“Tax Collection Challenges 2024” are becoming increasingly apparent as the government introduces the Tax Laws (Amendment) Bill 2024. This move comes in response to a Rs356 billion revenue shortfall experienced during the first five months of the current fiscal year. The bill marks the second amendment to tax laws this year.
The government’s commitment to collecting Rs13 trillion in FY25 taxes is highly ambitious, particularly with a projected nominal GDP growth of about 12%. Achieving this target requires additional tax measures worth Rs1.7 trillion or 1.4% of GDP.
Despite efforts to enhance revenue administration and enforce tax compliance, it is unrealistic to expect substantial revenue gains within the year.
New Tax Measures Introduced
The government’s quick introduction of the tax amendment bill underscores the “Tax Collection Challenges 2024”. These challenges make it unlikely that the government will meet the IMF’s tax target. Moreover, the new measures are not expected to significantly boost tax collection.
The new bill, devised by the FBR chairman, aims to prohibit ineligible persons from making major purchases such as cars, properties, and opening bank accounts. Eligible persons are limited to purchases not exceeding 130% of the value declared in their tax returns. Additionally, ineligible persons would be barred from withdrawing cash beyond a specified limit.
The bill also proposes sharing taxpayers’ confidential data with commercial banks and privately hired tax auditors. Terms like filers, non-filers, and eligible persons have become pillars of an inefficient tax system. Since 2014, these terms have done little to broaden the tax base.
Evaluating Tax Principles
Economists invoke five principles for evaluating a tax system: equity, efficiency, administrative simplicity, capacity to pay, and political responsibility. “Tax Collection Challenges 2024” highlights that the new measures are unlikely to improve equity or efficiency. Instead, they may impose undue administrative costs and create distortions in economic transactions. Shifting the enforcement burden to banks and other entities compromises administrative efficiency and data privacy.
Consequences of Ineffective Reforms
Despite the introduction of new tax measures, achieving the ambitious tax target remains doubtful. Policymakers have failed to convince the public of the measures’ appropriateness. Additionally, individuals tend to find ways to circumvent restrictions. The lack of detailed tax costing further undermines the reforms.
Proposed Solutions
Efforts to reform the tax system must focus on efficiency, equity, and simplicity. This includes reducing distortions, simplifying tax codes, and enhancing global competitiveness. An independent policy board of competent professionals is essential for shaping effective tax policy. A thorough evaluation of tax measures is crucial for understanding their impact.
Importance of Enforcement
A fair tax system is central to funding economic growth. Rampant tax evasion undermines inclusive growth. Enhancing tax collection by strictly enforcing laws and targeting specific evaders is essential. Without this, unintended consequences from imprudent measures will persist.
“Saeed Ahmad” is a former senior adviser of the IMF and holds a PhD in economics from the University of Cambridge.
