Broadening the tax net and bringing more taxpayers into the fold has been a monumental challenge for every government in Pakistan. Thousands of eligible taxpayers have consistently avoided their tax obligations, leading to significant revenue shortfalls. To cover the expenses necessary for running state affairs, the government has often been forced to borrow money from both indigenous and international financial institutions. This borrowing exerts an additional burden on the national treasury, resulting in hikes in utility prices.
As the current government continues the legacy of its predecessors, it faces serious financial issues related to debt repayment, tax collection, and delivering social services to the masses. In a bid to revitalize Pakistan’s economy, the government has unveiled a sweeping overhaul of the tax system. This aims to harness untapped revenue potential and broaden the tax base, marking a significant departure from the country’s history of limited tax compliance.
The Federal Board of Revenue (FBR) has been vigorously working to digitize the tax system, reduce human intervention, and plug leakages to improve the overall tax collection mechanism. Prime Minister Shehbaz Sharif has emphasized the digitization of the taxation system as a priority to prevent tax evasion. Federal Minister for Finance and Revenue, Muhammad Aurangzeb, recently expressed confidence in FBR’s capabilities to achieve the government’s fiscal objectives. He lauded the FBR’s outstanding performance in collecting Rs. 9,311 billion during the fiscal year 2023-24 and expressed confidence that the FBR would meet its revenue targets for the current fiscal year, aiming to increase the tax-to-GDP ratio from 9.5% to 13% over the next three years.
Using the latest technology, the FBR has identified 4.9 million eligible taxpayers and registered 42,000 retailers under its Tajir Dost Scheme to file their returns starting July 1st, 2024. The board has introduced a monthly tax for small shopkeepers and retailers in 42 cities, issuing fixed monthly tax payments ranging from Rs. 100 to over Rs. 20,000 based on the location of the shops. There has been a considerable structural improvement, focusing on domestic resource mobilization, direct taxation from the wealthy, and prompt issuance of refunds.
The business community has expressed hope that these government initiatives will broaden the tax base instead of placing an extra burden on existing taxpayers. President of the Islamabad Chamber of Commerce and Industry (ICCI), Ahsan Zafar, emphasized the need to bring new individuals into the tax net to ensure a broader and more inclusive tax collection system. He stated, “Businessmen are willing to contribute taxes for the betterment of livelihood. However, it is necessary to bring about changes in the system and introduce reforms to make the taxation process more effective and equitable.”
Minister of State for Finance and Revenue Ali Pervez Malik highlighted the government’s commitment to FBR reconstruction and digitization for increasing the tax base. Leading businessmen have underscored the need for simplifying the tax return filing procedure. Former President of the SAARC Chamber of Commerce and Industry, Iftikhar Malik, remarked, “Reforming Pakistan’s tax system to make it simpler, more efficient, and taxpayer-friendly would have numerous benefits including increased tax compliance, a broadened tax base, improved revenue collection, ultimately leading to economic growth and stability.”
To improve the overall tax system, it is recommended to simplify tax laws for better understanding, ensure transparency and accountability in tax administration, enforce tax laws clearly and consistently, and establish robust support services for taxpayers. In view of the shortfall in tax collection and tax evasion by different segments of society, the government must diligently pursue its agenda of expanding the tax base and collection in consultation with all stakeholders.
The announced reforms are expected to significantly improve the tax system, resulting in increased tax compliance, a broadened tax base, and improved revenue collection, thereby achieving economic stability. Political unity is also crucial to achieve these targets for the betterment of the people. All political parties must cooperate with the government, setting aside party affiliations, to push forward the agenda of maximum revenue collection. Politicking on non-issues and unnecessarily hampering efforts to steer the country out of economic turmoil may worsen the situation, increasing debt burden, inflation, and other economic problems.
It is imperative to formulate a Charter of Economy, agreed upon unanimously by all parties, in line with the country’s needs. This would help put Pakistan on a sound economic footing and alleviate the suffering of the masses whose lives have become miserable due to mounting energy prices and other daily use items.
Afsheen Gohar believes in the power of clear, straightforward writing. Her blog posts tackle everyday topics with relatable insights and easy-to-follow advice. With a conversational style, she makes complex subjects feel understandable. She’s dedicated to sharing knowledge and empowering readers to take action. Find her latest posts on trending in social.
