The tax-to-GDP ratio in Pakistan is the lowest in the region and the reason is trust deficit between the people and tax collection authorities. Mismanagement, financial indiscipline and misuse of official authority are a few other reasons to be mentioned for the low tax base. People fear that coming into the tax base will ruin everything which they have owned as a result of years of struggle in an unfavourable business environment. The first step to increase the tax base is to restore the confidence of the potential taxpayers in the government authorities and it is not possible until a fair administrative mechanism is devised and implemented. A majority of the potential taxpayers are law-abiding citizens and they want to pay taxes but looking at the bitter experiences of the existing taxpayers and coercive moves on the part of some black sheep in the vital government departments, they avoid to come into the tax net by using a method everyone knows in this county.
The first step in the right direction is the capacity building of the tax authorities and they should have minimum authority in their hands while the rate of tax should also be the curtailed. Tough laws always breed corruption and the government of the day is still trying to use this outdated method to enhance tax base which will result in utter failure. The poor response to the tax amnesty scheme should be an eye opener for the policymakers and the men in authority. There is no respect of a taxpayer in this country as he is treated as a suspect and not as a respectable member of society. The American Business Council has also pointed out this fact and asked the government to introduce meaningful reforms to increase revenue and tax collections. This will be possible only when trust deficit will be ended and a common taxpayer will have the power to proceed against the government for misuse of the tax money.
The Federal Board of Revenue has already started a process of self-accountability within the department, but the situation will only improve when laws will be enacted to ensure fairness and transparency in the process of revenue collection. The present system is marred by anomalies and disparities and lacks capacity to cover the element of human errors. Special tax regions should be set up to attract foreign direct investment. No one wants to endure money loss and tough laws as well as unbridled authority encourages capital flight. The recent investment of black money in offshore companies is a tip of the iceberg.
