Comparison of reforms and tax reforms of Pakistan's government in past 20 years

Abstract

During the 73 years of Pakistan’s life it has seen both democratic and authoritarian governments both having their own way of governing the country and had their own social and economic outcomes. Up till now Pakistan has faced 4 military dictatorship the last of it was of General Pervaiz Musharraf’s rule which ended in 2008. Prior to Musharraf’s era the military takeover interfered in every democratically elected government which became the reason for Pakistan’s unstable and unfavourable economic growth rates. Pakistan People’s Party’s government was the first democratically elected government to successfully complete its 5 years term ending in 2013. Pakistan’s economy has always shown mixed results since formation. The instability in the political environment of the country played a major role in affecting the economic growth and stability of the country which ultimately affected the entire Pakistani nation. Since its birth, the collection of taxes have always been a challenge for Pakistan and every government whether democratic or authoritarian did measures and introduced reforms to improve their tax collection, but it hasn’t ever been up to the mark. This chart shows that after services industry agriculture is the biggest contributor to the GDP of Pakistan yet the highest tax sector of Pakistan is industrial/manufacturing sector, this clearly shows how the governments didn’t bother to make efficient reforms in the tax system of Pakistan to bring up a revolution in the tax collection of Pakistan. As of December 2019 the contribution of manufacturing sector was 13% to GDP where as it was burdened with 60% of the tax collections by the government and this sector is also contributing 17 in providing employment to labour force, whereas agriculture is taxed less than 1% which is due to feudal system in Pakistan. These policies by the government are quite challenging and demotivating for the industrialised leading to less growth in the industrialization in Pakistan. Moreover, rather than being taxed agriculture sector is given a lot of subsidies in Pakistan, clearly showing failure of tax reforms in Pakistan by every government. During the financial year 2017 the revenue from the agriculture income tax combined of all the provinces stood at 0.03 percent of gross value addition. Imposition of regressive, high rate taxes, especially sales tax on essential items in an underdeveloped, informal, and struggling economy has always been the tax policy of Pakistan. Composition of direct and indirect taxes. Pakistan followed very aggressive tax rates in past both for corporate and non-corporate entities, which not only paved a way to tax evasion and avoidance but also slowed down the participation of private sector in the economic development of country. The tax problems are mainly because the riches do not pay their taxes, high corruption, no trust for government, feudal system, lack of awareness in people, all the burden being on the middle class and the tax revenue being mainly dependent on indirect taxes. The FBR collects advance income tax even from the low-income earners and their family members having no income, on facilities like mobile phones. There is no balance between the direct and indirect taxes in Pakistan, Pleasing the rich and mighty and excessive spending on comforts of elites is the main cause of the huge budgetary gap. Such policies are continuously increasing the misery of the people of Pakistan, 30% of the population of Pakistan now lives under $2 per day which is considered at extreme poverty, main reason for this is low tax collection which leads to low government spending on welfare of the country. No expert hired by the World Bank or the IMF, was aware of the reality that the main burden of taxes in country was being inflicted on the middle and low income groups, while on the other hand the people getting benefitted by the tax money are the rich and public office holders who are receiving huge tax free privileges and benefits. The existing tax system is not taxing the extreme riches and the collection is mainly from indirect taxes. Resulting in income and wealth distribution inequalities are rapidly widening and the collection is mainly from indirect taxes. Under the given circumstances, efforts are needed to be made both at provincial and at federal level to enlarge the size of pie by changing to growth-oriented taxation. The present tax system and policies, adopted as such by the coalition government of Tehreek-e-Insaf despite their claims to reform the same tax system, are unfavorable to economy, social justice, business, and industry. Those who possess more income and wealth should contribute more to the public exchequer and vice versa.