Pakistan tax revenue to Gross Domestic Product (GDP) ratio, as per the Economic Survey 2019, during the preceding financial year, was a mere 13.9% along with an overall fiscal deficit of 4.9%. During a recent interview, the advisor to the prime minister on Finance and Revenue quoted that only 40,000 of the 341,000 persons having an industrial connection of electricity and gas are registered under the Sales Tax Act 2019.
Astonishingly, only 1.2% of the total population of the country are bearing the burden of the economy and classified as an 'active taxpayer' (a feather in the cap).
We are a nation who are more actively donating to various non-profit organisations for the welfare of the people rather than paying taxes to the government responsible for the welfare of the masses. One wonders 'why this Credibility Gap?' Is the economy struggling under the burden of a fiscal deficit or rather a trust deficit?
Pondering upon this very question, I decided to venture into the minds of the common man, whether salaried or engaged in business activity. The questions people generally ask themselves while paying any amount of taxes are the following: Where will this amount of tax be spent? What benefit would entail to my person against payment of such amount of tax? and if I become an active taxpayer, will I be subject to harassment in terms of proceedings?Owing to the history of our country's treasury, which has been a victim of extreme forms of corruption and embezzlement, it is only natural for such questions to arise.
Hence, the paradigm of this nation has developed into taking a more pessimistic approach and drawing negative conclusions towards each of the questions raised while paying any amount or nature of the tax. As a result of which, a credibility gap has developed between the people and its elected diplomats/government bodies. The trust deficit, so created, has embedded itself in the mindset of the people and is like 'amoeba' eating away the fiscal health of the country.
Predominantly, the fiscal deficit we have been hearing of since we can remember is only a consequence of a trust deficit. Taxation is a critical ingredient in the quest to ensuring economic stability, improving the overall distribution of wealth and uplifting the standard of living of the people. It is essential that we must figure out a way to rekindle the trust between the people and those acting in a fiduciary capacity for the people
"if the people cannot trust their government to do the job for which it exists - to protect them and to promote their common welfare - all else is lost."
- Barrack Obama, the 44th US president.
A very strong statement indeed, however, knowing the resilience of this nation all else is definitely not lost! The incumbent government needs to devise a plan in order to rekindle this trust.
How can the government win back the trust of the people though? According to a recent report of the Organisation for Economic Coordination and Development (OECD),only 43% of the people trust their government amongst the member countries, stating that it has been a cause for concern of most of the countries. This report highlighted six key areas which a government must focus on to win back the trust of its people.
Reliability: Governments should minimise uncertainty in the economic, social and political environment. Ensuring economic stability for the sound economic policies put in place would increase the reliability of the government in the eyes of its people and investors
Responsiveness: The interaction between the government and its people is crucial in respect of revitalising the trust between them. The people of any nation would judge the government by how it responds to their needs and how public goods and services are provided to the nation. Moreover, making any citizen feel safe from any form of harassment with respect to government dealings is crucial as well
Openness: Openness is a crucial element in ensuring trust between the people and the government, especially for devising economic policies or promulgating new laws and regulations. 61% of the member countries of the OECD have reported that increasing the level of trust is their main goal when investing in openness and engaging with citizens.
Better Regulations: According to the OECD report, an improvement in the design and manner in which any regulatory framework is enforced would increase the level of trust between the people and the government. The OECD has suggested that any government should adopt a risk-based approach while promulgating new regulations and monitoring their compliances
Integrity and fairness: This is another crucial element of trust, hence, the government should ensure that no diplomat or government official should allow a conflict of interest, bias or undue influence to comprise their integrity, fairness and objectivity. Lack of integrity and fairness has been a major contributor towards the trust deficit we are facing today in Pakistan.
Inclusive policy making: Transparency and inclusivity in the policy-making of the government would allow a greater level of trust with the people, especially with respect to the policy being implemented. A good approach to this would be to release new policies/regulations in consultation with the stakeholders.
Although, the incumbent government has adopted a few of the measures listed above and is showing promising signs of revitalising the trust between them and the people; a long journey lies ahead in the quest for regaining trust. However, keeping in view of the fiscal health of the economy and uncertainty, it is crucial that catalytic measures should be adopted in this regard.
Once the people of this nation trust those in power, there would be no need to introduce measures for broadening of tax base nor any form of amnesties which have become a regular feature in this country. When the people get what they expect from any government, the number of active taxpayers and tax to GDP ratio would rise tremendously. One can conclude that it is not taxation alone which paves the way towards economic prosperity but in a bigger picture, it is the taxation and trust of the people in its government which makes/pushes an economy towards prosperity. However, difficult the task may seem though, we must always remember what the father of this nation advised us.
"With faith, discipline and selfless devotion to duty, there is nothing worthwhile that you cannot achieve."
- Muhammad Ali Jinnah.
Mohammed Kamil Gohar - ACA
Partner (Riaz Ahmad, Saqib, Gohar & Co.)
September 8, 2019.