Business Law Topic: Negligence towards paying taxes

Introduction Pakistan is a haven for those who do not want to pay their taxes. Nobody will ask any questions, let alone arrest and punish anyone for tax pilferage, even if the lifestyle being maintained is luxurious and well beyond one's declared means." This year less than one percent out of 180 million people filed their income tax returns. The editorial pointed out that those who do not pay taxes are "the country's wealthy elite, including politicians, generals, landlords, traders and others who have very intelligently kept their incomes out of the net". Revenue generated through tax accounts for 10.6% percent of the country's GDP, one of the lowest in the world despite the heavy indirect taxation on the common people. This leaves economic survival heavily dependent on foreign aid and loans. Facts Why not people pay taxes in Pakistan? This is a lingering unresolved dilemma. Problem remains a problem until queries are resolved; following are the issues/views of different people; According to their opinion government should utilize tax money to improve electricity supply, water reserves/dams. Government should improve transport system with low fare rate. In two sectors there is a substantial requirement to bring improvement, first is health and second is education. Since we are lacking behind it and facing difficulties. Government institutions are very poor in infrastructure. To receive proper tax money and to inspire people to give tax government should first of all corruption from the tax system and must keep check on people who gives and takes bribes. Government should take tax also from leaders, higher authorities, and business men, to achieve or meet the challenges. Only collection of taxes would never clue toward success its all about proper utilization of resources. Eligible persons should be hired to implement tax policies. Many business men contend that they consider tax as a burden because they did not get any kind of remuneration. Page | 1

People claim that our government failed to give relief to its people so individuals avoid of paying taxes. Mostly middle class evades from taxes due to high tax rates. High tax rates discourage them. A poor person who is not able to provide bread and butter to his family properly, 17 % indirect tax is panicky exercise for that person.

Focal point according to most of people is, sales tax should be reduced as it directly affects poor and low income group. Lack of Leadership exists in our culture, if our political leaders and significant personalities pay taxes fairly then general public will also follow them.

Actions by our government: Chairman of the Pakistans Federal Bureau of Revenue (FBR) has issued of the 2.3 million affluent Pakistanis to pony up withheld taxes. They travel abroad regularly, live in palatial homes and drive luxury vehicles. They are 2.3-million strong they are the affluent Pakistanis who are also distinguished because they do not pay any taxes. They dont even have a tax number, which suggests that these 2.3 million affluent Pakistanis have never paid taxes in Pakistan. Tax evasion in Pakistan leaves the State with no option but to borrow money from lenders, such as the IMF. Consider this: in a nation of 180 million, fewer than two million are registered tax payers. Furthermore, tax revenue accounts for roughly 10 % of Pakistans GDP, which is extremely low even for Pakistan. The average among western European states is around 30-plus per cent. In neighboring India, tax revenue accounts for 18 per cent of the GDP, which makes wonder whether Indians have a better sense of citizenship than Pakistanis. Sri Lankans pay 15 per cent of their GDP in taxes, Turks pay 24 per cent, Americans pay 28 per cent and Swedes pay a fat 50 per cent. This is one of the lowest tax-to-GDP ratios in the world.

Page | 2

Voice of the poor nation; why we should pay taxes? Normally Government collect money from the citizens and pay them back by providing infrastructure, security, and take stand for their interest. In Pakistan, whatever tax we pay is not counted, and still the economy is in bad shape, from last 30 years we are hearing experts saying that Pakistan may default if IMF didn't lend them money... last year Pakistan's Minister of Finance said that they don't have enough funds to pay salaries... so our little contribution, what ever it may be, is not helping anyone anymore...why bother paying... why not save for our families.... We pay tax only to be beaten and robbed by Police, only to be killed by local and foreign thugs, Page | 3

only to be killed in missile attacks, only to be killed in suicide blasts... why we need to pay for these services offered by the Government of Pakistan... We can have it for free and only reason we are unable to avail it is because it is not my turn and not because some security agency of Pakistan making it safe for us. We pay tax just and later find out that the politicians, the govt. officials, the security officials have made properties worth of billions out side Pakistan, their families are living like kings out of our money and we are scared to death about the safety of our family and our self, We are working by brains out to meet the ends... why should we pay tax to provide a lavish life style to these ugly politicians...we pay tax and die in local hospital because of lack of facilities, the top politicians who don't pay any tax, get to go to UK and USA for their treatment as they know that the health system in Pakistan is not trustworthy.... and their treatment is done from our tax money.... why not we save that tax money and buy our self a healthy life....we pay tax, just to get beaten/harassed by the police, if we protest against anything, these government paid officers comes out with the big guns and canes and least they do is beat the hell out of us if they don't shoot us... why would we pay to anyone to beat us out... we must be stupid to do it...If anyone here thinks we should pay tax, please let us know why??? Pros & Cons The whole scenario reveals the current tax structure in Pakistan has tremendous room for improvement. Pakistans primary problem is not that our people are not willing to pay taxes! even they are paying the large amount in terms of indirect taxes, it is that they do not pay taxes for a reason, no matter is all 180 million population pays taxes it is going to end up in corruption and we will end in the IMF program, so which is better not to pay taxes and end up with IMF or pay taxes, make the corrupt super rich and end up with IMF? , this is the same argument the fools at IMF are pushing Pakistan to do to tax more, to broaden tax net, the pressure should be on Corruption Free Tax System. The people know government money will be robbed by those in power. No one wants to pay for the conspicuous consumption of corrupt elite, politicians & leaders. There are loopholes available to the tax evaders and higher authorities but the problem is if the loop-holes for tax evaders are diminished, who will point a finger and arrest the culprits? If an

honest tax officer or policeman makes an arrest, who will provide guarantee to him? If the leaders dont pay taxes, why does anyone expect the common man to pony up his dues In Pakistan? The main reason behind Pakistans low tax-to-GDP ratio is tax evasion by the countrys elite. Federal officials, including ministers (even PM Gilani), only pay taxes on their government salaries and not Page | 4

on their personal assets. Although the government promises to take steps toward tax reform, it continues to dodge the issue every chance it gets. It is an embarrassment that we continue to beg others to come to our help when the solution is available within our own borders. At the recently held US Global Leadership Coalition Conference, Clinton took a tougher stance on this subject: Countries that will not tax their elites but expect us to come in and help them serve their people are just not going to get the kind of help from us that they have been getting. Pakistan cannot have a tax rate of 9 percent of [gross domestic product] when landowners and all of the other elites do not pay anything, or pay so little its laughable

According to MSNBC: Clinton said Pakistanis have more resources but the country needs to reform its tax system to strengthen its government. It seems quite clear that now assisting powers are not ready to trust in Pakistan & enforcing to make better its tax collection system. The rate of indirect taxes in Pakistan is also quite high so people are not willing to pay duel taxes once on their income and after that any commodity they buy. The poor performance of the leaders is enhancing masses grievance.

Page | 5

Critical Analysis
There is a need to improve tax culture & systems in the country. Here I would like to quote the example of India is/was no different. Today 18% of GDP is contributed by tax not because Indians are better citizens, its because there are virtually no loopholes left to evade taxes. You spend anything above Rs 25,000 and you have to quote your tax number (PAN) in the transactions. Bank accounts need (PAN), asset purchase needs (PAN), and stock trading needs PAN and so on. All the data is in digital form and can easily be verified. So, we can say that the Tax Culture is not yet developed in Pakistan. First Pakistan needs to plug the loopholes only then the drain on tax money will stop. But some responsibility of people as well because we can not only say that there is fault only in system. Whether you trust the government or not, you cannot hold anyone accountable unless you come clean yourself. When people pay taxes they can hold their governments accountable, accountability has to be viewed holistically. You cannot cherry pick. People come on the street to vent their anger against US and destroy their own public property, but cannot agree to pay tax because they disagree with the regime. It is just like blame the politicians and abdicates your civic responsibilities.

By sum up the whole discussion in nut shell the relationship between the State and the citizen is defined by the citizens willingness to pay taxes. Withholding taxes weakens the State. A weakened State has no alternative but to compromise. In Pakistans case, it is not the politicians alone who have pushed the State to beg from the IMF or the United States. Instead, it is the citizens of Pakistan who refuse to buy a stake in the countrys future by paying taxes, have forced the State to borrow from IMF and other lenders. All Pakistanis, irrespective of their political or religious persuasions, hate their countrys dependence on handouts from the United States, the IMF, the World Bank and other similar institutions. The easiest and surest way to break free of this economic dependency is for Pakistanis to pay their taxes. Its the obligation of nation to perform their duty and imperative to Government to use public money for the prosperity of its citizens to make Pakistan strengthen. The principles of fairness and equity demand that the drive does not leave out the powerful regardless of their political clout if the purpose of the exercise is to instill fear of the law in the hearts of tax evaders. Page | 6

Conclusion/ Personal Opinion: People look upon taxation as a monster. In countries like Pakistan, taxes are becoming a symbol of panic. This is mainly because of the performance record of the government and their reputation for corruption. It would be best if people could pay taxes knowing that the money will be used for their own benefit. Generally, the government is thankful if people pay the taxes that are imposed on them. Taxation should be a process whereby the taxpayer thanks the government for using his money to improve society. A little change of perspective is always required to cultivate an acceptance of something that is considered bad but may actually be very beneficial. If the reality cant be changed for the time being, then changing perceptions may help create that change. I think it is time for tax authorities and governments to rework the concept of taxes in Pakistan. They need to build credibility and educate people about how taxes are the way to a bright future, rather than a monstrous thing to be avoided. This would require a massive endeavor from the government. To enhance credibility firstly Government should take initiative to eradicate all the flaws: To begin with the politicians should pay tax and their tax returns should be available online. President Obama paid 1.5 million in taxes last year. By this way the government credibility will be stable and common people will be persuading to pay taxes. FBR should go after people who live in luxury houses (the countrys wealthy elite, including politicians, generals, landlords, traders and others who have very intelligently kept their incomes out of the net) and do not pay taxes. The FBR has to squeeze hard these bloated tax-evading lemons by levying heavy penalties. FBR & government should enforce the Corruption free and bribe free tax system within its departments. To observe this separate regulatory authority could be the remedy thatll check the performance of the FBR employees and conduct audits to make sure the transparency of the system. Public projects that are funded by the tax money should be labeled as Funded by Your Tax Money so people know their tax money is being spent in a good manner and for the welfare of masses. Make it available online the financial reports of all projects. Page | 7

Government should make all the data is in digital form that ensures transparency can easily be verified and make efficient operations. Like India, a certain amount should be fixed anything above that if a person spends on have to quote his/her tax number (NTN) in the transactions. Bank accounts need (NTN), asset purchase needs (NTN), and stock trading needs NTN and so on. Through this activity the Government can develop the equitable culture in the country.

A poor person(who is not pay income tax or exempt up to Rs 350000,2011-12) also contributes in the government revenue by paying GST so the GST rate should be abridged that would not become over burden and on luxuries it % could be more than normal rate. It is always advisable to diversify the tax portfolio, rather than putting pressure of tax to just one stratum of the economy. Diversification of taxes would be a great step in reducing the economys unrest. In countries like Pakistan, agriculture or capital gains are wholly exempt from taxation and only the salaried classes are taxed. This can lead to a point when people would rather ignore taxes than pay them.

Tax is merely a product of the government. Everybody has to buy this product. It is a product that works for the well-being of society and helps governments work towards social and infrastructural development. It is indeed a tax development approach rather than tax imposition. Government should take step to make it factual. That means by selling tax; the government can generate revenue that allows it to fund projects for the public good. Therefore it follows that we, the clients, are the kings. Create a tax awareness among masses is the fundamental requirement in Pakistan This does not only involve creation of taxpayer facilitation centre and the advertisement in the newspapers and television but something more than that like TV dramas, training by FBR to taxpayer Compliance expected by FBR, Avoid paying additional taxes, Be Safe and Secure in terms of Inadmissible taxes, The Direct/Indirect Tax Regime etc. The basic reason behind this mess is corruption at our grass root level. This creates a feeling of inequality and intense burdens on the shoulders of the middle or salaried class and most of the peoples feel tax as hell on them. I think it is only possible when each and every individual whether rich or poor. Whoever he is where ever does he belong to and whatever he does. He must access himself that is he doing justice to himself and every one? Once this feeling of self assessment will develop in our nation then no one will do injustice to any one, and I am sure that everyone would Page | 8

generously pay out their taxes themselves because everyone will believe that whatever we are paying in the form of taxes will categorically be used in an effectual manner. The Government of Pakistan has made estimate to collect taxes up to 1952 billion in 2011-12 budget. If the political leaders, affluent class pay their taxes appropriately and government use the tax collected in constructive way then Pakistan might be get liberate of loan burdens and heading towards prosperity in near future.

Page | 9