Serious about taxes

THE government’s appointment of Shabbar Zaidi as the new chairman of the Federal Board of Revenue shows that the new finance team taking shape around finance adviser Abdul Hafeez Shaikh is taking its revenue-generation responsibilities with utmost seriousness.

Mr Zaidi is no stranger to the world of taxes and the FBR bureaucracy.

As a chartered accountant he has been an adviser to many governments in the past on matters ranging from drawing up the budget, new tax measures and amnesty schemes.

But now comes a major challenge, where he has to actually deliver the results himself, and to chase what is likely to be one of the most difficult revenue targets in recent years.

How he does so without increasing the tax burden on those who are already compliant payers will be his biggest test, but only after he has successfully tackled the conflict of interest concerns that are cropping up around his appointment.

The appointment comes days after the World Bank released a report saying that Pakistan is meeting less than half of its tax potential.

The surprising and counterintuitive conclusion of the report — called the Pakistan Revenue Mobilisation Project — is that there is “substantial potential to increase tax receipts without imposing new taxes or raising tax rates”, according to the authors.

Improvement in tax compliance alone could virtually double the revenue potential of the country, from 13pc of GDP to 26pc.

It further highlights that the services sector has the largest tax gap compared to manufacturing, and the sales tax has a higher gap than income taxes. It points to low tax morale and legal loopholes as key factors contributing to poor tax compliance.

The loopholes the report points towards include benami transactions, prize bonds and the no-questions-asked culture surrounding them, foreign remittances that are beyond the reach of tax authorities, and very low taxes on immovable property that encourage the flow of black money into the real-estate sector.

Mr Zaidi has intimate familiarity with each of these areas. He has written about some of them himself, and has long been a champion of amending Section 111(4) of the Income Tax Ordinance that grants impunity from tax to all foreign remittances.

He has the deep local knowledge of how rackets operate in our economy to deprive the state of its rightful share of revenue, and his writings show that he is sensitive to the revenue interest of the state, having once called taxes “the price of civilisation” on the pages of this newspaper.

So now comes his moment of truth, the moment when he has to demonstrate clearly that these were not mere words. He must show that revenues can be raised without burdening the existing taxpayers and the poor, and without sparking messy confrontational battles.

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