LAHORE: Lack of income is the state’s major problem. Revenue leakage occurs when a tax collector collects rent from a tax evader. Rent-seeking is as much a reality as the willingness to pay rent to avoid the rules.
Almost all contractors engage in some type of malpractice. A culture where accepting and giving bribes is a norm, it provides access to various benefits.
A bureaucrat sitting in a lucrative position (e.g. at customs) demands rent from all individuals who seek his approval on a document that greatly benefits the bribe payer when the rent is paid.
The benefit is very small for the pension seeker. But when the bureaucrat demands the same amount from dozens of bribe payers for signing similar documents every day, the amount becomes huge.
In one month, the bribe he receives represents at least 10 times his monthly net salary. This two-way advantage is why most entrepreneurs (only a few entrepreneurs are clean) rarely ask the government for good governance or suggest ways to plug revenue leaks.
This seeking of bribes and these bribes have become part of our culture. Since it benefits vested interests on both sides, progress on good governance initiatives never succeeds. Growth would remain stagnant if the issue of governance was not resolved.
Businessmen drag the government on non-issues like high sales tax, excise duties, etc. or the punitive tax withholding on utility bills and checks. These factors have only become a major problem for local entrepreneurs who do not pay taxes or do not file their tax returns.
Next, there is a need to change the mentality of local entrepreneurs who sincerely believe that they are the ones contributing revenue by depositing sales tax, excise duties collected from consumers into the national kitty.
In fact, even the customs duties and income tax withholding they pay to the public treasury are collected from consumers.
Businessmen rightly charge consumers customs duties, but most of them also factor into their costs the advance tax they pay at the import stage and pass this charge on to consumers.
Sales tax is imposed on consumption and is paid by consumers.
According to records, direct taxes account for 35% of total tax revenue in the country. However, 70% of direct taxes are collected in the form of withholding tax.
This means that almost 80% of total tax revenue comes from consumers.
This tendency of entrepreneurs to pass the impact of most taxes on to consumers has been the main factor that has widened the gap between rich and poor.
The trend has also increased the undocumented economy.
The easy money that entrepreneurs have generated over the past three decades has also made local manufacturers inefficient. Ways must be found through dialogue to end tax evasion through technology and by outsourcing tax collection to a reputable private institution monitored for five years by the World Bank.