People in Europe’s social democracies voluntarily file their taxes on time and in the correct amount because they are entitled to tangible rewards in exchange.
Rights and obligations need to be connected for effective governance and favorable results. The scenario is completely different in Pakistan. “On the surface, it appears that the government is failing in every area of the citizen-state relationship,” observes an expert.
The social compact between taxpayers and the government, according to Finance Minister Muhammad Aurangzeb, needs to be fixed so that people trust the system and receive benefits and services in exchange for their taxes.
He clarified that this could not happen until there was sufficient financial room, which meant that the allocation to the social sectors would remain less than ideal.
Many worry that arbitrary tax laws will push more people to use cash for transactions.
During a press conference held in Kamalia on Tuesday, June 18, Mr. Aurangzeb revealed that individuals were reluctant to file taxes because of “harassment and frivolous notices” from the Federal Board of Revenue (FBR). He added that, having spent six years in the private sector, he was “also on the receiving end” of these actions.
“Legal authority alone does not establish the legitimacy of taxation,” asserts Farhat Ali, a former president of the Overseas Chamber of Commerce and Industry. According to his argument, “When citizens believe the system is fair, the tax burden is fairly distributed, and the government uses the collected revenues responsibly, they are more likely to accept their tax obligations.”
Many worry that the budget FY25’s arbitrary tax measures will encourage more people to use cash transactions, which will lead to an increase in tax evasion. According to the finance minister, sales tax revenue resulted in the loss of about Rs 2.1 trillion in tax revenue. And he claims that one of the primary causes of inflation was the money in circulation reaching Rs9 trillion. Most people anticipate that budgetary restrictions will increase inflation.
Two days after the budget was revealed on June 14, FBR Chairman Amjad Zubair Tiwana issued a warning, threatening to close offices of anyone who refused to take credit or debit cards. A senator briefed him on the challenges that customers are facing as a result of the Point of Sale system’s malfunctions.
Critics claim that budgetary actions could provide additional momentum to the current trend of the informal sector’s growth. Analyst Farrukh Saleem states, “We must focus on growth, not taxes,” citing instances of how nations have encouraged investment and increased economic activity with low corporation taxes. Economic growth results in larger tax revenues.
The nation’s financial team admitted in a written declaration to the parliament on June 16 that slower GDP rates result in less government revenue because of less economic activity.
On June 14, Prime Minister Shehbaz Sharif approved a huge drop in the electricity cost of Rs10.7 per unit for the industrial sector, a move that would significantly increase domestic output and exports.
In a study released by the Free and Fair Election Network (Fafen) in Pakistan, which is commemorating the first 100 days of current National Assembly term, notable accomplishments were mixed with serious inadequacies. The unsatisfactory legislative progress persisted.
According to a news article, 40 per cent of those who are poor felt that they were left on their own by the government. This was discovered through an interaction with the man on the street. It is believed that the 11 million people who live below the poverty line were overlooked in the budget.
According to PM Shehbaz, China would annually train 300,000 Pakistani students in information technology and advance the field’s advancement in the nation. But in the current dire economic climate, not only the weak but also the highly competent workforce and professionals do not see a bright future for themselves.
According to the Economic Survey 2023–24, the number of “highly skilled” people finding employment overseas increased by 119 percent, from 20,865 in 2022 to 45,687 in 2023. In a similar vein, the survey also recorded a 26.6 percent increase in the number of “highly qualified” people who left the nation during that time.
The budget FY25 has increased taxes on middle-class individuals; possibilities for jobs with good pay and a defined career path must be provided in order to deter brain drain.
The government needs to incentivise community outfits with a track record to work for socioeconomic development at the grassroots. An analyst notes that communities have stepped in to fill the state’s failure to provide economic and social security to its citizens, but current efforts are insufficient.
