Finance
Editorial

Corporate Tax evasion

 

 

It has now almost become a cliché to say that Pakistan has an inadequate tax system. Figures released by the department responsible for tax collection are appalling to say the least. In the Tax Year (TY) 2016 over 15,000 corporate taxpayers paid no taxes to the Federal Board of Revenue’s (FBR) Inland Revenue Department. Only 19.4 percent of the total companies registered with Securities and Exchange Commission of Pakistan SECP, paid income tax. This means that 80.4 percent of the companies registered are evading taxation and committing federal offences.

The statistics shown above speak volumes about how inefficient our taxation machinery is and how lacking in civic duty our citizens are. Such a poor performance on behalf of the FBR is testimony to the weak enforcement mechanism. Even officials do not deny poor performance, as they have reported that almost 8,000 companies skipped filing tax returns and making payments in 2016.

What these companies have done is a clear-cut case of tax evasion. Trying to avoid the moral burden that lies on one’s shoulders by saying, “everyone does it”, just makes the problem more intractable. It is dishonest and criminal. For the efficient running of state affairs, governments need sources of revenue. While failing to hold big businesses accountable to pay their taxes, the government increases the rate of sales tax whenever it feels necessary. Thus, an ordinary citizen ends up paying for the national problem of tax evasion.

Though Prime Minister Mr. Shahid Khaqan Abbasi, in his first speech, has made a promise to bring every wealthy individual into the tax net, he did not focus on the often-neglected corporate sector. It is about time the government devises a proper mechanism and procedure to tax corporations who make huge profits and pay no corporate income tax. Taxing the common man through sales taxes will never generate the revenue the state is looking for. Corporations have the profits and the means to easily pay taxes, and must be brought to heel under a progressive taxation regime.

Before every election, parties shout that there will be relief for the masses. With every annual budget they make it clear that there is only relief for the rich. Big business is regularly given tax breaks, to spur economic growth, while revenues are squeezed out of the poor. If the government cannot find it in itself to make a plan that does not punish the common man, the least it can do is ensure that tax evasion is eliminated.

About the author

Mian Bilal

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