Taxing Woes
Long-term data indicates that Pakistan has largely failed to address its tax policy failures
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I started paying attention to the economy after taking economics classes at school in the 9th grade. And over the years, a few things are repeated as mantra in Pakistan’s economic discourse: the need to grow exports through value-added goods, and the need to broaden the tax base.
Recently, the former chairman of the Federal Board of Revenue has been in the news. This started with some WhatsApp messages of his that went viral, following which he joined Twitter to clarify his messages, defend Prime Minister Imran Khan, and explain what “state sponsored corruption” is. He also went on television shows to talk about this issue.
Broadly speaking, what the former chairman is highlighting is nothing new. In fact, as a renowned accountant, I was surprised that he recognized these issues after joining the FBR.
If you’ve been reading this newsletter, you know that elite capture is at the heart of Pakistan’s economic issues.
Most economic commentators and political economy experts agree on this. But I wanted to look at the data and see whether all this analysis has actually led to any major changes.
This is what I wrote for Dawn over the weekend:
A look at long-term trend reveals that despite all efforts, Pakistan has largely failed to broaden its tax base. In fact, long-term data from the Federal Bureau of Revenue (FBR) suggests that there has been an erosion of past gains.
I also wrote the following:
These figures highlight the failure of successive governments in reforming Pakistan’s regressive tax system which continues to place a tremendous burden on poorer households to meet the country’s growing fiscal needs. At the heart of the issue is elite capture of the state and vested interests have continued to overtly and covertly push back against efforts to reform the taxation system.
And here is the chart from the data that I analyzed:
These failures inflict significant pain on Pakistan’s citizens.
The fact of the matter is that most Pakistanis, from your daily wage earner to the CEO of a publicly-traded company, are taxpayers.
The issue is that elites who have captured the state have skewed the system in a way where they do not pay a fair share of taxes.
This is what Mr. Zaidi refers to as “state sponsored corruption.”
Mr. Zaidi’s recent comments made me extremely pessimistic. After all, if someone like Imran Khan, who according to Mr. Zaidi supported him fully, cannot provide the support to someone like Mr. Zaidi to push through reforms that fix these issues, then who can?