By Abdul Khaliq/
The link between taxation and development is fundamental. A functioning state that can meet the basic needs Citizens for Tax Justice in Pakistan The link between taxation and development is fundamental. A functioning state that can meet the basic needs of its citizens must rely ultimately on its own revenues to meet development needs and objectives. Using the tax system, the state mobilizes domestic resources, redistributes wealth, provide essential services and infrastructure.
However, governments across the world struggle to collect enough taxes to fund essential services in a fair way. According to Christian Aid, Sothern countries lose out on an estimated $160 billion each year as result of trade related tax dodging. This is more than those countries receive in aid. These countries have to face external pressure to offer tax breaks/holidays to MNCs. The unscrupulous companies and rich individuals usually exploit the loopholes in the weak taxation systems of the poor countries and deprive them of vital tax revenues.
These countries have to face external pressure to offer tax breaks/holidays to MNCs. The unscrupulous companies and rich individuals usually exploit the loopholes in the weak taxation systems of the poor countries and deprive them of vital tax revenues. Over the past three decades the nation states have been offering lower tax rates and in some cases financial secrecy to MNCs in order to attract foreign investment. Such incentives of financial secrecies lead to tax evasion, tax avoidance, dodging, false invoicing and trade mispricing on the part of the transnational companies.
The question arises if governments, like Pakistan, continue to give concessions like, tax holidays to attract investors, where we will get money to finance social services. We will source it either from indirect taxes or from borrowing, which more burden the people. Of course financing through taxation is not the only factor that derives provision of such services. Other factors; such as political will are crucial. But Tax is important part of the solution. For this reason, citizens in many countries have sought to influence the tax policies to order to get services to which they are entitled.
Why bother with Tax?
While some international civil society groups have long been campaigning for fairer tax systems, but the critical role of tax in achieving development and social justice in Pakistan has often been neglected by the local civil society. The crucial issue of tax could not get the due degree of priority in the development agendas of the local society in Pakistan.
For many in Pakistan, tax is a complex topic, best left to experts. But this need not be the case. Tax may appear technical but it is an issue too critical to bypass. Fair and effective tax collection is essential for raising the revenue to deliver services that citizens need. It is a powerful tool to redistributing wealth within society to address poverty and inequality. And tax is the glue that builds of governments to their citizens. We Pakistani needs it more than any other nation, because our rulers have become habitual to international borrowing and stand accountable to IFIs instead of citizens.
For these reasons engaging with state tax policy and struggling for tax justice is essential for us to achieve social and economic rights of the citizens. Be it issue of poverty, social exclusion, community development, aid, debt, trade, governance and foreign investment, there are strong reasons to integrate the question of tax justice in these struggles.Â Taxation is not an exclusive domain of economic planners and administrators. It is more importantly the concern of the local people. They should be involved in the process of deciding what to tax, whom to tax and how to tax, as well as in collecting and spending the revenue.
Tax evasion â€“ the real challenge for Pakistan
The Poor taxation system is at he heart of economic woes of Pakistan. The country has the lowest tax-to-GDP ratio in the world and a taxation system that is characterized as unjust and discriminatory. With 0.9% of the people of Pakistan paying taxes, it comes as little surprise that it is unable to generate enough revenue to end debt dependency and break the shackles of the IMF and creditors.
Not a single offender has been prosecuted for tax evasion in 25 years in the land of the pure, which shows the government apathy towards issue of tax avoidance and evasion. The system in Pakistan offers easy escape to those who do not pay taxes so the affluent classes, business centers continue to evade taxes while the economy suffers.Â The amount of tax evasion estimated by the NAB is equal to Rs.7 billion per day. The culprit is corruption that comes at a heady cost of an estimated Rs.12 billion per day and is an evil that has been growing at an unchecked pace.
The Tax Amnesty scheme for example, an effort to bring evaders into the tax net, prove incentive to tax evaders. These initiatives have never helped broadening tax base in the country rather these have encouraged tax evaders and non-compliances. In fact, if anything, such a measure endorses discrimination between the subjects of a state where honest taxpayers will surely feel disgruntled.
1,200 â€˜foreignâ€™ firms evade Rs.300b tax annually
Around 1,200 so-called foreign companies, which entered into joint ventures withÂ Pakistani firms and their owners became â€˜resident personsâ€™, are involved in evading tax, rather claiming refunds as their proprietors are portraying themselves as â€˜non- resident personsâ€™, inflicting about Rs.300 billion annual loss to national exchequer.
According to a report1 these foreign entrepreneurs who, are called â€˜non-resident personsâ€™ in technical language, are exempted from paying tax under the law. However, in some cases, their companies are bound to register themselves and enter into joint ventures (JV) with Pakistani companies or individuals, for which they have to get license from Pakistan Engineering Council (PEC).
When the Non-Resident Persons enter into JV with locals, as per Income Tax Ordinance (ITO) section 84, their status changes to Resident Persons and they are bound to pay tax under section 153 (I) (c) of the ITO 2001. Such foreigners or their companies, then, can neither claim any kind of refund nor can avail any exemptions and they are bound to pay full taxes on all kinds of contractual transactions.
About 1,200 such resident companies in Pakistan are not paying taxes despite that some of them have lost cases in the court of Federal Tax Ombudsman (FTO). Following the FTO decisions in favor the department, the FBR, instead of issuing a circular to collect taxes, is favoring them by keeping silent.
Thus it is hardly possible to speak of the struggle for an equitable society and for social justice unless the agenda of progressive taxation is concretely articulated. In Pakistan neo-liberal economists, businesses experts and wealthy individuals generally dominate tax debates. Their concerns are often different to those of civil society more broadly. Yet tax policy has substantial impact on many of the core concerns of Pakistani civil society. The decisions on revenue issues are some of the most important the government makes. Therefore it is vital that civil society be in position to offer its perspectives on tax polices so that it can help broaden the debate on Tax justice.
What should be done:
- Public awareness/education on importance of tax as human rights issue.
- Campaigning for the progressive taxation system in Pakistan
- Highlighting issues of tax evasion, avoidance and loopholes in the system
- Debating tax policies, measures and tax amnesty schemes and present position
- Working for right to information on tax data of the transnational corporations.
- Exploring financial secrecy of MNCs in Pakistan through action research
- Building alternative progressive positions/papers, pro-people paradigms on tax â€¨and economic justice through discussions, dialogues on state tax policies.