Only 126 parliamentarians out of 446 filed income tax returns in the previous fiscal year in a country that relies on international loans and aid to meet its fiscal challenges.
An elderly woman begs along a sidewalk in a business district in Karachi December 10. Almost 70 percent of Pakistani lawmakers did not file income taxes last year, the Center for Investigative Reporting in Pakistan, an investigative journalism group said on Wednesday, highlighting deep flaws in a taxation system that has drawn repeated criticism from Western aid donors.
By Taha Siddiqui, Correspondent
posted December 16, 2012 at 3:47 pm EST
The report, published last week by the Center for Peace and Development Initiatives and the Center for Investigative Reporting in Pakistan, says only 126 parliamentarians out of 446 filed income tax returns in the previous fiscal year.
Pakistan has a 9.2 percent tax to GDP ratio, one of the lowest in the world. Observers argue that Pakistan’s lawmakers are at the forefront of the tax-evasive culture prevalent here that hampers the country’s ability to tackle its fiscal problems without relying heavily on international aid and loans.
“We can stand on our feet if everyone in the country starts paying taxes,” says Aitezaz Ahsan, a prominent lawyer and the senator who paid the most taxes according to the report. He says there is a direct connection between the reliance of Pakistan on foreign aid and the low tax to GDP ratio. On this issue, he adds, Parliament has been a bad role model.
Similar concerns have been voiced by Pakistan’s largest donors, including the United States.
In 2010, Secretary of State Hilary Clinton said that Pakistan “cannot have a tax rate of 9 percent of GDP when land owners and all of the other elites do not pay anything or pay so little it’s laughable, and then when there’s a problem everybody expects the United States and others to come in and help.”
Massive waste, too
The new report coincides with another revelation by the National Accountability Bureau, the autonomous government body that investigates monetary frauds, which stated that Pakistan wastes up to 10 billion rupees ($103 million) every day as a result of inefficiency, corruption, and tax shortcomings.
“There is a huge gap between the number of tax payers in the country and the number of tax return filers. The parliamentarians are also part of that lot and it is because they think they are above the law. And even when they do pay they show they have no wealth but in fact they hide their riches, for example by having their properties under the names of their relatives,” says Khurram Hussain, a business journalist who writes regularly on economic issues in Pakistan.
Most of the non-filer parliamentarians contacted by the Monitor refuted the findings in the report titled “Representation Without Taxation” calling it concocted. However sources in the Federal Board of Revenue (FBR), the government body authorized to collect taxes, confirmed that the “most of the figures mentioned in the report are accurate.”
Abdul Majeed Khan, a parliamentarian with the right-wing party Pakistan Muslim League (Nawaz faction) says he has been paying his taxes regularly and blamed the tax collection agency for giving out the wrong information. “The FBR is incompetent in maintaining its database,” Khan claims.
But when asked if he did file any returns himself, which is a legal requirement in Pakistan, he says he did not have time to stand in queues and the FBR should make the system easier: “Why should I run around and get my National Tax Number etc, when I am the one who has to pay?”
Despite his own reluctance to be part of the tax net, Mr. Khan, who is a landlord in Punjab, did agree that if the country’s ruling elite like him started paying taxes, the economic situation of the country could turn around.
The report, authored by Umar Cheema, an investigative journalist, also outlines how little some taxpayers paid, with over 40 lawmakers paying around only a $1,000 in taxes. “The report highlights what their contribution is even if they are paying taxes. They have many businesses and assets which everyone knows about and yet they are contributing so less to the economy,” Mr. Cheema said.
However, Mr. Hussain, the business journalist says the revenue loss of the parliament not filing tax returns is not that large, since tax exemptions which many industries including the agriculturists in Pakistan enjoy add a lot more burden to the country’s fiscal deficit, which stood at $7.2 billion this year.
“Even if the parliamentarians are brought into the tax net, it will not significantly improve the economy,” says Hussain. “But at least it will send the message that they are serious about tax collection which is what we need.”