Focusing on the members of Parliament, who are supposed to act as the nation's conscience keepers, the report discovered that out of the 446 members of the National Assembly, only 126 filed their income tax returns in 2011. Seventy-eight parliamentarians never bothered even to get a national tax number. And incumbents of high office, including the President and 34 federal ministers out of 55-member strong federal cabinet, failed to file their tax returns in the outgoing year. The members of parliament, who did pay, grossly understated their incomes. The malady is not restricted to any one political party; tax-evaders are almost evenly distributed among different parties.
Considering that a vast majority of politicians are among the wealthiest in this country, it is hardly surprising if Pakistan's tax-to-GDP ratio at just 9.5 percent is the lowest in South Asia. In most instances, those who claim to have fulfilled their responsibility, the amount paid is under 100,000 which is hugely disproportionate to their lifestyles.
A federal minister from a well heeled feudal/industrial background paid only Rs 69,619, while her taste for expensive attires and accessories is the talk of the media. It is worthwhile to recall here that not long ago the US Secretary of State Hillary Clinton had openly told Pakistan to tax its own rich before asking for aid from America's taxpayers. The admonition, of course, has had no effect. On the contrary, some of the prominent parliamentarians confronted on the issue by the media, following the publication of the present report, have been justifying under-payment and evasion reasoning that their incomes come from agriculture which is tax-free.
As for the non-filers, under the tax laws anyone earning more than 500,000 per annum is required to obtain an NTN number and file tax returns. Those in this income bracket are also required to file wealth statements so that these can be matched with their lifestyles to determine actual tax potential. If the declared income is below the taxable limit, they can file zero percent tax. The big landowners claim tax immunity on two grounds; one that they pay land revenue and water tax. These are only nominal taxes and applicable to all farmers, big and small. Second and more important, as noted earlier, is the argument that agricultural income is tax-exempt, which is a blatant misrepresentation of reality. Indeed, there is no federal tax on agricultural incomes, but they are taxable under provincial laws. The problem is collection. Take the example of the largest province of Punjab. The provincial government reduced the budgetary estimate for agricultural income tax from Rs 1.2 billion in 2010-2011 to Rs 927 million for 2011-12. Yet as per budgetary documents for 2012-13 the collections remained significantly low at 715.45 million. That this downward revision had nothing to do with any unforeseen natural calamity is obvious from the fact that the target for the next fiscal year has been further reduced to Rs 720 million. Similarly in Sindh, the farm income tax collection (land and water tax inclusive) during 2011-12 fiscal fell from Rs 950 million target to just Rs 200 million, which was attributed to floods and heavy rains. Critics though point out that a sizeable increase in wheat support price should have helped make up for much of the losses.
Clearly, non-compliance is a serious issue. Since most of the legislators come from the land-owning class, they use their power to defend a collective class interest, frustrating any attempt to bring them into the tax net. No wonder the incidence of tax evasion among the landlords dominating the Parliament is as high as it is. They will go on lecturing the rest of society on morality and ethics dodging their own duty as long as they can get away with it. The question that begs an answer is, what is to be done about these high and mighty tax-evaders?