January 11, 2024
By Rehan Piracha
LAHORE
The top one percent of high-income individuals, which number around 670,000, have estimated income tax liabilities of Rs 1.7 trillion but contribute a mere Rs 500 billion to the national exchequer, Rashid Mehmood Langrial, chairman of the Federal Board of Revenue (FBR) revealed on Saturday.
“The average income of 670,000 high-earning individuals is Rs 13.2 million annually but collectively pay Rs 500 billion, evading Rs 1.2 trillion through underreporting their incomes,” Langrial revealed while speaking as a panelist in the session, titled ‘Why do they impose so much tax on us?’ at the Think Fest event at Alhamra in Lahore. He said the country faced a total shortfall of Rs 2 trillion which could be reduced if the top-tier individuals correctly reported their income and paid their income tax liabilities accordingly.
Langrial added that Pakistan was a poor country and the vast majority of the people did not even fall in the category of taxpayers.
“Total workforce participation is 67 million individuals, over 60 percent of them fall below the taxation threshold of Rs 50,000 per month,” he said. In his view, the current taxation system was skewed towards helping the top five percent of high-income individuals underreport their income and evade taxes, adding that there was legislation in process to stop high-income individuals either underreporting their income or not filing their income tax returns from acquiring assets like vehicles, plots, and houses.
Langrial highlighted these taxation challenges, calling for urgent reforms. The session featured insights from former Federal Minister for Finance, Miftah Ismail, who was its moderator. He brought attention to the pressing need for collaboration between the federal government and provinces to overhaul the country’s taxation system.
A key point raised by Langrial was the limited scope of the existing tax net, which, according to him, is insufficient to capture the full spectrum of potential taxpayers. He pointed out that only a small fraction of the population contributes to the national tax revenue, while many individuals actively evade paying taxes. Ironically, some of these tax evaders are prominent public figures, often appearing on television and offering solutions to improve the country’s financial and economic situation, despite their failure to contribute to the tax system.
This widespread tax evasion results in significant yearly financial losses, leaving the government struggling to meet its fiscal targets. Langrial’s remarks underscored the stark contrast between the country’s tax obligations and the contributions of its citizens. Without a broader tax base, the government’s efforts to fund essential services and development initiatives remain constrained.
This year, the federal government has set an ambitious tax target of over Rs 13 trillion, a 40% increase from the previous year’s target. With the country’s GDP projected to reach Rs 120 trillion, the tax target is part of an effort to bridge the growing fiscal deficit and address the country’s widening budgetary gap. However, meeting this target remains a daunting challenge, as the existing tax system struggles to generate sufficient revenue.
One of the primary issues contributing to this challenge is the sales tax system, which Langrial pointed out as being under the authority of the federal government. The inefficiencies in collecting sales tax, especially given the large informal economy in Pakistan, contribute heavily to the tax shortfall. The FBR chairman emphasized that these losses in sales tax are substantial and need to be addressed through comprehensive reforms.
Langrial’s comments at the Think Fest event called attention to the necessity of not just increasing tax rates, but also improving the system’s structure to ensure greater participation across the population. A successful reform effort, he stressed, would require both federal and provincial governments to work in tandem, ensuring that everyone, from individuals to businesses, fulfills their tax obligations.
The urgent need for tax reform has never been clearer, as the government faces increasing pressure to generate revenue while managing the demands of public services, infrastructure development, and social welfare programs. As the debate over taxation continues, the government must find ways to improve compliance, reduce evasion, and streamline tax collection processes in order to create a more sustainable and equitable fiscal future for Pakistan.