"The problem starts at the top. Those who make revenue policies, run the government and collect taxes, have not been able to set good examples for others," said the report, likely to increase pressure on Pakistan to implement tax reform. There was no immediate reaction from top politicians, although a spokesman for the main opposition Pakistan Muslim League-N party told AFP it was up the Federal Board of Revenue (FBR) to take action against any evaders. Pakistan has one of the lowest tax-to-GDP ratios in the world, estimated at 9.2 percent. Only 260,000 out of 180 million citizens have paid tax consecutively for the last three years, according to the FBR.
According to the findings, President Asif Ali Zardari did not file a tax return in 2011 and neither did 34 of the 55 cabinet members including Interior Minister Rehman Malik. Information was not available for one cabinet minister. Of the 20 cabinet ministers who did pay, most made only negligible contributions, including Prime Minister Raja Pervez Ashraf, with 142,536 rupees ($1,466) and Foreign Minister Hina Rabbani Khar with 69,619 rupees ($716).
The cabinet member who paid the most was state minister for commerce, Abbas Khan Afridi, who paid 11.5 million rupees last year ($118,677). Religious Affairs Minister Syed Khurshid Ahmed Shah paid the least with 43,333 rupees ($446). Among all the lawmakers in the upper and lower houses of the federal parliament, 67 percent failed to file tax returns in 2011; 28 percent did and five percent were not possible to verify, according to the report. It also found that 78 members of parliament are still not registered with a national taxation number.
Pakistan's refusal to implement sweeping tax reform was instrumental in the collapse of a $11.3 billion IMF bailout programme in November 2010. The country is one of the biggest recipients of Western aid - payouts that US Secretary of State Hillary Clinton and British Prime Minister David Cameron have said are difficult to increase when Pakistan's own elite pays no tax. But the report also suggested there had been some improvement since the Pakistan People's Party (PPP) government was elected in 2008. In 2010, none of the then cabinet, including premier Yousuf Raza Gilani, paid tax, Cheema's report said.
It says Gilani, who was dismissed by the supreme court in June for contempt, registered to pay tax in July 2010 - more than two years after coming to power. The report, which marks the launch of the Centre for Investigative Reporting in Pakistan, based its findings on information from the FBR and lawmakers themselves. It urged politicians to disclose their tax returns voluntarily in future. The report comes after the chairman of the FBR, Ali Arshad Hakeem, offered tax evaders the chance to pay around $420 to have the slate wiped clean in return for committing to pay tax regularly from next year. Under a new law, yet to be approved by parliament, those unwilling to sign up for the amnesty and pay their taxes will face having assets seized, cell phone connections frozen and could be barred from leaving Pakistan.
"We have standing instructions to our party leaders and officials to pay tax and to uphold the supremacy of law. But you cannot force an individual," PML-N spokesman Mushahidullah Khan told AFP. "We will bring reforms to our tax system when we come to power," he added.
"This is what the people of Pakistan are upset about," said Jehangir Tareen, a trim, silver-haired businessman who paid the most tax in the National Assembly last year. He tried to set a precedent by making his returns public but no one followed suit. "Taxes are the beginning and end of reform in Pakistan," said Tareen, who gave up his seat in parliament in frustration over his inability to push changes. "Right now the rich are colluding to live off the poor."
POOR ENFORCEMENT The report highlights why Pakistan has failed to improve its tax collection rates: politicians benefit from a lax regime. No one has been convicted of income tax evasion in 25 years and few Pakistanis see a failure to pay tax as shameful. Although lawmakers have about $25 a month deducted from their basic pay in tax, almost all have second incomes.
"They built this system for their own benefit," said tax expert Ikramul Haq. Poor laws and loopholes meant lawmakers often have their income exempt from tax, he said. Huge swathes of the economy, like agriculture, are virtually exempt. Specially designated products also benefit from "zero-ratings" and are not subject to any tax. "We want to cut down on zero ratings and loopholes," said Ali Arshad Hakeem, the head of the Federal Board of Revenue. He has vowed to crack down on tax cheats. "Parliamentarians are just a subsection of the population we want to become compliant," he said.
Enforcement is so poor that paying tax is almost voluntary, another revenue official said. About one percent of Pakistanis file tax returns. The investigative group said it had not been able to find tax returns for 35 out of 55 government ministers, including Interior Minister Rehman Malik.
Finance Minister Hafeez Sheikh was among those who did file, paying $1,700 in tax on his ministerial salary. His money from private equity funds would be exempt, a tax official said. He spent more on his electricity bill than his taxes, according to a federal tax record seen by Reuters. The interior and finance ministries did not return calls or emails inquiring about tax obligations for ministers. Visits by a Reuters reporter also did not yield any comments.
Foreign Minister Hina Rabbani Khar paid $670, the investigative center said. Her spokesman said she paid $1,700, more than most. Her agricultural income and a small dividend from up-market restaurants she co-owns were exempt, he said. Among the ordinary members of parliament whose tax returns the investigative group was unable to find is Mehboob Ullah Jan, a former secretary for religious affairs.
The average Pakistani legislator has assets of $800,000, the investigative center's study of their declarations found. Yet of those who paid tax, most paid less than $1,000, it said. Former minister and Georgetown University graduate Mushahid Hussain Syed paid less than a dollar in tax, the center said. The senator was attending a conference in Bali but sent an email disputing the report and saying he had paid $6.