Pakistan Among World's Top 10 Tax Losing Countries
Pakistan ranks among the top 10 countries in terms of tax revenue losses due to corporate tax avoidance, according to UN World Institute for Development Economics. World Economic Forum estimates that the country lost $10.4 billion in taxes last year.
Top 10 Tax Losers:
The top 10 countries losing the most tax revenue in absolute terms as listed by the World Economic Forum are USA ($188.8 billion), China ($66.8 billion), Japan ($46.1 billion), India ($41.2 billion), Argentina ($21.4 billion), France ($19.8 billion), Germany ($15 billion), Pakistan ($10.4 billion), Indonesia ($6.5 billion) and the Philippines ($6.4 billion).
Pakistan and Argentina top this list of 10 in terms of tax revenue lost as percentage of GDP. Both lose 3.5% of their GDP in corporate tax avoidance, according to World Economic Forum.
Tax Evasion at the Top:
Tax evasion in Pakistan starts at the top. A large number politicians, including ministers and party leaders in the nation's parliament, do not bother to file tax returns or pay taxes.
A study by the Center for Investigative Reporting in Pakistan (CIRP) identified 461 members in national and provincial assemblies who did not pay income taxes in 2015. This figure includes ministers and other prominent political leaders. Federal Board of Revenue found that many of the 550 lawmakers (54%) falsely claimed they paid taxes.
Many legislators from across the political spectrum have been caught lying on their nomination forms filed in prior elections. Some have been disqualified for false financial declarations while others have been removed for lying about their foreign residency visas (iqama), dual nationality or education.
Top 10 Tax Losers:
The top 10 countries losing the most tax revenue in absolute terms as listed by the World Economic Forum are USA ($188.8 billion), China ($66.8 billion), Japan ($46.1 billion), India ($41.2 billion), Argentina ($21.4 billion), France ($19.8 billion), Germany ($15 billion), Pakistan ($10.4 billion), Indonesia ($6.5 billion) and the Philippines ($6.4 billion).
Pakistan and Argentina top this list of 10 in terms of tax revenue lost as percentage of GDP. Both lose 3.5% of their GDP in corporate tax avoidance, according to World Economic Forum.
Tax Evasion at the Top:
Tax evasion in Pakistan starts at the top. A large number politicians, including ministers and party leaders in the nation's parliament, do not bother to file tax returns or pay taxes.
A study by the Center for Investigative Reporting in Pakistan (CIRP) identified 461 members in national and provincial assemblies who did not pay income taxes in 2015. This figure includes ministers and other prominent political leaders. Federal Board of Revenue found that many of the 550 lawmakers (54%) falsely claimed they paid taxes.
Elections Act 2017:
Whatever little accountability that exists is now being eroded by Elections Act 2017.
Whatever little accountability that exists is now being eroded by Elections Act 2017.
The nomination forms of candidates for national and provincial assemblies in Pakistan have been redesigned this year to remove all questions on assets, income taxes paid or owed, bank loan defaults, foreign residency (iqama) and educational qualifications. This was done based on Pakistan Elections Act 2017 that became law on October 2, 2017 in the wake of several disqualifications from holding office or being a legislator.
Impact on National Development:
Tax evasion in Pakistan exacerbates budget deficits and forces the government to borrow heavily. It also impacts critical spending on education, health and infrastructure. The result is slow economic growth and persistence of poor socioeconomic indicators.
Summary:
Pakistan's tax revenue loss of $10.4 billion is ranked among the world's top 10 countries losing tax revenue. Losses of 3.5% of GDP in taxes put Pakistan at number 1 among these countries. Legislators, including government ministers, are among the most prominent tax evaders in the country. Elections Act 2017 limiting financial transparency makes it more difficult to hold the politicians accountable for tax evasion and other financial malfeasance. These developments don't augur well for development or democracy in the country.
Here's World Economic Forum video on tax evasion:
https://youtu.be/Xe-GSM1k9Ag
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Comments
After another IMF loan, the country is increasing enforcement on tax avoidance to help manage its debt.
https://www.aljazeera.com/ajimpact/pakistan-hidden-assets-finds-450-million-190704163151613.html
Pakistan's government, struggling to lift revenues and cut ballooning public debt, registered around 100,000 new tax filers and expects to have raised about $450m from a tax amnesty on hidden assets, the finance chief said on Thursday.
The announcement came a day after the International Monetary Fund gave final approval to a six-billion-dollar loan package designed to shore up the economy while the government cuts debt and builds up dwindling foreign currency reserves.
Finance chief Abdul Hafeez Shaikh said nearly 137,000 people had registered at the closure of the amnesty this week, of whom nearly 100,000 were first-time filers.
That was a significant total in a nation in which less than one percent of the 208 million population file tax returns.
In total, around three trillion rupees ($19.25bn) of assets were declared and tax revenue worth around 70 billion rupees ($449.15m) was collected.
Prime Minister Imran Khan introduced the amnesty on undeclared assets, part of a broader drive to widen Pakistan's notoriously narrow tax base, in a bid to identify high earners for more efficient tax collection.
https://uk.reuters.com/article/pakistan-economy/pakistan-amnesty-draws-100000-new-tax-filers-450-million-idUKL8N2453C9
Pakistan’s government, struggling to lift revenues and cut ballooning public debt, registered around 100,000 new tax filers and expects to have raised about $450 million from a tax amnesty on hidden assets, the finance chief said on Thursday.
The announcement came a day after the International Monetary Fund gave final approval to a $6 billion loan package designed to shore up the economy while the government cuts debt and builds up dwindling foreign currency reserves.
Finance chief Abdul Hafeez Shaikh said nearly 137,000 people had registered at the closure of the amnesty this week, of whom nearly 100,000 were first-time filers.
That was a significant total in a nation where less than 1% of the 208 million population file tax returns.
In total, around 3 trillion rupees ($19.25 billion) of assets were declared and tax revenue worth around 70 billion rupees ($449.15 million) was collected.
Prime Minister Imran Khan introduced the amnesty on undeclared assets, part of a broader drive to widen Pakistan’s notoriously narrow tax base, in a bid to identify high earners for more efficient tax collection.
The move represented a turnaround for Khan who had accused previous governments of using amnesties to legitimise illegally acquired wealth hidden inside Pakistan and abroad.
Under the IMF agreement, approved on Wednesday, Pakistan has undertaken to drastically increase revenue mobilization by 4-5% of GDP at federal and provincial level over three years.
There have already been protests by opposition parties at the squeeze on household revenues.
Hafeez Shaikh said the IMF agreement would open up more funds from other lending agencies and help the broader economy.
“Pakistan’s economy will stabilize, and we will take on the path of progress,” he said.
The government has set a target of raising 5.55 trillion rupees ($35.6 billion) in tax this year, an ambitious goal given that it missed a previous target of 4.4 trillion Pakistani rupees ($28.2 billion) by over 500 billion rupees ($3.2 billion).
For too long, Pakistan’s economy has remained largely undocumented and informal. This has caused a lot of trepidation both within the country and internationally. Locally, everyone knows that the country’s real estate sector has been used to park a significant amount of black money as well as launder money.
When we say ‘black money’, we do not necessarily refer to the money earned from illegal sources but (as far as real estate is concerned) also that which has not been documented thanks to loopholes in the registering mechanism – caused, of course, by the negligence of the authorities. The people themselves are certainly to blame, too; it suited them to pay much lower taxes than they would have had to after registering their properties at their proper prices. Also, there was nothing actually stopping them from recording their properties at their actual market values.
Internationally, Pakistan has often been accused of not doing enough to curb terror-financing from within its borders. Regardless of the government’s willingness to effect some change in the prevalent situation – one overarching issue is that the economy isn’t documented enough to effectively restrain finances from being funneled towards any organization with potential terror links. Again the significant importance of taking account of the undocumented black money and the funds parked in real estate sector becomes evident.
All of this has eventually led the government to finally take action on the matter before the current decade sees its closure.
In general, for the economy overall, the issues caused by the undocumented economy can be understood this way:
The informal economy encompasses the entire economy, as well as that particular sector which is resistant to its advances. Any reforms introduced can be easily bypassed by its instigations, and when 30-40% of the economy is estimated to be undocumented (as is the case in Pakistan), this means that, at the end of the day, the reforms will not really take root.
As mentioned above, the informal economy can serve well to hide illicit and downright criminal activities; even more so when the sector is as large as Pakistani real estate, which, according to some estimates, has a volume running in billions of totally unaccounted-for-dollars.
Locally, an oft-discussed issue regarding the undocumented economy in general and real estate, in particular, goes along these lines: the authorities have been unable to tax the sector effectively because of its non-rationalized nature.
The unregulated nature of the sector has also meant that it is highly uncompetitive and random. The prices have been raised on the basis of mere speculation; hence the preponderance of the frequent ‘bubbles’ that deflate the prices significantly ‘all of a sudden’ after every few years.
Two issues attendant to and stemming from the ones mentioned above lead to the market not contributing anything, relatively speaking, to the national economy – when analyzed for its actual size and volume.
And, despite such a large amount of investment being poured into the sector, it doesn’t contribute as much to construction (developmental) activity. Most of the money is allocated towards buying and selling land, which, at the end of the day, serves no purpose at all. It is not, then, surprising that Pakistan has a housing shortfall running into millions of rupees.
The income tax collection from return filers in Karachi remained the highest during Tax Year 2018, followed by Islamabad, Lahore, Faisalabad and Rawalpindi. The Federal Board of Revenue (FBR) has conducted a city-wise tax analysis of the Tax Directory 2018 having data of income tax return filers, and tax deposited in each city for the year ended June 30th, 2018.
The FBR has shared tax details of all major cities, small cities and areas adjacent to border areas of Pakistan including tribal areas.
The FBR analysis, "Tax Collection from Major Cities" revealed that the income tax collection from return filers in Karachi was Rs572,594,396,386 for the tax year 2018 followed by Rs204,148,673,059 from Islamabad, Rs200,717,435,894 from Lahore, Rs35,170,187,615 from Rawalpindi, and Rs16,264,148,003 from Faisalabad. The city-wise data of Karachi disclosed that administratively, the FBR had divided the coastal city into five areas.
Total collection from Karachi stood at Rs572,594,396,386.
Breakup of collection from the commercial hub of the country revealed that the tax from Karachi was Rs209,107,138,348; Karachi Central Rs9,059,371,508; Karachi East Rs34,092,500,901; Karachi South Rs114,229,955,253, and Karachi West Rs28,891,487,111.
City-wise income tax data revealed that filers from Lahore deposited Rs200,717,435,894 in tax.
Breakup of collection from the provincial capital of Punjab reveals that the collection from Lahore was Rs180,580,693,868; Lahore Cantt Rs5,270,469,564, and Lahore City Rs14,866,272,462, during this period.
The income tax collection from return filers in Rawalpindi amounted to Rs35,170,187,615 for the tax year 2018. Malir contributed Rs29,374,153,827 as tax from the income tax return filers falling within the jurisdiction of that area.
Multan city contributed Rs12,772,888,239, and Sahiwal contributed Rs1,770,291,678 as taxes from the return filers in the area. The income tax collection from Gujranwala city was Rs7,926,264,130, during the tax year 2018.
The FBR collected Rs4,499,262,113 from income tax return filers of Sialkot.
Tax collection from Abbottabad stood at Rs1,610,871,493, and the FBR collected Rs2,481,243,943 in tax from Bahawalpur.
The FBR collected Rs6,357,384,959 tax from Dera Ghazi Khan.
From Kohat, the FBR collected Rs1,640,625,913 as tax from the income tax return filers during tax year 2018.
Tax collection from North Waziristan Agency was Rs1,119,980, and tax collection from Okara Rs1,081,818,348.
The FBR has collected Rs13,643,621,461 from Peshawar during tax year 2018.
Collection of tax from Quetta stood at Rs10,052,581,291.
As per the FBR data, the tax collection from Sargodha was Rs2,210,683,221, and Rs2,611,985,052 from Sheikhupura.
The income tax return filers in Sukkur contributed income tax of Rs3,574,079,338.
The city of Haripur contributed Rs1,706,260,030 from the income tax return filers.
Total income tax collection from the return filers of Hyderabad amounted to Rs4,065,622,573.
Breakup of Hyderabad, as per the FBR data, revealed that Hyderabad contributed Rs2,502,654,699, and Hyderabad City contributed Rs1,562,967,874.
The income tax return filers in Taxila contributed Rs1,251,185,013 as income tax during tax year 2018, and return filers in Thatta deposited tax of Rs1,014,821,378 during the period.