Tax Evasion In Pakistan
As per PIDE, Pakistan’s leading research Institute, annual average Tax evasion was just around Rs5b in 1970s which rose drastically in next two decades. The following data is not only astonishing and unbelievable but clearly shows the change in approach of our society 1980s == Rs 25b
1990s == Rs88b Percentage of underground economy to GDP 1970s 26% 1980s 37% 1990S 42% It all resulted in a compound annual growth rate of 15.42 percent [(88/5) (1/20) -1]. That equates to roughly Rs 6,500 billion in tax evasion in 2020, or more twice Pakistan's fiscal deficit of Rs 3.403 trillion (Rs3403 billion). Continuous decrease in Tax collection in Pakistan has been because of the following reasons.
• People are not aware of their social responsibilities and duties because of low literacy rate. They do not have the capability of keeping proper business records and are also reluctant to change old business style because of fear of interaction with Tax officials.
• It is a common feeling in people that amount collected through taxes is not spent for their welfare or to make their life comfortable. They prefer to give donations in hospitals, mosques or for help of some known ones rather to pay amount in government accounts.
• The elite class, business community, bureaucrats and influential persons have absolutely no fear in mind about consequences of non-filing or concealment of assets or income while providing data to Tax authorities.
• All the money earned through undocumented business is blocked in shape of assets on name of their spouses and young children. Income assessment of such class becomes difficult.
• Tax exemption in agriculture sector is another tool used by influential class to hide their income actually generated through other sources.
• The inability or lack of will of Tax authorities is found to determine true income or pick habitual hiders or defaulters. The concerned Tax departments are under equipped to scrutinize documents which is an added factor to provokes others also to exaggerate their expenses or hide income.
• Business men prefer cash transactions instead of accepting cheques. It plays a vital role in flourishing undocumented economy. Investigation in absence of documents becomes extremely difficult.
• People underreport their income with the fear of getting it enhanced by authorities at the time of assessment.
• Despite reduction in Tax rates, evasion has increased because of non-substantial increase in Tax family. The fear of harassment and possible call to produce more documents does not let people to get themselves registered in Tax network.
• Tax payers prefer to join hands with Tax officials instead of producing documents or depositing more amount in respect of Tax.
• Regular power shortage, lack of health facilities at Govt hospitals and dispensaries, broken roads, non-cooperative attitude of public servants, lack of basic facilities at public spots, poor condition at government schools, poor condition of trains / railway stations, non-maintenance of children parks, garbage at road side and lack of facilities for special children are all the factors which compel people not to pay the taxes. It is generally perceived that all large portion of Tax amount collected is spent for providing privileges to elite class.
• High living cost and regular inflation in presence of uncontrolled discretionary powers of Tax officials also restrict Tax collection
• Complexity in Tax system due to non-consistent policies, loop holes and uncertainty and limited information about legal laws help in avoiding Tax payments.
• Different amnesty schemes announced after regular intervals have also discouraged potential Tax payers. Honest and potential taxpayers are tempted to follow the steps of those having taken benefits of such amnesty schemes.
• Famous and Renowned lawyers, Tax consultants and accountants’ services are easily available for guidance in Tax evasion.
• According to a finding of a France market-based Research firm, Pakistani Industrialists use various ways to hide production which lead to Tax evasion. famous sectors in this regard are Textile, Auto parts, Vehicle rubber Tyres & lubricants, Tobacco, Pharmaceutical, Tea and Real estate sectors.
The estimated Tax evasion figures released by the firm are Auto lubricant & Tyre sector is around Rs90b. Tobacco Industry = Rs75.85b Real Estate = Rs55.65b Pharmaceutical sector =Rs5band almost same Tax evasion in Tea sector.
Economists agree that shortfall in Tax collection not only hinders Development program but also increases inflation which reduces purchasing power of people. In a recent report, Ipsos stated that Pakistan could strengthen its position in the Human Development Index (HDI) by preventing tax evasion worth billions of Rs.
