Pakistan’s Tax Culture

Pakistan is one of the various countries where taxation culture has not yet been able to fulfill its rudimentary pre-requisites. Tax collectors and Taxpayers, which make a star couple of this bleak picture, are never on the same page in this country. Consequently, the whole system is yet to produce even fifty percent results of its potential. As per the International Monetary Fund and Asian Development Bank, Pakistan is capable to increase its tax to GDP ratio up to 25% as compared to 11%, which is an average ratio for last ten years.

The tax culture, which has evolved gradually over the decades, still hasn’t matured to the level of similarly sized economies. It has to be seen through the lens of tax collectors and the taxpayers to achieve best possible tax collection outcomes. Unfortunately, neither collectors nor payers have yet understood that the taxation system plays the role of blood circulatory system for a country, where taxes are the ‘blood’ and taxpayers ensure an adequate blood supply as their national duty. On the other hand, tax collectors have to ensure its appropriate transmission to all the significant organs of the country which are dependent upon it to perform their assigned functions.
Taxpayers’ dilemma
Some very popular questions and reactions by our fellow citizens, when you try to convince them to file their taxes are:
Why should we pay taxes, what are we getting in return?
Registration with tax authority will surely invoke trouble!
Those who do not file their taxes are safe from FBR!
Why shouldn’t we relocate to the countries with better standard of living and low tax rates?
Tax is an enforced contribution - yet there must be some answer to the aforementioned questions which seem unsolvable considering the decades of slow progress by successive governments in providing basic facilities like water, security, education etc. However, one thing that we all must understand is that tax evasion is indirectly proportional to our country’s prosperity and resultantly ours.
We cannot ask governments to provide us with the state-of-the-art facilities without paying our due taxes; otherwise, this would result into an endless ‘chicken and the egg’ causality dilemma.
Nobody reaches the destination when the Blind are leading the Blind
One important avenue which has unfortunately been left unattended till now is consideration of tax as an academic subject. There are only few qualifications that adequately cover taxation from an academic standpoint. Resultantly, taxpayers are at the mercy of unqualified tax practitioners who learn on trial and error basis. Nobody reaches the destination when the Blind are leading the Blind. Taxpayers may never be motivated towards payment of their taxes if they are not guided and appreciated in a better way through qualified professionals. There can be a regulatory authority which shall ensure that the taxpayers who are one of the most important segments of the society may not go into the wrong hands or fall astray due to misguidance by ‘charlatans.’ Simultaneously, the taxpayers must acknowledge that they also owe a duty of care to their own selves with regard to selection of their tax advisors. This has to be done cautiously to ensure that they are in safe hands.

Tax collection or tax nuisance?
Instances of taxes stuck in litigation have rapidly increased over the past few years, having reached up to Rs. 1.8 trillion by 2021, which represented 21% of the fiscal budget for that year. Disputed tax recoveries arise mainly due to reasons like tax evasions, difference in interpretation of tax laws, and illicit tax demands or ‘Tax manufacturing’. Every now and then, we see that the FBR is lauded for remarkable tax collection performances, which ought to be a good sign for the economic health of the country. However, the tax collectors must also ensure that such collections are not made on account of undue recoveries that result in large case loads before courts or appellate authorities. FBR’s statistics suggest that 38% of the disputed recoveries are pending only before Commissioner Appeals, which is an in-house first independent appellate forum for the taxpayers. Secondly, the business communities feel harassed due to such unnecessary recoveries. Instead, they deserve appreciation for being an integral part of overall economic system of the country.

We must also acknowledge improvement measures taken by the recent Government, which resulted in twofold increase in tax base in last three years. Yet, there are several other shortcomings, because of which there is a massive room for improvements in the taxation system of Pakistan. Both the taxpayers and tax collectors are required to play theirs roles with integrity if Pakistan is to flourish (inshAllah).

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