"We need to design a fiscal policy that facilitates the businesses, we would like to do spade work for the upcoming governments, so that the country could benefit in future," -- Dr. Shamshad Akhtar, Caretaker Finance Minister

Dr. Shamshad Akhtar is reported to have emphasised the need to improve tax-to-GDP ratio "to fund the development projects" and asked the Federal Board of Revenue (FBR) to furnish reports about the monetary implications of various tax incentives and amnesty schemes on revenue collection.

Earlier, she gave a go-ahead for holding policy level dialogue with the International Monetary Fund (IMF). Even before her green signal, the IMF team arrived in Islamabad "for gauging the economic health of the country by end of the ongoing month".

Many independent analysts have been predicting that the government of Pakistan Muslim League (Nawaz) would intentionally bring the economy to the brink of collapse and then the caretaker setup would be blamed for going to the IMF. Many say the caretaker regime lacks legal or moral authority to negotiate any long-term agreement with the IMF. They argue that they should leave the matter to the new elected government having fresh mandate for the next five years.

It is obvious that the lingering economic crisis, especially bourgeoning fiscal deficit, dwindling reserves and huge current account and trade deficits, has alarmed the IMF -- its anxiety is real regarding Pakistan’s capacity to repay its huge loan if the present mess continues. The forces that matter are trying to avert bankruptcy.

The IMF, with an enormous stake in Pakistan, has been highly critical of FBR’s performance in particular, fixing what it calls ‘ambitious targets’ and then missing the same with a wide margin.

Chairman FBR, while briefing the caretaker minister on June 6, 2018, conceded an expected shortfall of Rs162 billion vis-à-vis the original target (Rs4.013 trillion) and that of Rs84 billion with reference to downward revision of Rs3.935 trillion.

The perpetual failure to crack down on untaxed assets and ill-gotten wealth, rather giving generous amnesty schemes to the rich and mighty, has converted Pakistan into a ‘soft-state’ -- the term introduced by Swedish Nobel-winner economist, Gunnar Myrdal, in his book Asian Drama to describe a general societal "indiscipline" prevalent in South Asia and by extension much of the developing world in comparison to the modern state that had emerged in Europe.

We need radical reforms on all fronts to liberate ourselves and transform Pakistan into a true social democracy.

With lukewarm attitude and incompetence, FBR will never be able to achieve the desirable tax-to-GDP ratio of 20-25 per cent. FBR’s failure can be measured from the fact that during the last four years five tax amnesties were given, yet it failed to improve the number of filers.

Out of 95 million unique mobile users (total subscribers are 150 million), there are about five million that expend Rs30,000 or above per annum and have an average income of Rs2 million plus, but have never filed tax returns.

The real tax potential of Pakistan is not less than Rs8 trillion, but FBR is begging for money in the name of amnesty schemes from tax evaders and criminals. IMF is also not bothered about the real tax potential and has always been forcing the government to introduce harsh indirect taxes that does not hurt the rich but strips the poor of whatever little income they earn.

It is high time that FBR improve its enforcement capacity through Tax Intelligence system to detect tax losses. Capping budget deficit at 4.5 per cent cannot be possible without substantial resource mobilisation and drastic cuts in non-productive expenses coupled with rapid industrial growth that will ultimately improve tax-to-GDP ratio.

We should stop talking about more taxes--favourite prescription of lenders/donors. Due to non-taxation of luxury and commercial properties e.g. clubs and golf courses, unprecedented exemptions given to generals, judges and high-ranking civil officials, the national kitty suffers immensely. We must discuss about palatial bungalows in GORs -- by leasing them for 100 years for commercial purposes we can raise funds of billions to fund projects and retire loans.

We can redo our main cities to make them engines of growth. Dr. Shamshad may suggest to the coming government to end the colonial systems (elite service groups, judiciary, perks, plots, laws, etc) -- the real cause of our problems--that nobody wants to change.

The suo motu actions taken by the Chief Justice of Pakistan will be meaningless unless we go for complete structural reforms in all spheres of governance. Our judicial system is one of the worst examples of inefficiency.

The real dilemma of the FBR is that mighty segments of society do not pay personal income tax, courtesy permanent amnesty scheme available in the Income Tax Ordinance, 2001 in the form of section 111(4). This will not plug the loophole despite restriction of 10 million in a year with effect from July I, 2018 to probe the source.

Those who do not whiten their black money through "managed remittances" avail loathsome periodic amnesty schemes to decriminalise their untaxed wealth and incomes which amounts to sneering at honest taxpayers. The two ongoing schemes ending on June 30, 2018 are not going to be the last of their type. Everyone is expecting extension(s). Indeed, the IMF will never take note of it -- this is not their concern at all. They want austerity, oppressive taxes, privatisation and their mantra has always been followed in Pakistan by their forcefully imposed financial wizards.

The tendency to squeeze more and more from the existing taxpayers and giving a free hand to non-filers has eroded the tax system to an extent where voluntary compliance and tax enforcement have lost relevance. The present tax system inflicts greater and undue incidence on the poor and middle-class people. The rich and mighty are neither paying any agricultural income tax nor income tax on their non-agricultural income. Cartelisation and tax bonanza in sugar industry is a classic example.

Adding insult to injury, the tax collected from the citizens is wasted on unprecedented privileges and perquisites meant only for the elites -- indomitable military complex, civil bureaucracy, higher judiciary, landed aristocracy and industrialist-turned politicians.

Pakistan faces the Herculean task of providing jobs to millions of young people every year. For achieving this target, economy must grow at the rate of 8 per cent to 10 per cent per annum over a long period of time -- for this we need investment of 25 per cent of GDP. This challenge is also a great opportunity for economic progress. A majority of job seekers are the youth, which is our greatest asset -- imparting education and skills to them and creating matching jobs is the real challenge.

This can be met successfully by assignment of taxes for productive investment and employment generation--our real engine of growth.

We can raise tax-to-GDP ratio to 25 per cent only if a fair, predictable and efficient tax model for rapid industrial and business growth is devised. It requires an analytical study of all the irritants prevailing in tax codes, procedures and implementation processes. The main irritant is highhandedness, corruption and unprecedented high level of maladministration in tax apparatuses -- both at federal and provincial levels.

We need public debate for suggesting solutions to remedy the situation and promote taxation and business growth attracting domestic and foreign investment and ensuring much-needed jobs. The starting point for this can be proposals contained in the paper, Towards Flat, Low-rate, Broad & Predictable Taxes, published by Prime Institute, a public policy think-tank.

The writers, lawyers and authors, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)