COMMENT: An unwelcome obligation -Anwar Syed - Tuesday, December 07, 2010

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Taxpayers feel they can get away with tax evasion. Income tax officers whose function it is to scrutinise their returns and ascertain their liability are willing to fabricate figures to their advantage in return for a consideration. The two of them collude to cheat the treasury of money that rightfully belongs to it

Governments are made to do things for the people that they cannot individually do for themselves. That costs money, which they must pay. They do so by paying a variety of taxes. A straightforward type is a tax on incomes, which in many jurisdictions is graduated, meaning that the rate of taxation beyond a certain designated minimum increases as does income from one slab to the next. This would normally mean that the richer you get the higher the rate at which your tax is calculated. But quite often exemptions and other loopholes are left in the system, enabling the wealthy to avoid paying their share of the cost of governance and shifting much of the burden to the middle income groups. Taxes may be imposed on sales of specified categories of merchandise. A tax on a flat rate on the sale of all merchandise may also be levied. This may be called a general sales tax (GST) like the one the present government intends to impose. The proposed measure has agitated the people and political observers across the country. Much is being said about this tax; more con than pro.

The government argues that it is desperately short of money, so much so that it may not be able to pay its employees their salaries two or three months from now. It must therefore find money and the GST is an uncomplicated way of raising it. The opponents have come up with several plausible arguments against the tax. It is self-evident that the consumer will end up paying more for an item than he did before the 15 percent GST had been added to the price. Prices including those of the necessities of life, which the poor as well as the wealthy must buy, will rise. For the poor the burden of living will become even heavier.

Critics say that the government should tighten its belt before it asks the people to tighten theirs. It should cut down most of its non-development expenditures, send away most of its present army of ministers, and reduce the preposterous cost of operating the president’s mansion and the prime minister’s house (reportedly Rs 100,000 per day in each case). The federal and the provincial governments should bring incomes from farming into the tax net. Agriculture forms about 40 percent of the country’s economy but large landowners pay no taxes and instead receive a variety of subsidies.

Taxes are an unpopular liability everywhere. But folks are willing to pay them when the government provides services to them in return. An American citizen in the middle income group pays nearly 40 percent of his income in taxes to the various levels of government, namely, federal, state, county, and the town in which he lives. Apart from defence and the management of the country’s foreign relations, these governments provide services in virtually every sector of the citizen’s life, notably transportation systems, free education up to the high school and subsidised education in state-funded colleges and universities, health insurance to the present or retired employees of public or private agencies, unemployment insurance, police protection and judicial adjudication, among other things.

Governments in Pakistan provide the same services, but their level and coverage are much smaller. A youngster in a village may have to walk several miles every day to reach an elementary school and longer to reach a middle or high school. He may have to do the same if he wants to see a physician in the nearest town and buy prescription medicines. In Punjab and Sindh public funds are paid for the construction and maintenance of schools that do not exist on the ground. There are persons who are presumably teachers, drawing salaries, but doing no work because they have no students to teach. These cases of fraud are enacted with the collusion of administrative officers in the education department with whom the loot from these ghost schools is shared.

Such being the performance of governments in Pakistan, it is easy to understand why people do what they can to avoid paying taxes. Salaried employees whose tax is deducted at the source do not have a choice in the matter. But a variety of business people and professional persons such as doctors, lawyers, accountants, architects, among others, do not maintain full records of their transactions. Many of them understate their incomes and the resulting tax liability.

An additional reason for tax evasion may be mentioned. Taxpayers feel they can get away with it. Income tax officers whose function it is to scrutinise their returns and ascertain their liability are willing to fabricate figures to their advantage in return for a consideration. The two of them collude to cheat the treasury of money that rightfully belongs to it. Another reason for this fraud should be noted; the taxpayer is not sure that the money he does pay will be spent for the intended purposes. He has good reason to suspect that it will be embezzled or diverted to unlawful uses.

The present government does not really care how much of taxes it does actually collect. It has been borrowing left, right, and centre at home and abroad, some of it from private banks at prohibitive interest rates. It has been doing so as if there will never be a day of reckoning. It has not given a second thought to the debt burden it is leaving for the coming generations to bear. It is resorting to the GST under reference mainly because the international lending institutions as well as domestic sources have declined to give it any more money unless it sets its own house in order.

The writer, professor emeritus at the University of Massachusetts, is a visiting professor at the Lahore School of Economics

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