Zafar Iqbal

Tax laws are often seen as an alienating force, a necessary yet unwelcome element in the financial landscape of any nation. This is particularly true in Pakistan, where the introduction of new revenue collection measures and tax reforms often meets with resistance from the public. The reluctance to part with hard-earned income is universal, but in Pakistan, this reluctance is amplified by the dire economic circumstances the country is facing. With inflation eroding salaries, the average Pakistani is growing increasingly hesitant to contribute more to the state’s coffers, especially when the returns, if any, are uncertain and abstract. The introduction of the Tax Law (Amendment) Bill 2024, aimed at strengthening tax compliance, has thus raised concerns, casting doubt on whether such measures can truly achieve their intended goals or merely increase public resentment.

The amendment bill grants the government more extensive powers to enforce tax compliance. It introduces severe restrictions for those failing to meet tax obligations. Non-compliant individuals could find themselves unable to open bank accounts, face restrictions on their ability to purchase vehicles over 800cc, and even have their businesses sealed if they are unregistered. These stringent measures, which are seemingly designed to tighten the grip of tax authorities, have ignited further frustration among the population. The key issue here is the perceived fairness of these laws. For years, Pakistan’s tax authorities have struggled to widen the tax net, but the success of these efforts has been limited, with significant portions of the population—especially the wealthy and large corporations—finding ways to evade taxes. While the salaried classes bear the brunt of tax burdens, large retailers, agricultural landowners, and entrepreneurs who engage in high-income activities often go unscathed.

The anger is not unfounded. In a country where the tax burden has long been concentrated on the salaried classes, the notion of additional restrictions and penalties is unlikely to inspire confidence in the government’s ability to redistribute resources fairly. There is a glaring disconnect between the pressure exerted on the ordinary taxpayer and the lack of accountability for big businesses, landowners, and other influential sectors. Even as the government takes steps to regulate the agricultural sector and crack down on fraudulent invoicing in retail, the changes do not seem to match the significant burdens placed on regular workers. This skewed approach leaves many questioning whether the system is truly designed to target tax evasion across all sectors or if it is simply another way to extract more from those who already comply.

Moreover, the bill’s proposed language change—from terms like “filers” and “non-filers” to “eligible” and “ineligible” persons—further complicates the public’s understanding of the tax system. While these changes are ostensibly made to streamline and modernize the tax process, they risk alienating those who are already unfamiliar with or distrustful of the bureaucracy. The government’s attempts to involve banks in verifying tax filings, though potentially useful for ensuring accuracy, add another layer of complexity to a system already viewed as opaque and difficult to navigate. These reforms, in their current form, are likely to be seen as punitive rather than corrective, and unless they are paired with clear benefits for the compliant taxpayer, they may fail to garner the support needed to bring about meaningful change.

The real test for these amendments will be whether they lead to increased tax filings or simply reinforce existing patterns of non-compliance. Past efforts to impose restrictions on non-filers, such as blocking access to luxury goods or services, have not yielded significant results. Authorities must recognize that enforcement alone is unlikely to solve the problem of tax evasion. Pakistan’s track record with tax compliance is disappointing, and these amendments are unlikely to succeed without a broader, more inclusive approach to reform.

Long-term planning and structural reforms are essential if Pakistan is to achieve its ambitious tax revenue targets. In this regard, the country could take a cue from its success with remittances. The government’s efforts to curb illegal money exchange operations and incentivize the use of formal channels have resulted in an impressive increase in remittance flows through legal means. This success demonstrates that a combination of enforcement and incentives—rather than a reliance on punitive measures alone—can produce tangible results. Similarly, if the government is serious about expanding the tax base, it must find ways to incentivize tax compliance. This might include offering tax credits or deductions for early filers, implementing simplified filing systems for small businesses, or providing direct benefits to those who contribute to the national coffers.

Perhaps the most critical element in any effort to boost tax compliance is the restoration of public trust. The government’s ability to enforce tax laws and increase revenue is inextricably linked to its credibility. In Pakistan, where trust in government institutions is already fragile, any new tax reform must be accompanied by transparency and accountability. The perception that taxpayer money is being squandered or misused by corrupt officials is a major obstacle to increasing compliance. To succeed, the government must not only demonstrate that it can effectively allocate public funds but also create a system where citizens feel assured that their contributions are being used for the greater good.

At present, the government’s relationship with the people can feel like one of constant demand without reciprocity. Citizens are often asked to comply with regulations that seem overly harsh or unjust, while seeing little in the way of improvements to public services or infrastructure. This breeds resentment, and when coupled with the threat of penalties for non-compliance, it fosters an environment of distrust. People may feel that the government’s goal is not to secure the common good but to extract as much as possible from them, without any tangible benefits in return.

Ultimately, the success of the Tax Law (Amendment) Bill 2024 hinges on whether the government can shift its approach from one of coercion to one of cooperation. The state must balance its need for revenue with the public’s need for fairness, transparency, and trust. Until this delicate balance is struck, any attempt to increase tax compliance will likely be met with skepticism, and the goal of a fair and effective tax system will remain elusive. Without long-term structural reforms, sustained public engagement, and a commitment to transparency, the government’s efforts may remain just another set of empty promises.