Future of Taxation

23rd November, 2018

The Pakistan at Hundred initiative hosted a panel discussion on ‘The Future of Pakistan’s Taxation’ on November 23, 2018 moderated by Dr. Mohsin Bashir. The panel included Dr. Ikramul Haq, Advocate Supreme Court and Partner Huzaima & Ikram, Ahmed Shahid Hussain, Director and Chief Strategy Officer, Service Sales Corporation (Pvt.) Ltd. and Monim Sultan, President Lahore Tax Bar Association. The talk was organised around the diversity of taxation in Pakistan and debated the broad tax base and arguments against regressive and progressive taxation.

Dr. Ikramul Haq argues that a lot of the reputation around Pakistan’s taxation is perceived and not real. He argues that even though many people – governors and donors alike – argue that there is a lot of tax theft and cheating in the country, it should be noted that Pakistan remains the most heavily taxed nation in Asia. Case in point, Pakistan has 95 million unique mobile phone users and 157 million mobile subscribers in total, all of whom pay 12% advanced adjustable income tax. Therefore, it not a question of whether we have a huge tax base or not, that we do; it is a question of how effective or efficient our taxation is. It should still, however, be noticed that there are barely 7-8 million people in Pakistan with taxable income after accounting for people below or near the poverty line, children and unemployed people; so the question should be asked that how can we tax people that are not required by law to pay it? The problem arises with how income is defined and many times governments have tried to tax items which are not even remotely linked to income such as imports hence we need to have a clear demarcation between what income is and what is not. He also argues that we, as a country, should stop looking to foreign organisations for help; we will only find solutions here, from our own country’s example and not from studies done elsewhere applied to Pakistan.

Ahmed Shahid Hussain says that that the topic of tax collection and tax governance has become supremely important after the revelation of the weaknesses of the Pakistani economy recently. Tax policy is part of economic policy, and current state is such that tax is spoken as separate from the economy: it is taken as a revenue measure and not as an economic measure. Because of this, there are a lot of contradictions within the tax code. Adding to this, a huge problem with the Pakistani economy is that it is not documented. Another alarming statistic: the banking sector represents 20% of our economy, which means that 80% of our economy is working on cash compared to only 10% cash economies in the developed world. So there are somethings where our economy is fundamentally upside down. He continues to argue that keeping the state of the economy in mind, most of our tax policy measures can only be taken in the short run to increase revenue because the framework does not exist, and is not being worked on, to take long term measures – and as we know, short term policy solutions are not sustainable and/or viable for a country’s growth over time.

Monim Sultan, President of Lahore Tax Bar, argues that the problem is not with the laws, it is with enforcement. He states that in Lahore, it is likely that around 80% of tax filing is done by tax employees in Lahore. These people have the same boundaries as everyone else with respect to the law, it is just that they are more aware of the problems and of the responsibilities related to taxation in Pakistan. Hence, we need to work hard to create awareness among the common people to bring about change. One practical problem to demonstrate this: a common trader north of Mall Road in Lahore, even though he probably has sales of millions will state that he is outside of the tax net, when this is not the case. Further, the authorities do not do well to encourage people to pay taxes, rather they coerce them into it. This is a result of our colonial legacy and the master-slave dynamic that we have instilled into our collective consciousness. The authorities need to realise that they are here for the service of the people and not the other way around: the people are not their servants.

After the three speakers, the floor was opened up to a lively question and answer session where the discussions in the talk were addressed and debated upon. The talk completed with mutual agreement between the panel members that there need to be serious policy changes implemented in Pakistan’s taxation for the country to achieve higher middle income status by 2047.

2019-05-14T13:45:50+00:00