Tax evaders beware: Finance minister cracks down to boost tax revenues by $21 billion

Pakistan is losing out on approximately $21 billion annually to tax evasion. As Finance Minister Muhammad Aurangzeb tightens the metaphorical noose around tax evaders with his crusade, law-abiding citizens could expect better times.

This is because, as per the latest federal budget, the interest payments of the debt incurred to finance the fiscal deficit of $30.6 billion will be financed using taxpayer funds. However, if Aurangzeb successfully expands the tax net, this fiscal deficit will fall massively to just a mere $9.6 billion.

Simply put, there are two ways to narrow a fiscal deficit: either the government can cut down on expenditures, or tax collections can be increased. In a bid to reduce the deficit, the finance minister plans to hold corrupt FBR officials accountable. This is to be done by implementing strict punishments: 10-year prison sentences and hefty fines. And with FBR agents raiding non-taxpaying businesses, the government budget deficit is likely to see a turn for the better.

The primary culprits of tax evasion are big companies that are responsible for 50 per cent of all unpaid taxes, a figure that translates into an annual loss of PKR 3.4 trillion in revenue for the FBR. With Aurangzeb taking strict action against corporate tax fraud, it is only a matter of time before every non-compliant business is paying its fair tax rate of 29%.

The motivation behind people skipping out on paying taxes stems from an economic concept known as the “free rider effect”. In simple words, people who don’t pay taxes have just as much a right to enjoy security from the police or acquire free healthcare at a public hospital as opposed to people who do pay their taxes.

Is this morally right? Perhaps not. However, compliance with tax legislation does not seem attractive—not when selling morality can net non-taxpayers $21 billion per annum by withholding taxes.

Regardless of morality, though, tax evasion is a crime, and Aurangzeb is not playing softball with people who cross him.