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Hammad Azhar says planning for long-term tax reforms

Hammad Azhar says planning for long-term tax reforms

ISLAMABAD: Minister of State for Revenue Muhammad Hammad Azhar has said that he is planning for long-term tax reforms and working on improved technology to allow the government to tap existing financial databases to help identify tax dodgers.

“There is a lot of catching up to do,” Azhar told and international news agency in an interview.

One of the world’s lowest tax collection rates partly help explain the shoddy state of Pakistan’s hospitals and schools, and why the illiteracy rate hovers above 40% in the mainly Muslim nation of 208 million people. Prime Minister Imran Khan, who took power in August, has vowed to double tax collection by reforming the Federal Bureau of Revenue (FBR).

One of Khan’s first acts as premier was to replace the FBR chief. In recent months, the FBR has launched a crackdown on 350 wealthy people targeting landlords and owners of luxury cars, as well as individuals who have a “trail of large business transactions and business deals” but don’t file tax returns. But Pakistan’s history is littered with statements by incoming governments announcing crackdowns and pledging tax reforms that fizzle out because of a lack of political will to force the rich and powerful to pay taxes.

To widen the base of payers, Revenue Minister Azhar said the government plans to use a carrot and stick approach: intensify targeting of evaders while at the same time making it easier for payers by allowing them to file taxes under a single window, where all the relevant information would be stored. Azhar says his team is using existing government data on car purchases, bank transactions and air travel histories to build a database that will identify and profile wealthy tax dodgers. But it would take a few months for most of the disparate data on the government’s books to be brought under one platform.

Such efforts are likely to go down well with the IMF, which in return for bailing out Pakistan, is expected to demand it carry out structural reforms, including widening the income tax base. The previous government increased the tax-to-GDP ratio to around 13% from 10.1% – but that is still far below the 34% average among members of the Organisation for Economic Co-operation and Development. Much of the increase was due to import duties, sales taxes, and other indirect taxation, which accounts for nearly 63% of Pakistan government revenue.

One of the biggest potential prizes for Azhar is capturing Pakistan’s black economy, in which property, goods and services are sold for cash to avoid taxation, and which many people believe is bigger than the formal $310 billion economy. “We really have to discourage the cash economy,” Azhar said.

“All this money is handed in cash under the table, and that’s something we want to make difficult.”