it comes to matters related to tax obligations. But the refusal to meet this obligation is a behaviour that is not inherited; rather, it is formed over time in light of experiences. The Pakistani experience tells us that whatever is taken from the people will largely end up being spent for useless purposes, which in turn invites the tax non-compliance culture. Despite this, the present figure of total government revenue (from taxes) stands at a whopping Rs2.58 trillion. This is by no means a trivial amount. To still think that we don’t pay taxes would be disingenuous.
The real problem is not the low amount of tax revenue. It is the ever expanding Leviathan (the government) whose expansion comes at the cost of progress rather than enhancing quality of life. There is little justification in paying for this inefficient and corrupt Leviathan.
The writer is a freelance contributor.
Email: shahid.mohmand@gmail.com
Twitter: ShahidMohmand79