Promotion of tax culture in Pakistan: Perspective,

prospects and challenges

Introduction:
1) Definition of tax culture
2) Tax culture around the world
3) Tax culture in Pakistan
Details:
4) Reasons due to which people don’t pay taxes
i) Illiteracy
ii) Lack of awareness about tax system
iii) Complex tax system and codes
iv) Harassment of the tax-payers
v) Corruption in the administration
vi) Lack of punishment for non-payers and corrupt officials
vii) Badly carried out amnesty scheme
viii) Mistrust among common people
ix) Luxury living standards of the elite
x) Lack of tax incentives
5) Bad effects of non-payment of taxes
i) Economic disparity in the country
ii) Non-availability of public educational institutes, hospitals etc.
iii) Increase of class gap
iv) More taxes on the poor
v) Foreign loans
vi) Lack of security and safety
6) Methods to improve tax collection
i) Educating the nation
ii) Simplification of the tax system and codes
iii) Friendly environment for the tax-payers
iv) Giving tax incentives such as amnesty scheme but with proper homework
v) Punishing the culprits
vi) Rulers leading by example
vii) Reviving trust of the common people on the government
viii) Awareness campaigns through print and electronic media.
7) Good effect of tax-payment
i) Economic prosperity
ii) Construction of schools and hospital etc
iii) Reduction in class gap
iv) Less indirect taxes
v) Elimination of debt financingvi) Improvement in security apparatus
8) Conclusion Birger Nerre defines Tax Culture as the entirety of all formal and informal
institutions related to the tax system and their dependence and ties with each other and
with the public, embedded in the culture of a country. Thus we can define the tax culture
is the way that tax collecting departments communicate with each other and with the
public.

In the developed world, political stability and democratic maturity have brought a tax
culture that provides the basis of economic prosperity. Unfortunately, this has not been
the case with our country. A vast majority of the people don’t pay taxes resulting in the
poor services provided to the public by the successive governments.

The lack of development of this culture in our country is not without reason. If we
compare our circumstances with that of the developed countries, we easily know that
there are huge differences in our and in their situation. The difference of situation due to
some reasons has not allowed our tax culture to flourish. The first reason of this the
majority illiteracy gap between us and them. In developing countries, more than 90
percent are well-educated whereas in our country only 50 percent are educated
including those who can only write their names. In such a dismal situation, it is hard to
expect some positive results.

The other worrying sign is the lack of tax payment by the educated class. Most of them
do not pay taxes incumbent upon them. This reason for this is the lack of awareness
among them and the complex tax codes, which are too difficult to grasp. Common
people don’t have the awareness about the payment of taxes and that how taxes can
prove helpful for their lives. To add with this is the complete system of tax-payment and
hefty procedures which are to carry out while paying tax.

The other reason is the harassment of the common people at the hands of the
administration. Most of the staff members don’t have the proper training of how to deal
with customers in a polite manner and black sheep in the administration instead of
motivating them to pay tax, lure them into bribery for personal benefits. This deteriorates
the already bad image of Federal Board of Revenue and other institutions dealing with
tax collection and further de-motivates the public from paying taxes.

These malpractices are further encouraged when corrupt officials and non-payers do
not get any sort of punishment. Most of the corrupt mafia roam around freely in the
country with no accountability and punishment. This allows the corrupt people to bribe
these officials to enjoy the perks of their earning without taking care for their obligation
of tax-payment.

Successive governments have used unconventional methods instead of Instead of

resorting to strict measurements such as punishment. One such example is the tax
amnesty scheme announced by the governments to motivate non-payers to pay their
taxes. This provides them with some sort of flexibility or concession in their payment but
has not worked well so far. Due to the lack of proper planning and political will, these
schemes dilutes after some time.

One of the main reasons is the mistrust of the government among the public. Common
people when seeing government officials living luxurious lives in the country and abroad
and the perks and privileges they enjoy become hesitant to pay taxes. The majority
thinks that these taxes will be wasted on foreign tours or private functions of the
officials. In such a mental situation, it is a bit too much to expect from them that they will
pay taxes.

The lack of incentives is another major hurdle in the development of tax culture in our
country. The government needs to give some incentives to the people to motivate them
towards tax-payment. The tax amnesty scheme by the present government is a
laudable scheme but this scheme should not dilute after the change of government.
Follow-up measures in this regard will be extremely helpful.

When rich people don’t fulfill their obligation of paying taxes, it results in serious
consequences for the economy of a country. This is evident in the low growth of our
GDP and economic crunch faced by our country. Now if we take a look at the developed
we see that their Tax to GDP ratio is quite high which reduces the budget deficit and as
a result, they are living lives with much more facilities than we.

This economic disparity results in the non-availability of education institutes, hospitals

and other basic needs of life. Rich people get these facilities from abroad or from areas
where they are available at high prices but poor people don’t have the money to pay for
it and as a result, they remain deprived. This has increased class gap at a very high
pace and is kept on increasing.

Another major negative effect that society has to face is too many indirect taxes from
the government. Direct taxes are paid on the income and so thus only rich have to pay
whereas indirect taxes target poor the most. Commodities of daily life become hard to
buy when poor has an as low salary as less than 100$ per month.
When taxes are not paid, Government has to take some steps in order to deal with the
situation. The easiest way is to take loans from foreign donor agencies like IMF and
World Bank etc. The whole economic system is gripped under a vicious cycle in which
debts keep on increasing and the country becomes poorer and poorer.

The other major indicator and bad effect of this are the deterioration of law and order
situation in the country. This law and order situation is not only a problem in itself but
has also many other many tentacles which need to be considered. Bad law and order
situation results in the reduction of foreign direct investment and in the number of
foreign tourists. Thus the country not only loses some valuable investment but also
results in a bad image of the country abroad. This law and order situation is directly
related to the economic prosperity and financial resources of a country.

In order to counter these effects, government and us, as a nation need to follow some
steps. The very first to be taken is to educate the coming youth. This will raise a sense
of duty among them to pay their taxes. This doesn’t mean that we provide only
conventional education without any ethics and moralities. They should be motivated to
fulfill their obligations while living in the state. The code tax should be simple and
understandable for the common public and there should be proper check and balance
on the Federal Board of Revenue administration so that they cannot harass or behave
negatively with tax-payers.

The government should announce tax amnesty schemes for the non-payers to motivate
them towards payment of taxes. Apart from this, the government should also give strict
punishment to those who do not obey the law of the land. Those who do not pay taxes
constantly should be made an example for others. This will deter the financial crimes
and corruption in this regard.

Steps should be taken to revive the trust of people in the system. The two major steps
in this regard would be the example of rulers. If rulers do not pay taxes then it is not
justified to expect that common people will pay taxes. The government should also raise
awareness among the society by various print and electronic media campaigns. Social
media can also prove to be instrumental in such awareness campaigns.

Proper payment of taxes will not only stabilize the economic condition of our country but
will also improve the living standard of people. The class gap will reduce significantly
amid the improving financial conditions of poor and literacy rate will improve drastically
due to a high number and quality of public education institutes. More public hospitals
will be built, which means that public will have access to advanced and less-expensive
medical facilities.

The financial sector will improve significantly, which will result in less or no debt
financing on part of the government. The money which the government pays in
exchange for the loans they take from donors will be diverted towards poor people.
Another major output will be the reduction in indirect taxes and increase in direct taxes.
The reduction of indirect taxes means that daily life commodities will be less expensive
to buy for the poor whereas direct taxes will further help the government in expanding
its financial pool.

The improvement in financial resources means the improvement in security and safety
of the citizens both from internal and external threats. This improved security situation
will also encourage foreign investors to invest in Pakistan, which will drastically change
the lifestyle of the poor, bringing a positive change to their lives through employment
opportunities.
If we compare our country with the countries of the world and of the region, we will
come to know that even regional countries have high tax to GDP ratio than us, forget
about the developed world. In Pakistan only 0.3 percent people pay taxes which make
total GDP ratio not more than 10. Now it is up to us whether we want to improve our
lives or want to depend on foreign loans and dictations.