The directive of the Minister of Finance, Ishaq Dar to the Federal Board Revenue to devise a comprehensive plan for increasing the collection of direct taxes is a step in the right direction. However, its success depends on the level of commitment that the federal government is willing to give to this particular move as more often than not such directives eventually fail to achieve anything concrete. But there is reason to be hopeful that this time things may actually work out. This is because the present government has not shied away from introducing measures that have although generated much opprobrium among certain segments of society but nevertheless contributed to incentivising taxpayers. The most significant of such measures is, of course, penalising non-filers through the levying of a withholding tax on every banking transaction that they make over Rs. 50,000. And these hardheaded decisions have results to show for them as well. Direct taxes have increased from 32 percent in 2006 to 40 percent in 2015. While this improvement may appear to be unusually slow, since it has been spread out over a nine year period, but it is a significant improvement nonetheless. And at the very least, it does goes to show that the direction that the taxation system is heading towards is that of progress.
Amid all of this much hue and cry has been raised over the wisdom behind such measures. Many have argued that the government is, rather than facilitating business, making things harder for the business community by levying withholding taxes for non-filers. Some have even rolled the logic of the withholding tax over its head by arguing that all that the government is achieving through it is dissuading people from using the banking channel, and hence pushing them even further towards the undocumented economy. However, all this is misses the point of the imperative for increasing the tax net, which requires even more drastic steps than have already been taken by the government. It is essential for the government to have information regarding who owns what and how much so that it can base its economic policy on that information. Otherwise, any macroeconomic measure that the government would come up would be akin to groping in the dark, relying too much on assumptions and hypotheticals.
