Pakistan is a country that holds great potential in terms of generating revenue as a large chunk of its population belongs to the working class. Whether an employee or an employer, every individual living and earning in this country has an important role to play: support the national economy by responsibly paying taxes levied on their capital, assets or income. This is especially important for a struggling economy like Pakistan’s.
However, as is the case with such systems across the world, there are always people who fail to comply — sometimes due to sinister reasons or sometimes because they simply don’t understand what’s going on. Since tax policies in Pakistan are also quite complex, many people either try to legitimately minimize their taxes or, in worse cases, not pay those at all.
Fortunately, there exists an institution known as the National Accountability Bureau (NAB) that was formed with the intention to curb tax-related crimes in Pakistan. So, when was NAB established and what are the legal practices it follows to play its part in terms of narrowing down the tax gap in Pakistan?
Formation of the National Accountability Bureau
NAB is a government institution to keep a track of taxpayers
Long before the existence of the National Accountability Bureau (NAB), a majority of taxpayers were not rightly fulfilling their duties as per the tax policies in Pakistan due to which, the economy suffered great loss. Despite the existence of different kinds of tax laws, the absence of a body to take strict measures against tax fraud and evasion happening across the country in several private and public divisions was greatly felt by the higher official authorities of the state. Consequently, the decision of the formation of the National Accountability Bureau (NAB) was taken in the late 1990s.
Ever since the National Accountability Bureau (NAB) came into existence, it has highlighted a large number of cases involved in committing financial crime of tax evasion in Pakistan. The action against most of these non-taxpayers is usually taken in the light of data that is accumulated by the Federal Board of Revenue (FBR), which is a government institution mainly responsible for tax collection in Pakistan. However, in addition, the concerned authorities should also revisit the tax policies in Pakistan and make them less complex in order to bring down the graph of the loss that national economy bears annually.
So, How to Bridge The Tax Gap in Pakistan?
When causing the loss of billions of rupees to the economy, the phenomenon of ‘Tax Gap in Pakistan’ becomes an alarming concern that has to be curbed by taking some simple but effective measures. Here is a list of actions that authorities need to take that will help to decrease the gap between the actual and expected annual tax revenue.
- The first and most important step in terms of solving the problem of tax gap in Pakistan is the simplification of tax policies. All those provisions and clauses in laws governing taxation that put the authorities and individuals in the state of confusion need to be revised.
- Major segments of the economy are required to be given individual attention in order to come up with a more justifiable system for tax collection in Pakistan. Economic segments like real estate, hospitality, services, start-ups and bulk trading firms need specialized mechanism regarding taxation.
- Ever-increasing commercial activities, mostly in the major cities of Pakistan, are some of the most beneficial resources for extending the tax base. Implying taxation with proper segmentation will not only cause a radical increase in the amount of annual tax collection in Pakistan, but also provide relief to some extent to the burdened taxable individuals.
- The system of collection of withholding tax in the country also has to be revisited and effectively monitored by the authorities. The negligence and loopholes in the state’s withholding tax regime may result in loss to the national economy. Chances of unauthorized agents collecting withholding tax from individuals and not depositing it in national treasury become higher in the absence of proper SOPs and their implementation.
- The authorities also need to simplify several provisions in the Income Tax Ordinance 2001 and devise them in a proper and effective way to make sure that they don’t overlap each other. This will let the individuals to understand the Income Tax Ordinance 2001 in a better way, while decreasing the complications they face while understanding the tax policies in Pakistan.
- Effective observance of taxpayers’ rights, methodical approach, transparency and fair conduct are integral to the system and regulations regarding taxation across the country. Plus, a properly maintained and updated database is crucial. It has to be implemented by the concerned authorities to avoid errors and duplications that could save a lot of time and point out doubtful activities.
Towards better and more effective taxation policies…
Most of the above-mentioned concerns have already been noticed by the authorities. Prime Minister Imran Khan is also actively involved in the rectification of multiple tax regimes that come under the umbrella of taxation implemented on a national scale. Currently, billions of rupees of tax remain uncollected due to the perplexing provisions in different ordinances regarding taxation. Segmentation within the commercial sector is another important step that will effectively help the state to widen the tax base while reducing the burden on individuals, which is obviously logical.
The simplification of taxation policies is the need of the hour in a country like Pakistan where a large amount of income is generated annually via the public and private sectors, but still a lot of people get away with tax evasion in Pakistan. According to many experts belonging to the field of taxation, Pakistan has the potential of generating trillions of rupees as tax revenue each year that is approximately equivalent to the one-tenth of the annual GDP.
*Logo of NAB taken from the Official Facebook Page of NAB Karachi.
