It’s not a headline you see too often, so just what is going on that a group of business organizations would get together and recommend a tax overhaul that includes greater enforcement and reduced exemptions for wides swaths of the economy? How bad is it, you ask?
In today’s New York Times, Sabrina Tavernise looks at how rich, tax-dodging Pakistanis have created a system by elites and for elites. The result is predictable: resentment among the poor, much underground economic activity, widespread corruption, and fuel for insurgents.
This is not news to Pakistanis. In less than 5 minutes from 1/2 a world away, I can find out who has expensive flats in London and what kind of fancy car they drive. This is the stuff Pakistanis see and talk about on a day-to-day basis. The current system is so bad it has spawned a growing informal sector (off-books economy) that is now 60-70% of GDP, and yielded a tax:GDP ratio of less than 9% in which such significant sectors as agriculture, services, and real estate contribute no taxes at all.
Responsible businesses recognize this is not workable–and there are options for dealing with this problem. After analyzing the relevant laws and hosting an open feedback process, the Pakistan Business Council–a coalition of 26 Pakistani business organizations, came up with several concrete recommendations as part of their National Business Agenda:
* Reduce sales tax rate from 16% to 10% over several years
* Introduce a Value-added Tax
* Restore a 15% investment tax credit
* Introduce a real estate tax on a per-square-foot basis for buildings and a per-square-yard basis for land
* Enforce mandatory tax filing by establishing stoppages on credit card transactions, foreign travel, personal loans, private club memberships, and professional certifications for tax dodges.
In a nutshell: broaden the base and make it stick. It’s easier said than done, but the coalition is advocating concrete implementation steps and trying to move forward one step at a time. Letting it fester as is clearly is not a good option.
Published Date: July 19, 2010