At the recently held Think Fest, a session titled “Why Do They Tax Us So Much?” shed light on Pakistan’s taxation challenges and the pressing need for systemic reforms. The discussion featured former Federal Finance Minister Miftah Ismail and Chairman of the Federal Board of Revenue (FBR), Rashid Mahmood Langrial, who shared their perspectives on the country’s tax landscape.
Chairman FBR Highlights Taxation Challenges
Chairman FBR Rashid Mahmood Langrial began by addressing a critical issue: the limited number of taxpayers in Pakistan. He explained, “The problem is that only a few people fall within the tax net, while many evade taxes entirely. Ironically, those who avoid paying taxes often appear on TV, offering unsolicited advice on how to fix the economy.”
Langrial criticized these individuals for their undue influence on policymaking, which, according to him, results in substantial annual tax losses. He emphasized the urgent need to expand the tax base to ensure sustainable economic growth.
Tax Targets: A Herculean Challenge
Rashid Mahmood Langrial shared the ambitious tax collection target set for the current fiscal year, which exceeds PKR 13 trillion—a figure 40 times higher than the previous year. He explained that this target is tied to the country’s GDP, projected at PKR 120 trillion for the year.
Despite these ambitious goals, Langrial acknowledged the significant challenges posed by Pakistan’s tax system, particularly in the area of sales tax. “The authority for sales tax collection lies with the federation, but we face a massive deficit in this area. This highlights the need for greater collaboration and reforms between the federation and provinces,” he stated.
Structural Reforms: The Need of the Hour
Langrial called for comprehensive reforms to address inefficiencies in the tax system. He pointed out that the existing framework often fails to capture a significant portion of potential revenue due to loopholes and poor enforcement.
- Expanding the Tax Net: Langrial emphasized the importance of bringing more individuals and businesses into the tax net. He argued that a broader tax base would reduce the burden on compliant taxpayers while increasing overall revenue.
- Provincial and Federal Coordination: He stressed the need for better alignment between provincial and federal authorities to address issues such as sales tax deficits.
- Public Awareness: Educating citizens about the importance of taxes in funding public services was identified as a crucial step toward improving compliance.
Miftah Ismail’s Perspective
Former Finance Minister Miftah Ismail also shared his insights during the session. He underscored the importance of fiscal responsibility and efficient resource allocation to build public trust in the taxation system. Ismail pointed out that high tax rates discourage compliance, and lowering rates while broadening the tax base could yield better results.
The Role of Tax Revenue in Economic Stability
Tax revenue plays a vital role in funding essential public services, such as healthcare, education, and infrastructure development. However, Pakistan’s reliance on indirect taxes disproportionately affects lower-income groups, further highlighting the need for reforms.
Langrial explained that without significant improvements in tax collection, the government would continue to face budget deficits, leading to increased borrowing and economic instability. He argued that achieving the PKR 13 trillion target would be a monumental step toward reducing reliance on external debt.
The Way Forward
The discussion concluded with actionable recommendations for improving Pakistan’s tax system:
- Simplify Tax Procedures: Streamlining the tax filing process can encourage more individuals and businesses to comply voluntarily.
- Strengthen Enforcement: Implementing stricter measures to curb tax evasion is critical for boosting revenue.
- Enhance Transparency: Building trust through transparent use of tax revenues can motivate citizens to contribute their fair share.
- Promote Digital Solutions: Leveraging technology for tax collection and monitoring can reduce inefficiencies and increase compliance.
Building a Fairer Tax System
The session at Think Fest highlighted the urgent need for systemic reforms to address Pakistan’s taxation challenges. Expanding the tax net, improving provincial-federal coordination, and fostering public trust are essential steps toward creating a fair and efficient tax system.
As Pakistan aims to achieve ambitious revenue targets, the government must prioritize reforms that balance the tax burden while ensuring economic stability. By addressing these challenges head-on, the country can pave the way for a more prosperous future.
