Tax Evasion Report Misses The Bigger Picture

Pakistani currency

A new report by the Center for Investigative Reporting in Pakistan (CIRP) thrilled reporters nearly as much as it embarrassed Pakistani politicians. Finally, in black and white, evidence that confirms what many believed anyway – Pakistan’s lawmakers don’t pay their taxes. But as much as CIRP’s research confirmed people’s perceptions about politicians, it fails to address the fact that tax evasion is a ubiquitous phenomenon in Pakistan.

CIRP’s report repeats the claim that if elected officials do not pay taxes, no one else will either. This may be true, but in Pakistan it is complicated by the fact that tax evasion is not limited to elected officials. In fact, tax evasion is so pervasive that CIRP itself describes tax evasion as “a social norm” in Pakistan. This raises some difficult questions about the report’s conclusion that “the problem starts at the top.”

If tax evasion dissolves the moral authority of elected officials to demand payment of taxes by private citizens, does chronic tax evasion among private citizens erode their moral authority to demand it of elected officials? Certainly we expect elected officials to lead by example, and because of that we hold them to a high standard – one that involves consequences like the public “naming and shaming” carried out by CIRP. But expecting elected officials to pay taxes and absolving everyone else of the same responsibility is not holding elected officials to a higher standard, it’s holding them to a different one.

Recently, the Supreme Court ruled that Pakistan’s Public Accounts Committee could not audit the financial conduct of any Judge of the Supreme Court or of a High Court, whether sitting or retired. And no one has dared to follow up on the research by Dr. Ayesha Siddiqa, author of the book Military Inc: Inside Pakistan’s Military Economy which found that Pakistan’s military operates a multi-billion dollar business enterprise that is virtually unaudited.

Neither the judiciary nor the military are investigated in CIRP’s report.

Second (and more to the point) if tax evasion disqualifies an individual from governing, and nobody pays taxes – who will be qualified to govern? Certainly none of the over 2.3 million of Pakistan’s wealthiest citizens who fail to pay taxes. And it’s not just the rich who don’t pay taxes in Pakistan – almost no one does.

This is confirmed by CIPR’s report:

Out of over 180 million people, around two percent have [National Tax Numbers] (NTN), and less than one-fourth of them actually pay tax. Millions of Pakistanis with taxable incomes are not even registered with the authorities.

Let’s be honest: people aren’t failing to pay taxes just because they see elected officials doing so, they’re refusing to pay taxes because they don’t want to pay taxes and they do not believe that tax evasion bears any real risk.

It’s convenient to excuse this behavior by claiming that Pakistanis don’t pay taxes because politicians don’t, or because they don’t trust the government not to steal the funds; but even if that were true, CIRP acknowledges that Pakistan has a long history of popular tax evasion that has persisted across different civilian and military regimes. This suggests that the true cause is more than mere aping of or distrust in whoever happens to be in government at the time.

Instead of dismissing the question by suggesting that Pakistan’s politicians don’t pay taxes because they’re crooks, we should be asking why nobody in Pakistan pays taxes, and then looking for a way to improve systems to close the tax gap not only among lawmakers, but all Pakistanis. Just don’t expect it to be as easy as embarrassing politicians.

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