A new report by the IMF, given to the Federal Board of Revenue (FBR), highlights the drawbacks and inefficiencies of the Pakistani tax system and proposes changes in policy to counter the problem. Focusing on tax exemptions and a regressive sales tax, the report brings to attention the fact that our taxation system not only goes against international standards but is also highly inequitable—advantaging a certain class at the expense of the others.
The FBR itself admitted that the degree of tax exemptions given to industries, businesses and groups have increased throughout the course of the year, but only for the purpose of enhancing productivity. What needs to be understood is the fact that this productivity is one that the debilitating status quo desperately needs. A spurt in production would alleviate the burdened economic system of Pakistan. However, if we continue with policies that aim to provide relief through the readjustment of the next fiscal year, it may as well be too late.
Secondly, not only do these tax concessions play to the benefit of a privileged class but matters are made worse when we get an understanding of the sales tax policies in Pakistan. Traditionally, a sales tax should make up for a small portion of the government’s revenue. However, this kind of taxation accounts for the majority of the government’s revenue—going against established global standards. Furthermore, it is also debilitating in nature for the masses that seem to have to pay a higher portion of taxes, when taking into consideration their income amounts, than the well-off minority. This inherently prejudiced tax system is one that needs to either be abolished or minimised substantially to cater to the interest of the people.
The IMF report proposes many changes to existing policy that will help organise the system of taxation in Pakistan so long as officials are willing to, and open-minded enough to, incur drastic but needed changes.