Pakistan Among World's Top 10 Tax Losing Countries

[Riaz Haq]

Pakistan ranks among the top 10 countries in terms of tax revenue losses due to corporate tax avoidance, according to UN World Institute for Development Economics.  World Economic Forum estimates that the country lost $10.4 billion in taxes last year.

Top 10 Tax Losers:

The top 10 countries losing the most tax revenue in absolute terms as listed by the World Economic Forum are USA ($188.8 billion), China ($66.8 billion), Japan ($46.1 billion), India ($41.2 billion), Argentina ($21.4 billion), France ($19.8 billion), Germany ($15 billion), Pakistan ($10.4 billion), Indonesia ($6.5 billion) and the Philippines ($6.4 billion).

Pakistan and Argentina top this list of 10 in terms of tax revenue lost as percentage of GDP.  Both lose 3.5% of their GDP in corporate tax avoidance, according to World Economic Forum.

Tax Evasion at the Top:

Tax evasion in Pakistan starts at the top. A large number politicians, including ministers and party leaders in the nation's parliament, do not bother to file tax returns or pay taxes.

A study by the Center for Investigative Reporting in Pakistan (CIRP) identified 461 members in national and provincial assemblies who did not pay income taxes in 2015. This figure includes ministers and other prominent political leaders. Federal Board of Revenue found that many of the 550 lawmakers (54%) falsely claimed they paid taxes.

Elections Act 2017:

Whatever little accountability that exists is now being eroded by Elections Act 2017. 

The nomination forms of candidates for national and provincial assemblies in Pakistan have been redesigned this year to remove all questions on assets, income taxes paid or owed, bank loan defaults, foreign residency (iqama) and  educational qualifications.  This was done based on Pakistan Elections Act 2017 that became law on October 2, 2017 in the wake of several disqualifications from holding office or being a legislator. 

Many legislators from across the political spectrum have  been caught lying on their nomination forms filed in prior elections. Some have been disqualified for false financial declarations while others have been removed for lying about their foreign residency visas (iqama), dual nationality or education. 

Impact on National Development: 

Tax evasion in Pakistan exacerbates budget deficits and forces the government to borrow heavily. It also impacts critical spending on education, health and infrastructure. The result is slow economic growth and persistence of poor socioeconomic indicators. 

Summary:

Pakistan's tax revenue loss of $10.4 billion is ranked among the world's top 10 countries losing tax revenue. Losses of 3.5% of GDP in taxes put Pakistan at number 1 among these countries. Legislators, including government ministers, are among the most prominent tax evaders in the country. Elections Act 2017 limiting financial transparency makes it more difficult to hold the politicians accountable for tax evasion and other financial malfeasance. These developments don't augur well for development or democracy in the country. 

Here's World Economic Forum video on tax evasion:

https://youtu.be/Xe-GSM1k9Ag

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[Riaz Haq]

Of #Pakistan’s top 50 #taxpayers, 33 are from #Karachi. Only six from #Lahore, three from #Gujranwala and two from #Islamabad are among the top 50 taxpayers. http://www.samaa.tv/news/2019/02/of-pakistans-top-50-taxpayers-33-a...

[Riaz Haq]

Pakistan goes after hidden assets and finds nearly $450 million
After another IMF loan, the country is increasing enforcement on tax avoidance to help manage its debt.

https://www.aljazeera.com/ajimpact/pakistan-hidden-assets-finds-450...

Pakistan's government, struggling to lift revenues and cut ballooning public debt, registered around 100,000 new tax filers and expects to have raised about $450m from a tax amnesty on hidden assets, the finance chief said on Thursday.

The announcement came a day after the International Monetary Fund gave final approval to a six-billion-dollar loan package designed to shore up the economy while the government cuts debt and builds up dwindling foreign currency reserves.

Finance chief Abdul Hafeez Shaikh said nearly 137,000 people had registered at the closure of the amnesty this week, of whom nearly 100,000 were first-time filers.

That was a significant total in a nation in which less than one percent of the 208 million population file tax returns.

In total, around three trillion rupees ($19.25bn) of assets were declared and tax revenue worth around 70 billion rupees ($449.15m) was collected.

Prime Minister Imran Khan introduced the amnesty on undeclared assets, part of a broader drive to widen Pakistan's notoriously narrow tax base, in a bid to identify high earners for more efficient tax collection.

[Riaz Haq]

Pakistan amnesty draws 100,000 new tax filers, $450 million

https://uk.reuters.com/article/pakistan-economy/pakistan-amnesty-dr...

Pakistan’s government, struggling to lift revenues and cut ballooning public debt, registered around 100,000 new tax filers and expects to have raised about $450 million from a tax amnesty on hidden assets, the finance chief said on Thursday.

The announcement came a day after the International Monetary Fund gave final approval to a $6 billion loan package designed to shore up the economy while the government cuts debt and builds up dwindling foreign currency reserves.

Finance chief Abdul Hafeez Shaikh said nearly 137,000 people had registered at the closure of the amnesty this week, of whom nearly 100,000 were first-time filers.

That was a significant total in a nation where less than 1% of the 208 million population file tax returns.

In total, around 3 trillion rupees ($19.25 billion) of assets were declared and tax revenue worth around 70 billion rupees ($449.15 million) was collected.

Prime Minister Imran Khan introduced the amnesty on undeclared assets, part of a broader drive to widen Pakistan’s notoriously narrow tax base, in a bid to identify high earners for more efficient tax collection.


The move represented a turnaround for Khan who had accused previous governments of using amnesties to legitimise illegally acquired wealth hidden inside Pakistan and abroad.

Under the IMF agreement, approved on Wednesday, Pakistan has undertaken to drastically increase revenue mobilization by 4-5% of GDP at federal and provincial level over three years.

There have already been protests by opposition parties at the squeeze on household revenues.


Hafeez Shaikh said the IMF agreement would open up more funds from other lending agencies and help the broader economy.

“Pakistan’s economy will stabilize, and we will take on the path of progress,” he said.

The government has set a target of raising 5.55 trillion rupees ($35.6 billion) in tax this year, an ambitious goal given that it missed a previous target of 4.4 trillion Pakistani rupees ($28.2 billion) by over 500 billion rupees ($3.2 billion).

[Riaz Haq]

Documenting a Country’s Real Estate Economy. 30-40% of #Pakistan's #economy is estimated to be undocumented. Pakistan has often been accused of not doing enough to curb #terror-financing from within its borders. #property #gold #PrizeBonds #Tax #FBR #FATF https://foreignpolicyi.org/documenting-a-countrys-real-estate-economy/

For too long, Pakistan’s economy has remained largely undocumented and informal. This has caused a lot of trepidation both within the country and internationally. Locally, everyone knows that the country’s real estate sector has been used to park a significant amount of black money as well as launder money. 

When we say ‘black money’, we do not necessarily refer to the money earned from illegal sources but (as far as real estate is concerned) also that which has not been documented thanks to loopholes in the registering mechanism – caused, of course, by the negligence of the authorities. The people themselves are certainly to blame, too; it suited them to pay much lower taxes than they would have had to after registering their properties at their proper prices. Also, there was nothing actually stopping them from recording their properties at their actual market values. 

Internationally, Pakistan has often been accused of not doing enough to curb terror-financing from within its borders. Regardless of the government’s willingness to effect some change in the prevalent situation – one overarching issue is that the economy isn’t documented enough to effectively restrain finances from being funneled towards any organization with potential terror links. Again the significant importance of taking account of the undocumented black money and the funds parked in real estate sector becomes evident. 

All of this has eventually led the government to finally take action on the matter before the current decade sees its closure. 

In general, for the economy overall, the issues caused by the undocumented economy can be understood this way:

The informal economy encompasses the entire economy, as well as that particular sector which is resistant to its advances. Any reforms introduced can be easily bypassed by its instigations, and when 30-40% of the economy is estimated to be undocumented (as is the case in Pakistan), this means that, at the end of the day, the reforms will not really take root. 
As mentioned above, the informal economy can serve well to hide illicit and downright criminal activities; even more so when the sector is as large as Pakistani real estate, which, according to some estimates, has a volume running in billions of totally unaccounted-for-dollars. 
Locally, an oft-discussed issue regarding the undocumented economy in general and real estate, in particular, goes along these lines: the authorities have been unable to tax the sector effectively because of its non-rationalized nature. 
The unregulated nature of the sector has also meant that it is highly uncompetitive and random. The prices have been raised on the basis of mere speculation; hence the preponderance of the frequent ‘bubbles’ that deflate the prices significantly ‘all of a sudden’ after every few years. 
Two issues attendant to and stemming from the ones mentioned above lead to the market not contributing anything, relatively speaking, to the national economy – when analyzed for its actual size and volume. 
And, despite such a large amount of investment being poured into the sector, it doesn’t contribute as much to construction (developmental) activity. Most of the money is allocated towards buying and selling land, which, at the end of the day, serves no purpose at all. It is not, then, surprising that Pakistan has a housing shortfall running into millions of rupees.

[Riaz Haq]

Income #tax collection from return filers in #Karachi was Rs 573 billion for the tax year 2018 followed by Rs 204 billion from #Islamabad, Rs 200 billion from #Lahore, Rs 35 billion from Rawalpindi, and Rs 16 billion from #Faisalabad. #Pakistan #revenue https://www.brecorder.com/news/40019858

The income tax collection from return filers in Karachi remained the highest during Tax Year 2018, followed by Islamabad, Lahore, Faisalabad and Rawalpindi. The Federal Board of Revenue (FBR) has conducted a city-wise tax analysis of the Tax Directory 2018 having data of income tax return filers, and tax deposited in each city for the year ended June 30th, 2018.

The FBR has shared tax details of all major cities, small cities and areas adjacent to border areas of Pakistan including tribal areas.

The FBR analysis, "Tax Collection from Major Cities" revealed that the income tax collection from return filers in Karachi was Rs572,594,396,386 for the tax year 2018 followed by Rs204,148,673,059 from Islamabad, Rs200,717,435,894 from Lahore, Rs35,170,187,615 from Rawalpindi, and Rs16,264,148,003 from Faisalabad. The city-wise data of Karachi disclosed that administratively, the FBR had divided the coastal city into five areas.

Total collection from Karachi stood at Rs572,594,396,386.

Breakup of collection from the commercial hub of the country revealed that the tax from Karachi was Rs209,107,138,348; Karachi Central Rs9,059,371,508; Karachi East Rs34,092,500,901; Karachi South Rs114,229,955,253, and Karachi West Rs28,891,487,111.

City-wise income tax data revealed that filers from Lahore deposited Rs200,717,435,894 in tax.

Breakup of collection from the provincial capital of Punjab reveals that the collection from Lahore was Rs180,580,693,868; Lahore Cantt Rs5,270,469,564, and Lahore City Rs14,866,272,462, during this period.

The income tax collection from return filers in Rawalpindi amounted to Rs35,170,187,615 for the tax year 2018. Malir contributed Rs29,374,153,827 as tax from the income tax return filers falling within the jurisdiction of that area.

Multan city contributed Rs12,772,888,239, and Sahiwal contributed Rs1,770,291,678 as taxes from the return filers in the area. The income tax collection from Gujranwala city was Rs7,926,264,130, during the tax year 2018.

The FBR collected Rs4,499,262,113 from income tax return filers of Sialkot.

Tax collection from Abbottabad stood at Rs1,610,871,493, and the FBR collected Rs2,481,243,943 in tax from Bahawalpur.

The FBR collected Rs6,357,384,959 tax from Dera Ghazi Khan.

From Kohat, the FBR collected Rs1,640,625,913 as tax from the income tax return filers during tax year 2018.

Tax collection from North Waziristan Agency was Rs1,119,980, and tax collection from Okara Rs1,081,818,348.

The FBR has collected Rs13,643,621,461 from Peshawar during tax year 2018.

Collection of tax from Quetta stood at Rs10,052,581,291.

As per the FBR data, the tax collection from Sargodha was Rs2,210,683,221, and Rs2,611,985,052 from Sheikhupura.

The income tax return filers in Sukkur contributed income tax of Rs3,574,079,338.

The city of Haripur contributed Rs1,706,260,030 from the income tax return filers.

Total income tax collection from the return filers of Hyderabad amounted to Rs4,065,622,573.

Breakup of Hyderabad, as per the FBR data, revealed that Hyderabad contributed Rs2,502,654,699, and Hyderabad City contributed Rs1,562,967,874.

The income tax return filers in Taxila contributed Rs1,251,185,013 as income tax during tax year 2018, and return filers in Thatta deposited tax of Rs1,014,821,378 during the period.

[Riaz Haq]

Karachi retail markets pay 47% of all retail sales taxes in the country, according to the FBR data reviewed by PIDE economists Idrees Khawaja and Ahmad Waqar Qasim.

https://pide.org.pk/research/new-directory-shows-cities-in-pakistan...

The markets of Karachi generated almost half of the income tax paid by Pakistan’s major markets (Rs. 97 billion – 47 percent). This is despite the limitations of a poor law and order situation and not-so-good civic infrastructure that Karachi has faced for decades; imagine the trading volume and therefore the taxes, if the city is unconstrained. The markets of Lahore and Islamabad pay respectively 20.0% and 19.3% of the total tax collected from the major markets of Pakistan. Karachi-Saddar alone generates an income tax of Rs. 77 billion – 79 percent of the total income tax paid by the markets of Karachi. Even more surprising is the fact that out of Rs. 40.5 billion paid by the markets of Islamabad Rs 39.9 billion (98.5 percent) is paid by the ‘Blue Area market’ alone. These figures give an idea: economic activity occurs in dense and easily accessible markets. Those familiar with these two cities also know that the two markets are easily accessible and dense. The tax directory also gives the number of filers in each market. The average income tax per filer or per entrepreneur in the markets of Karachi is Rs. 0.91 million, while the income tax paid per filer or entrepreneur in the markets of Islamabad is around Rs. 5.0 billion. If, whatever profit the income tax of Rs. 0.91 million reflects, is normal profit and is enough for an entrepreneur to survive in business then clearly the entrepreneurs of Islamabad are reaping excessive profit. Why aren’t more entrepreneurs rushing to get a slice of the fairly large profits which entrepreneurs of Islamabad (especially those doing business in the “Blue Area”) seem to enjoy? The answer could be hidden in Islamabad’s limited retail space: Limited space has made property too expensive in the city. Expensive property represents a barrier to entry. Overcoming this barrier requires a significant capital investment. Peshawar’s Karkhano Market, which is the largest Bara market in the country, generates an income tax of Rs. 5.3 billion. Markets specifically named Bara markets in other cities collectively generate income taxes of Rs. 60 billion. The markets called landa bazzar and kabari market collectively generate Rs. 353 billion. The lesson from these figures is that the informal sector contributes to the economy, so let it exist. Rawalpindi, which has a population of 5.41 million, its markets pay an income tax of Rs. 2.82 billion. On the other hand, Multan, with a lesser population of 4.75 million, its markets pay income taxes of Rs. 6.67 billion (Rs. 3.82 billion more than Rawalpindi). One explanation could be that Multan being the largest and most developed city in South Punjab, its residents mainly shop in Multan. On the other hand, residents of Rawalpindi and various other parts of the country appear to be shopping in Islamabad. These inferences carry worth pondering implications for city development. On corporate front, a total of 44,609 companies filed tax returns paying income tax of Rs. 497 million. 55% of companies paid no tax and 20% paid less than one lac Rupees as income tax. Out of over 44,000 thousand filers, 81% of the total income tax paid by the corporate sector came from just 600 companies. Top 5 tax-paying companies contributed Rs. 60 billion. The 542 companies listed on stock exchange generated income tax of Rs. 198 billion – 98 pc of this came from 150 companies. Out of the 542 listed companies, 147 (27 pc) companies paid no tax. The textile sector with 153 listed companies is the largest sector in terms of number of companies. Ironically, the sector contributes only 3.2% of the total income tax collected on the stock market.

[Riaz Haq]

Karachi’s Saddar, Jodia Bazaar pay more tax than Lahore, Islamabad markets
Enough generated to pay for its infrastructure, facilities

https://www.samaaenglish.tv/news/2132341


Karachi paid more than Rs98 billion if we only focus on the income tax paid by its markets for fiscal year 2017-18. This figure does not include any sales tax, corporate taxes, salaried individual taxes, or federal duties that may have been charged. This is simply the income tax paid by various markets in the city on the income they generated during this timeframe. And so, this income tax from Karachi’s markets and retailers was 2.3 times what was paid in Lahore, and 2.4 times what was paid in Islamabad.

If we disaggregate further, Saddar in Karachi was the largest income tax paying market in the country, dishing out more than Rs77 billion in taxes. Just two major markets in Karachi, Saddar and Jodia Bazaar, paid more taxes than Lahore and Islamabad's markets combined.