Pakistan's Finance Minister Sticks To Tough Tax Line

by Mary Swire, Tax-News.com, Hong Kong

06 July 2001

Pakistan's finance minister, Shaukat Aziz, said on Wednesday he would press ahead with promised reforms to the tax collection system, in spite of the sudden departure of Riaz Hussain Naqvi, chairman of the Central Board of Revenue (CBR).

Mr Naqvi, who was mercilessly anti-corruption in a country where corruption is the norm, is thought to have paid the price for what is seen locally as his excessive honesty. Mr Aziz said Mr Naqvi's current term in office was ending in October and the government felt it was appropriate to replace him at the beginning of the financial year, which began this week.

Privately, Mr Aziz must be unhappy about his departure, but said publicly only that: "The basic philosophy of the government is to have a tax system which is transparent, which is equitable and where there are no privileged classes."

The recently-announced budget for the new financial year took an axe to the country's convoluted system of customs duties, removing a regime of arbitrary exemptions from duty which played into the hands of corrupt officials, and slashing headline rates on over 4,000 import classifications. Mr Aziz said in his comments on the budget that it contained no new taxes, and that tax revenues had already been increased by 14 percent due to internal CBR reforms and that no fresh taxes had been levied. The budget deficit would be curtailed through financial discipline during the next financial year, he said..

The budget also contained subsidies and incentives aimed at fuelling development in the shipping industry, in agriculture and in manufacturing.

Mr Aziz called upon private citizens to support the effort to reform Pakistan's wonky finances by paying taxes honestly. At present barely more than 1% of the country's 134 inhabitants pay income tax. He said a 15 per cent increase in tax collections for the fiscal year was "realistic and achievable in the light of the results produced by the on-going tax survey." He urged taxpayers to opt for self-assessment schemes to "avoid physical contact with and harassment by tax collectors". He said 20 per cent of taxpayers would be picked through a computer ballot for audit and the returns filed by the rest would be accepted as such.

Improvements in tax collection are in fact vital if Pakistan is to escape from the straitjacket of debt which has resulted from the extravagant spending of previous governments. Foreign debt ballooned to $38bn in the 10 years from 1990 to 2000, and debt servicing costs had reached 75% of tax revenues by 1998-99. Mr Aziz said that the figure would be only 54 per cent during the current financial year and he planned to reduce it to 50 per cent in the following year. In 1990 debt service consumed 40% of revenues.

In fact, Mr Aziz's task would be hopeless without the co-operation of the IMF and other aid agencies; his efforts to improve domestic tax collection are seen by the multilaterals as a necessary first step if they are to pour yet more money into Pakistan's leaky begging bowl.

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