Dilemma in Tax Management

Pakistan is a poor country by the standard of per capital income. About 65%
individuals are vulnerable poor, living below or just on the poverty line.
Consequently, federal and provincial capacity to generate own-resources through
taxation is much limited in scope and potentials. Hence fiscal decision making has
always been at a cross road: A slightest uninformed increase in taxes would push
poverty upwards and sometimes also decelerates economy, while the government
development expenditures are highly sensitive to slightest reduction in taxes.
Minimal voluntary compliance culture is adding more complexity to the aforesaid
dilemma.
The strategic significance of universal principles of taxation i.e. equity and efficiency
is critical from all perspectives: poverty, economic growth, government
development expenditures, and last but not the least voluntary compliance. The
strategic importance of the situation entails all-encompassing and well informed tax
policy decisions, which in turn requires diversity at the experts level to address the
challenges amicably. Having said so, economists (tax economists in particular) need
to occupy pivotal position in the fiscal analysis and policy decisions regarding
levying of taxes, for they are the ones who understand the interplay of economic
and social dynamics better than anyone else hence have higher probability of
carving a win-win policy regime a must for improved voluntary compliance. Legal
experts role is of equal importance in legitimizing the tax policy regime. Through
legislating they equip the tax administrators with just authority, protect the rights of
tax payers and last but not the least establish deterrence for potential noncompliance and corruption. Tax administrators have an administrative function of
levying taxes. A professional tax administration results in efficacy in levying the
taxes, tax payer facilitation and elimination of illegitimate cost of compliance to the
tax payers.
Pakistans tax management is faced with many challenges. Namely: Lack of
evidence led tax policy decision making; minimal involvement of tax economists
per se, in the analysis and formulation of tax policy; limited resources and capacity
of the tax administrators over and above their distorted role perception; and finally,
overly reliance on the shoulders of legal experts beyond their role of legislating the
tax policy regime. Consequently, often times legitimizing tax policies become the
end in itself and the foundation process of policy analysis and formulation by
economist is eclipsed in totality or becomes rhetorical and the principles of equity
and efficiency are lost.
To conclude, let me assert that it is about time to synergize the tax policy analysis
and decision making by empowering economists, lawyers and administrators to
complement each other for casting a win-win tax policy regime for better and just
future.