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Pakistan hatches scheme to claw back tax

By Peter Shadbolt, CNN
updated 5:38 AM EST, Mon February 11, 2013
STORY HIGHLIGHTS
  • Pakistan has one of the highest rates of tax evasion in the world
  • Those who do pay tax pay as little as $130 a year
  • Amnesty proposed in a bid to draw people into the tax net
  • Pakistan's budget deficit currently runs as high as $17 billion

(CNN) -- If the complexity of a country's tax structure has a direct correlation with non-payment, then Pakistan would win a gold medal.

The South Asian country has no fewer than 37 government agencies levying more than 70 unique taxes on various goods and services -- the problem is only a fraction of the population ever pays it.

At the latest count, just 800,000 of the country's 180 million people paid taxes, and its budget deficit stood at a massive $17 billion, according to government figures.

Tactics designed to raise taxes have ranged from the standard - media campaigns aimed at getting shopkeepers to display their tax certificates, to the bizarre - groups of transvestites hired to 'shame' tax debtors into paying.

Now Pakistan's National Data Base and Registration Authority (NADRA) has weighed into the problem of endemic non-payment with what it hopes will be a permanent solution.

By not paying their taxes, developed Pakistanis are forcing poverty on the rest of the country
Ali Arshad Hakeem

It aims to put every Pakistani adult into one of the world's largest multi-biometric databases.

"We have 452 static centers where people are coming and giving this data, we have 250 mobile vans, we have a motorcycle service, and we (even) have people up in the mountains -- skiers and mountaineers with man-pack units," says NADRA Chairman Tariq Malik whose mission it is to log every potential taxpayer in Pakistan.

With half the population already registered under the scheme, it's a platform for paying out benefits, track ID fraud and to track down tax evaders.

While the Pakistan tax system is riddled with exemptions -- for instance, only those who earn more than $3,500 a year, just 10 million people, are subject to income tax -- NADRA says there are plenty of avenues for raising revenue in a country where those who are eligible for taxes paid an average of just $130 a year.

The department aims to start at the top, identifying people whose conspicuous consumption does not match their tax bill.

"He has two Mercedes Benzes, one Toyota SUV, 10 bank accounts. He travels frequently to the UK, to Abu Dhabi -- he has a lot of money, but he doesn't have a national tax number," says Malik, holding the file of one of 3.5 million people NADRA believes should be paying taxes.

Pakistan's tax chief Ali Arshad Hakeem is calling for a tax amnesty with a difference -- a one-time payment with no questions asked about the past but a promise to file tax returns for the next four years.

The aim is to bring people into the tax net for life. For those who still refuse, Pakistan's Federal Board of Revenues -- the main tax collection agency -- plans to get tough.

"We are going to block their ID cards, and we are going to block their bank accounts, and we are going to block their foreign travels until the either pay or file an appeal," says Hakeem.

While the proposal has yet to become law, the hope is that the new measure will bring down the country's crippling deficit and its reliance on foreign loans.

"By not paying their taxes, developed Pakistanis are forcing poverty on the rest of the country," he said.

Under the scheme, a one-off flat payment of 40,000 Pakistani rupees — just short of $420 — will wipe the slate clean for even lifelong tax evaders.

"We will issue notices to evaders after approval of the proposed law, and it will not be very difficult to hit them, as we have full data available about them, whether they are politicians, businessmen, cricketers or showbiz people," Hakeem told the Pakistani daily Dawn.

Nevertheless, some senior analysts have criticized the scheme as a license to launder money, saying the government should simply crack down on evaders rather than give them breathing space.

Pakistan's former chief economist, Ashfaque Hassan Khan, said the plan was unfair to those who did pay taxes and would encourage others to wait for similar amnesties in the future.

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