NationalVOLUME 18 ISSUE # 17

Are Pakistanis really tax evaders?

Successive governments in Pakistan, no matter political or unelected, have always claimed that there is no tax culture in the country, and most Pakistanis evade taxes in one way or the other. Such claims are made not only in the country but also at international forums. The world’s lending bodies and financial institutions are told Pakistanis are tax thieves, and that is why every government has to face severe financial constraints.

Is it really the truth? Some financial experts including Dr Farrukh Saleem do not agree at all. They say the official data tells a totally different story. The Federal Board of Revenue (FBR) data showed that total tax collection in Pakistan was Rs1500 billion in 2010. And, in the year 2023, total collection reached Rs9,400 billion. That means, with an increase in tax collection every year, Rs7,900 billion more tax was collected after 10 years. Then how could it be alleged that taxes were being stolen?

There is another way to ascertain whether Pakistanis pay taxes or not. It is a comparison of the tax-to-GDP ratio with other regional countries. This ratio in Bangladesh is 7%; in Iran, it is 7.4%, but one would be surprised to know that in Pakistan, the tax-to-GDP ratio is 9.1%, which is more than Bangladesh and Iran. That means more tax is being collected in Pakistan than in Bangladesh and Iran. Then how come it could be alleged that Pakistanis are tax-evaders, and they pay less taxes compared with the people of Bangladesh and Iran.

Yes, it is true that in India, the tax-to-GDP ratio is 12%, and the main reason for it is that the Indian federating units make major contributions to the national exchequer. The Indian provinces collect taxes and contribute more to the centre. However, in Pakistan, the federating units collect taxes but share a nominal amount with the centre.

Financial expert Dr. Farrukh Saleem believes that the real problem in Pakistan is a gigantic increase in government expenses every year. The assertion could be verified from the fact that in 2010, government expenses were calculated at Rs. 2,400 billion. But in 10 years, in 2023, these expenses increased to Rs. 11,000 billion. The real issue is a lack of strict checks on ever-increasing government expenses.

It might be another surprise for various people that every Pakistani, every man, every woman and even every child, is a taxpayer in Pakistan, no matter whether they earn money or not. Even professional and habitual beggars are also paying taxes. When they use their mobile-phones, they pay taxes, when they buy petrol, they pay tax; when they use a bus, or any public transport, they pay taxes; if they have an electricity or a gas, or water meter in their houses, they pay taxes; even students and children pay taxes when they buy stationery or candies and toffees.

Recently, the government imposed Rs250 billion additional taxes on electricity consumers, and interestingly blamed the International Monetary Fund (IMF) for it. A Rs350 billion tax was imposed on gas consumers as the additional revenue adjustment, and again the IMF was held responsible for it. More taxes amounting to Rs170 billion were imposed on people, again “on the IMF demand”.

Do you believe all these taxes are being imposed on the IMF demand? Not at all. The IMF says the Pakistani government has been incurring one billion rupees electricity losses on a daily basis. The Fund wants the Pakistani government to overcome the losses in the form of power theft, line losses, etc. But, instead of overcoming the losses, the government imposes more taxes on those who are already paying their bills regularly. In fact, the government is responsible for the losses, but the public has to bear the brunt, and the IMF is held responsible for it.

The Pakistan International Airlines’ annual losses are Rs70 billion, The Railways is facing a Rs160 million loss daily, but no corrective measures have been taken by any government to curtail the losses. These are white elephants, which have been protected by every government, and the common man has to pay for it. Keeping them and doing nothing to make them viable financially is the government’s responsibility. So, it is a political issue, not an economic one.

Yes, it is a reality that a large number of people living in Pakistan do not pay taxes. But collecting taxes from them is not the responsibility of the public, but the FBR. There are three main taxes being collected in the country: indirect tax, customs duty and withholding tax. Collectively, these three taxes make 90-95% of the government’s total tax revenue. In other words, if the FBR is closed down today, even then 90-95% of its current taxes would reach it every year.

It is a global practice that governments collect taxes from the rich, and then spend that money on those who are underprivileged, and who have lesser resources for one reason or the other. But in Pakistan, the situation is vice versa. The Pakistani government collects taxes from the poor, and spends it on the rich, in the form of subsidies for filthy rich cartels.