Nearly 70 percent MPs don’t file tax returns

Fewer than a third of the country’s parliamentarians file annual tax returns, according to a report published on Wednesday, lending new focus to longstanding complaints from foreign donors and ordinary Pakistanis about tax evasion at the highest levels of society.

The report, which was jointly published by two civil society organisations, found that just 126 of the country’s 446 members of the National Assembly filed annual income tax returns in 2011.

The report does not take into account the tax paid by politicians on their parliamentary salaries, which is automatically deducted by the government. Instead, it focuses on the lawmakers’ declarations of supplemental income from property, professional practices and other sources of revenue.

Nevertheless, in a country where many politicians enjoy lifestyles that far exceed their official salaries, the report raises fresh questions about the dedication of top lawmakers to enforcing the tax laws they are supposed to oversee.

“Tax evasion has become a social norm in our country,” said Umar Cheema, an investigative journalist who compiled the report for the Center for Peace and Development Initiatives and the Center for Investigative Reporting in Pakistan. “People don’t consider it a crime. But this tax demand established a bond between the people and the state. That’s how you become a stakeholder in society.”

Pakistan has a chronically low rate of income tax collection. Of the country’s 180 million people, only two percent are registered to pay tax, and fewer than a quarter of those actually do so according to the report.

Income tax evasion is particularly high among the wealthiest Pakistanis, leaving the country with the lowest tax-to-GDP ratio in South Asia.

Meanwhile, the poor bear a disproportionately high tax burden, experts say, because of indirect taxes on electricity, food and other goods.

Pakistan’s flawed tax system has long been an issue for Western donors, who have given the government billions of dollars in humanitarian and development aid over the past decade and supported bailout programs from multinational institutions such as the International Monetary Fund.

Addressing a Congressional hearing in 2010, Secretary of State Hillary Rodham Clinton said: “They don’t tax income. They don’t tax land. And a lot of the wealth is held in these huge feudal estates.”

“They have no public education system to speak of and it’s because the very well off, of whom there is a considerable number, do not pay their fair share,” she said.

The report found that tax evasion was spread evenly across the political spectrum, with low rates among the governing Pakistan People’s Party, the opposition Pakistan Muslim League-Nawaz and other religious and regional parties.

According to Cheema’s findings, President Asif Ali Zardari did not file a tax return in 2011 and neither did 34 of the 55 cabinet members including Interior Minister Rehman Malik.

Information was not available for one cabinet minister.

Of the 20 cabinet ministers who did pay, most made only negligible contributions, including Prime Minister Raja Pervez Ashraf, with Rs 142,536 ($1,466) and Foreign Minister Hina Rabbani Khar with Rs 69,619 ($716).

The cabinet member who paid the most was Water and Power Minister Ahmad Mukhtar with Rs 1.09 million ($11,223). Religious Affairs Minister Syed Khurshid Ahmed Shah paid the least with Rs 43,333 ($446).

Among all the lawmakers in the upper and lower houses of the federal parliament, 67 percent failed to file tax returns in 2011; 28 percent did and five percent were not possible to verify, according to the report.

It also found that 78 members of parliament are still not registered with a national taxation number.

In the Senate, it found that the most tax was paid by prominent lawyer Aitzaz Ahsan, who turned over $133,000 in taxes last year. The least was paid by Mushahid Hussain, a member of the Pakistan Muslim League-Quaid, who paid less than 10 cents (approx Rs 1000.

Cheema said his findings were based on a combination of publicly available data and questionnaires he had sent to members of both houses of parliament  — though just two members responded to his queries.

But some politicians and tax experts questioned Cheema’s findings, saying they did not take into account the wider failings of the country’s tax laws.

Ikram ul Haq, a lawyer and taxation expert, said it was incorrect to describe two-thirds of members of parliament as “tax dodgers,” because they automatically pay tax on their salaries.

But, he added, there was a serious problem with the declaration of income from land and other assets. Some politicians do not declare their extra income, or grossly underestimate it, he said.

And others legally avoid taxation because their income is largely derived from agriculture, a sector that is exempt from federal taxation — a longstanding complaint of the country’s urban middle classes.

Ayaz Amir, a lawmaker from PML-N, said the main problem lay with the broken system of tax enforcement.

“The point is not that 70 percent don’t file their returns. It’s that those who do file fictitious returns and do not declare the true extent of their income,” he said.

The problem is not limited to lawmakers, he added. “It’s the entire prosperous class of Pakistan. Their lifestyles are totally out of sync with their declared income.”

Another difficulty is that, even when breaches of the tax laws are discovered, the rich and politically connected are rarely prosecuted. “Law enforcement is in general very weak,” said Ahmed Bilal Mehboob, executive director of the Pakistan Institute of Legislative Development and Transparency.

“And if you happen to be an influential and powerful person like a politician, then it is even weaker,” he said.