Talking points for Research Presentation
 Informal economy and tax evasion
1. Those accused of lower tax morality express greater concerns about
public sector corruption, high tax rates, cumbersome procedures,
distributive injustice and what they call the unfairness of the
authorities.
Pakistan’s complicated tax structure coupled with a few other factors is
chiefly responsible tax evasion. It has multiple taxes and tax collecting
agencies, some with duplicating functions, with a fewer than average tax
take.
The first detailed report of the Federal Board of Revenue titled ‘Tax
Expenditure’ shows that income tax exemptions and concessions amounted
to Rs138billion in 2019-20: Rs108bn for balancing and modernisation to
1,135 firms and Rs30bn for new business initiatives.
For instance, there are about 70 different unique taxes administered by
37 different tax authorities
Revenue collection increased in absolute terms from Rs200 billion in 199495 to around Rs4 trillion in 2017-18. Despite the substantial increase, the
low tax-to-GDP ratio (13 per cent), narrow tax base (1.4 million taxpayers in
a population of 208m) and high reliance on border taxes (around 50pc of
tax revenue) Pakistan is among the countries with lowest tax base.
After hovering around 10pc of GDP from 2004-05 to 2013-14, Pakistan’s
tax-to-GDP ratio rose to 13pc in FY 2017-18, according to data released by
the Ministry of Finance.
On an income of 312 MNAs totalling Rs9,575m, the effective tax rate, that is
at which income tax was paid, was 4.28pc. The rate was even lower at 3pc
for those claiming a part of their income from agriculture.
The highest-earning MNA paid tax at the rate of 7.5pc of his declared
income of Rs1,876m and the lowest rate of tax turned out to be 0.7pc on an
income of Rs146m. This range of tax rates from 7.5pc to 0.7pc was reflected
in the cumulative effective rate of 4.28pc.
The easiest and safest tax haven is ‘income from agriculture’ and is more or
less tax-free. If anyone had the will and tasked a seasoned investigator to
look into this, rest assured billions of non-agricultural income would also
be found sheltered here. In any case, not taxing income from agriculture
that accounts for over 20pc of GDP is mind-boggling.
According to the UNDP, over $17 billion a year is provided in subsidies and
other handouts to elite segments of society. To put this figure in context, the
total losses and reconstruction costs of the 2022 floods is about $30 billion,
meaning that resources provided to elites over a period of two years are
sufficient to recuperate the losses and rebuild communities devastated by
the historical floods. or roughly 6 percent of the country’s economy The
second and third-highest recipients of privileges were found to be the
country’s richest 1 percent, who collectively own 9 percent of the country’s
overall income, and the feudal land-owning class, which constitutes 1.1
percent of the population but owns 22 percent of all arable farmland. The
country’s powerful military, which has directly ruled Pakistan for roughly
half of its 74-year history, was found to receive $1.7bn in privileges, mainly
in the form of preferential access to land, capital and infrastructure, as well
as tax exemptions. While the richest 1 percent held 9 percent of the
country’s income of $314.4bn in 2018-19, the report found that the poorest
1 percent held just 0.15 percent. Overall, the richest 20 percent of
Pakistanis hold 49.6 percent of the national income, compared with the
poorest 20 percent, who hold just 7 percent.
In the budget 2022-23, the government decided to collect a fixed tax from
retailers through electricity bills. These tax rates were to be doubled for
retailers not on the Active Taxpayers’ List. However, under pressure from
protests by several trade bodies, the government announced rolling back
the fixed tax scheme and reverting to the old system.
Khan, Ahmed Fraz. “PM Orders Inquiry into Traders’ Fixed Tax Issue.” Dawn, 21 Aug.
2022, https://www.dawn.com/news/1705991. Accessed 5 Dec. 2023.
. Hashim, Asad. “Elite Privilege Consumes $17.4bn of Pakistan’s Economy: UNDP.” Al
Jazeera, 13 Apr. 2021, https://www.aljazeera.com/news/2021/4/13/elite-privilegeconsumes-17-4bn-of-pakistans-economy-undp. Accessed 3 Dec. 2023.
Hasnain, Khalid. “Pakistan’s Shadow Economy for 40 Pc of GDP.” Dawn, 5 June 2022,
https://www.dawn.com/news/1693195. Accessed 3 Dec. 2023.
Bokhari, Jawaid. “How to Formalise the Informal Economy.” Dawn, 29 June 2020,
https://www.dawn.com/news/1565728. Accessed 3 Dec. 2023.
Ullah, Raja Rafi. The Pakistan Development Review, vol. 60, no. 3, 2021, pp. 385–88. JSTOR,
https://www.jstor.org/stable/27262024. Accessed 5 Dec. 2023.
Nasir, Abbas. “It’s the Elite Capture, Stupid.” Dawn,
https://www.dawn.com/news/1697955. Accessed 4 Dec. 2023.
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