Taxation, a potent instrument to shape and influence the socio-economic policies of a country, has not received due attention in Pakistan. A rational tax policy discourages, even penalises, those who possess assets that are economically unproductive -- for example accumulation of wealth in the form of idle plots not used for domestic or commercial use. In social democracy, the most important objective of taxation is to provide economic justice, which relates to distribution of tax burden and benefits of public expenditure while maintaining vertical and horizontal equity. These elements are missing in our tax policy.

Unfortunately our successive governments, both military and civilian, used taxes as a tool to extort from the masses as much as possible for their own comforts and luxuries. By resorting to repressive taxes, they make the rich, richer and the poor, poorer. Our financial managers are caught up in a dilemma. On the one hand there is a mounting pressure to reduce fiscal deficit through more collections and on the other, they are not ready to abolish innumerable tax exemptions and concessions available to the rich and mighty. They have no will to plug revenue leakages -- on the contrary yet another amnesty was extended to non-compliants by the Parliament on January 21, 2016 by passing Income Tax (Amendment) Act, 2016, despite protest from Opposition.

Pakistan needs a paradigm shift in tax policy and revamping of the entire tax administration by establishment of a National Tax Authority (NTA), capable of generating sufficient resources for both, the federal and provincial governments. Through consensus and democratic process, all the parliaments can enact law for NTA, comprising specialists rather than bureaucrats. This will facilitate people to discharge their taxation obligations by dealing with a single body rather than multiple agencies at national, provincial and local levels. The mode and working of NTA can be discussed and finalised under Council of Common Interest [Article 153] and its control can be placed under National Economic Council [Article 156]. Tax Reforms Commission (TRC) in its interim report, adopting our oft-repeated suggestion, has also emphasised establishment of NTA for achieving the goal of a functional, efficient and integrated tax administration.

Pakistan cannot improve tax collections at national and provincial levels unless fundamental tax administrative reforms are undertaken and the same should be done under the banners of Council of Common Interest and National Economic Council. A fully automated, professional and efficient NTA would alone be in a position to improve capacity by detecting tax avoidance and evasion through Tax Intelligence System. Presently, the FBR is collecting 65% of taxes by imposing more and more tax obligations on organisations and individuals in the form of irrational withholding tax provisions.

There cannot be two opinions about effective use of information technology in tax enforcement that the FBR has so far failed to do even after spending millions provided by World Bank and others in the name of tax reforms (sic). In its first quarterly report for 2016, the State Bank of Pakistan has aptly pointed out that "the number of tax-filers has gone down to less than 50 per cent of what it was in the fiscal year 2007 [1.8 million], reflecting the poor performance of the government and its failure to broaden the tax base".

Pakistan’s tax potential at federal level alone is Rs. 8 trillion. According to Household Integrated Economic Survey (HIES) 2011-12 conducted by Pakistan Bureau of Statistics, 5 million individuals have annual taxable income of Rs1.5 million. If all of them file tax returns, income tax collection from them at the prevalent tax rates would be Rs1650 billion. If income tax collected from corporate bodies, other than non-individual taxpayers and individuals having income between Rs400,000 to Rs1,000,000 is added, the gross figure would not be less than Rs4500 billion -- the FBR collected only Rs. 1037.7 billion as direct taxes (which includes almost 40 per cent of indirect taxes in the garb of taxation) in 2014-2015.

Due to leakages in sales tax, federal excise and custom duties, the total collection is not more than 50 per cent of actual potential [joint study of Andrew Young School of Policy Studies at Georgia State University and World Bank]. The FBR in 2014-15 purportedly collected Rs. 1087.8 billion as sales tax, Rs. 162.2 billion as federal excise and Rs. 306 billion as customs duties. Collection under these heads should have been at least Rs3500 billion -- "Pakistan is losing a staggering $2.63 billion worth of revenue a year due to smuggling of just 11 goods that are making their way through porous borders."

Target of Rs8 trillion is achievable provided all the segments are taxed, tax machinery is overhauled, leakages are plugged and all exemptions/concessions are withdrawn. If existing tax gap is bridged, the FBR’s collection can reach Rs8000 billion (Rs4500 billion direct taxes and Rs3500 billion indirect taxes) which could change the entire fiscal scene and fate of the nation. By collecting this amount, we can easily meet current expenditure, development and public welfare outlays -- the government, requiring no internal or external borrowing, would be able to retire debts in a few years as done by the Hungarian government.

The governments, both federal and provincial, lack will or vision to achieve a sensible balance between income, capital and consumption taxes. They rely on bureaucrats for framing policies, who go for ill-designed social programmes convincing politicians that these would attract more votes. The country actually needs more investments in creating human capital (e.g. education, vocational training and health), and necessary public infrastructure to increase productivity of the economy. It is by no means an easy task in Pakistan but things are improving as the public is becoming increasingly critical of laxity on the part of politicians. They are now better informed about the consequences of undisciplined public finance. Independent observers are providing tax data and surveys showing how the rich and mighty are thriving on their money. They are also exposing figure fudging that is fast taking a habitual trend at the FBR level.

It is now a matter of record that the FBR’s collection figures include blocked refunds of billions of rupees and advances taken though not due. Public Accounts Committee in the past, even after admission of figure fudging by the FBR bosses, never punished anyone. Strangely, but expectedly, till today nobody has raised this issue in the National Assembly or Senate. As elected members protect the FBR bosses, they in return do not investigate their tax affairs. Tax Directories for 2013 and 2014 show ludicrous income declarations by majority of parliamentarians, yet no action is taken till today against anyone. This unholy alliance must end if we have to collect taxes from all, wherever due, and desist from extorting money from them, where not due.

Excessive and regressive taxation prevent individuals and businesses from taking full advantage of opportunities related to new knowledge-based economies. Taxpayers should ideally share the burden of protecting those who are less privileged in the society, either through well-designed social protection but not through excessively rigid job protection measures and inflexible labour regimes that penalise productivity. That is why a fair and transparent tax system is so essential for maximising economic growth.

In Pakistan, ordinary people are subjected to heavy and cruel taxation to finance luxuries of elites enjoying free perquisites, benefits, including purchase of valuable state-owned plots in prime locations at throw-away prices. The way they waste and plunder taxpayers’ money is no secret. The country is surviving on bailouts from IMF due to perpetual failure of the ruling elite to concentrate on growth rather than regressive taxation.

Revenues worth trillions of rupees have been sacrificed by governments -- civil and military alike -- since 1977 extending unprecedented exemptions and concessions to the privileged classes. Prior to the 18^th Constitutional Amendment in April 2010, the federal and thereafter the provincial governments have shown little interest in collecting progressive taxes e.g. Wealth Tax, Estate Duty, Gift Tax, Capital Gain Tax etc.