Another tax recovery failure

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What did they expect?

 

Not so surprisingly, another one of Dar sb’s novelties turns out to be stillborn. Of the one million traders that the finance minister expected to waltz into the tax net – after availing his voluntary tax compliance scheme, of course – only 128 have bothered so far, with the window scheduled to close on Feb29. If that is not embarrassing enough, it turns out that the Rs20m that these disclosures have brought in amount to a fraction of the amount spent on the government’s aggressive marketing campaign. If any exercise could run contrary to the essence of taxation – which is to raise revenue for the government – this was it. Yet there is talk of extension, and other arm-twisters, but little by way of expanding the tax net conventionally.

One particularly smart idea being considered, according to the press, is forcing traders not complying voluntarily with the ‘voluntary’ scheme back into the 0.6 per cent withholding tax regime. Again, not only is that bad tax policy, it also negates the ‘voluntary’ incentive that has been advertised not so cheaply. Now, regardless of an extension, a WHT logjam will follow as the fiscal rolls to a close.

And that, of course, will remind the finance minister of macro constraints that this tax scheme failure will amplify. Low oil prices – still an exogenous phenomenon – continue to provide fiscal space, but with exports and taxes both compromised revenue is still in the red. And with a persistent energy crisis, meaning declining manufacturing, etc, growth is still lowest in the region. Also, the IMF program has run out, which means there’ll be more pressure on local money markets for day-to-day government borrowing, further crowding out the little private investment that was coming up. Half way through the term, PML-N’s dishonoured campaign promises regarding taxes only add to its helplessness. The government needs to urgently revise its financial policy. Darnomics has not worked so far. There’s little chance it will in the future.

1 COMMENT

  1. Not a shame for the Finance Ministry ? Imran Khan also has termed the above scheme as a 'total failure'. In a democracy, the Finance Minister would have resigned. This even happened in Greece. Expanding the tax-net has been the demand of WB, IMF,ADB and who not else. But the Government least bothers. Instead taxed the poor people on electricity and gas – Rs 37 bn additional tax. Billion of Dollars are flying out of the country daily – said a former NAB Chairman Adm Bukhari which the authorities have failed to control.

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