THE last act of Pakistan’s finance minister Ishaq Dar in the closing days of former prime minister Nawaz Sharif’s regime was a telling one. Amid much fanfare, he oversaw the publication of yet another annual directory documenting taxes paid by members of parliament. And yet again, in the absence of evidence it would lead to any reform of Pakistan’s largely dysfunctional tax collection system, it appeared to be a largely meaningless exercise.
Four years after Sharif began his third tenure as prime minister amid promises of putting Pakistan on a path to bold reforms, and more than a year after the widely publicized Panama leaks case was initiated in the Supreme Court, Pakistan’s tax collection system remains as dilapidated as before.
The very fact that less than one per cent of Pakistan’s population pays income tax speaks volumes for the state of the tax collection system. However, even more importantly, it is a significant indicator of Pakistan’s poor economic governance, notwithstanding Dar’s repeated claims of having successfully overseen the completion of the last IMF loan programme.
This is a chance to reform Pakistan’s resource base.
With some of Pakistan’s key economic indicators, notably the current account deficit and the trade deficit ballooning alarmingly in recent times, a return to another IMF loan programme looks inevitable. The question is not ‘if’ but ‘when’.
The one possible light at the end of the tunnel are the proceedings and the outcome of the Panama leaks case in the SC. Has a precedent been clearly set to begin putting Pakistan on the path to reforms and begin ending the widespread and shameless tax evasion that continues unabated? That question has emerged as more pertinent for the country’s future than ever before, with a ray of hope emerging from the prosecution of the former prime minister.
Unless bankrolled by manna from heaven, such as the once abundantly oil-fed Middle Eastern economies, it is difficult to name any prosperous, stable, modern-day economy that became a model of economic success without an efficient tax collection system. As for the argument by the former prime minister’s key supporters that the case against Sharif and his children was driven by his pursuit of CPEC, it seems hollow for two key reasons. First, the foundations of CPEC were laid by the Chinese years before Sharif’s 2013 electoral victory, underlining a long-term commitment to the future of Pakistan rather than to a single leader.
Second, with its associated debt of more than $50 billion, CPEC must be accompanied by a vigorous set of domestic reforms to generate Pakistan’s own resources to service and repay its debt. It is a key paradigm shift which appeared to be the missing element in a raft of infrastructure projects pursued under the Nawaz Sharif regime.
The blind pursuit of new initiatives without an accompanying assurance of enhancing the means to foot the bill has repeatedly prompted warnings from economic experts that it could lead to deterioration in Pakistan’s financial health.
While the odds are indeed formidable, the opportunity to begin reforming Pakistan’s resource base is also unprecedented. On the heels of a prime minister recently sent home after a detailed investigation of his family’s overseas wealth, a promising precedent has now been set for others to be held accountable for similar deeds.
The matter of the iqama or residence permit in one of the Middle Eastern countries has long been ignored and treated as a status symbol by Pakistan’s rich and powerful political and business families. The ability to maintain another full-time residence in countries, at a flying distance of just three to four hours, has allowed many of the wealthy elite to establish businesses and make investments through money funnelled illegally out of the country.
Across Pakistan, widespread evidence of these privileged individuals living well beyond their means is abundantly available. In recent years, under successive governments, officials from the Federal Board of Revenue have made it known that their ability to target large-scale tax evasion has improved considerably through tracing expenditures that are well beyond declared incomes. With that being the case, the fundamental issue that has repeatedly obstructed calls for sweeping and enduring tax reforms has been lack of intent.
Further delay in tackling this challenge will only come at the cost of Pakistan’s most vital national interests. However, more importantly, an unprecedented opportunity has arisen with the proceedings against the former prime minister, and it must be utilised immediately.
Undoubtedly, making this happen is much easier said than done. But Pakistan throughout its history has repeatedly missed out on pursuing opportunities to reform itself. While Sharif’s departure may have polarised Pakistan’s politics for some time to come, the upside of using that precedent to boldly crack down on tax evasion simply cannot be missed once again.