Tax evasion: FBR plans to enhance accountability of officials

LAHORE: The Federal Board of Revenue (FBR) is planning to enhance accountability of the officials responsible for tax collection and usage in order to check evasion to enhance tax revenue, said sources. Also, said sources, there is a thought process within the Board to evaluate high tax rate to control tax evasion. They said the internal filtration of the Board is on the cards to increase tax collection which is lurking around Rs 4 trillion at present against a potential of Rs 8 trillion per annum.

It may be noted that Pakistan's rate of tax evasion is almost 50%, which is alarming and unacceptable. The sources said prime focus of recently-appointed Special Assistant to Prime Minister on Revenue Dr Waqar Masood would be on tax enhancement through discouraging tax evasion on the part of taxpayers. Lack of trust of taxpayers on the tax machinery is a challenge for the new SAPM, who has already served as Federal Secretary Finance and is fully aware of the ins and outs of the FBR.

Sources said the decision to enhance accountability of tax collectors is being taken to improve the tax-payers' trust in the state's ability to honestly and professionally handle and spend their money.

There is a need to improve the tax structure by reforming tax administration, political and intuitional accountability structures, and by greater control over corruption. The government should develop tax culture in which taxpayers, tax collectors, legislatures, and politicians are interconnected and an environment of trust in the government prevails.

The sources said the Board takes tax evasion as a grave challenge, as tax to GDP ratio in Pakistan is low due to tax evasion. Low tax revenue leads to a heavy budget deficit that ultimately compels the government to arrange loans from international institutions at the cost of the sovereignty of the country, they added.

They have further pointed out that there is a general understanding amongst the policymakers that the extension of informal economy and tax evasion is associated with a rise in taxes, social security burdens, intensity of regulations in the official economy, early retirement, and noneconomic factors that unwillingness to show exact income or profit, as corruption, unemployment, illiteracy, low wage rate, inflation, credit access, and marginal rate of return are the core determinants of the size of the underground economy.

There is an emerging informal economy that leads to increased tax evasion and an underground economy and compels the government to arrange huge external debts and increased dependence on financial aid to fulfil the gap of budget deficit or revenue shortage, they added.

According to the sources, the high ups at the Board believe that removal of tax evasion could not refer to the removal of the underground economy until measures are taken to curb corruption, reduce poverty, improve public administration, and others.

Copyright Business Recorder, 2020