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Express Tribune
7 days ago
- Business
- Express Tribune
A tax system built on evasion
Listen to article Those drafting the upcoming budget face a formidable set of challenges: the mammoth and still growing debt burden, the skyrocketing cost of living for the poor, and the seemingly intractable trade deficit, to name just a few. But by far the biggest challenge is the mismatch between income and expenses. This has led the government to run a perennial budget deficit. Of course, this is a situation that cannot continue forever. If the government were a corporation, it would have been declared bankrupt years ago. There are only two ways to address this problem: increase tax revenues or decrease expenses. On the latter, there's much the government can do to curb needless extravagance — think of the number of cabinet ministers it supports and their ancillary costs, or the number of MNAs and MPAs in our assemblies, whose presence or absence has zero impact on the country. But ultimately, cutting expenses is a game of diminishing returns. You can trim the fat only so far before you get to the meat. So, the solution to the budget deficit must rely on boosting revenues. And here lies the real problem. Pakistan is perhaps the only country in the world that gives its citizens the option to pay taxes — or not. We have a whole category of people called non-filers who can legally refuse to be part of the tax net. Only a slim — and some might say foolish — minority has opted to become filers, actually submitting tax returns. In an effort to improve tax compliance without broadening enforcement capacity, this filer versus non-filer distinction was introduced through the Finance Act 2013 under the Pakistan Muslim League-Nawaz (PML-N) government. It allowed the Federal Board of Revenue (FBR) to impose differential withholding tax rates on certain transactions — like vehicle registration, banking, and real estatebased on taxpayer status. This had several goals: encouraging non-filers to register and become filers, using third-party withholding as a substitute for weak enforcement, and generating quick revenue from high-volume transactions. Despite some early gains in revenue collection, the system created a host of negative consequences. It spawned a parallel economy which, rather than pushing non-filers into the formal system, effectively legalised non-compliance by allowing them to continue operatingalbeit at a higher cost. Instead of enforcing mandatory return filing, the government began collecting advance taxes from non-filers on transactions such as vehicle registration, bank withdrawals, and real estate deals. This turned non-compliance into a revenue stream. Many prefer to remain non-filers and simply absorb the higher withholding tax — it's often cheaper and less risky than formal registration. Cash-based and undocumented businesses continue to function outside the tax net, limiting the impact of broader economic reforms. A particularly troubling outcome is that filers often feel punished for their honesty, while non-filers continue with impunity. Filers face politically motivated audits, complex filing requirements, and penalties for minor errors. Non-filers avoid scrutiny altogether. This disillusionment fosters cynicism and erodes trust in tax authorities. Instead of encouraging compliance, the system paradoxically discourages it — especially when filers see no benefits in return for their transparency. Tax systems thrive on fairness and reciprocity. Yet this two-tier structure undermines both. Filers rarely witness improvements in public services or infrastructure proportional to their contributions, further dampening their motivation to comply. Knowing that non-compliance attracts no real penalty — beyond a slightly higher withholding rate — many make the rational decision to avoid filing. Certain sectors, like real estate and wholesale/retail trade, thrive despite being dominated by non-filers, making voluntary compliance appear naïve and burdensome. This split also introduces market distortions. Individuals and businesses structure transactions to dodge higher non-filer taxesusing intermediaries, splitting invoices, or underreporting. Genuine investors are deterred by sectors with high compliance burdens, creating a tilt toward low-visibility, low-regulation activities. Non-filers still invest in property— albeit at higher ratesfuelling speculation rather than productivity. While withholding taxes have boosted collection, actual compliance and accountability remain weak. The government may celebrate rising revenues, but much of it comes from advance taxes on non-filers who remain beyond the system's reach. There's been no expansion of the taxpayer base. Withholding doesn't equate to documentation or broader participation. Worse, the administrative burden has increased. Focusing on transaction-based tax grabs distracts from building institutional audit and enforcement capacity. This system undermines progressive taxation. A core tenet of modern tax policy is that those who earn more should pay morea principle weakened by our current regime. Withholding taxes are levied regardless of an individual's ability to pay, hitting poor and low-income non-filers hardest. Since non-filers are taxed per transaction, not income, the regime becomes regressive. Equity is eroded. The wealthiest often remain outside the net entirely by structuring their finances to avoid detection. Finance Minister Muhammad Aurangzeb has called the upcoming budget a "structural budget" — implying fundamental reforms are on the table. If he truly intends to walk the talk, he must begin by scrapping the non-filer category. It's iniquitous and untenable. But this alone won't suffice. The FBR's enforcement capacity must be enhanced to manage a larger filer base. Digitisation must also accelerate. Cashless, online transactions should be made mandatory. AI can automate many functions — like audit selection — that currently rely on human input. These reforms will take time, but eliminating the non-filer status can happen immediately. It's the necessary first step, and it alone could significantly boost revenues and help reduce the chronic budget deficit that continues to haunt the country. THE WRITER IS CHAIRMAN OF MUSTAQBIL PAKISTAN AND HOLDS AN MBA FROM HARVARD BUSINESS SCHOOL
Sunday World
21-04-2025
- Sunday World
Bomb plot GAA man jailed for CIRA explosives haul is 100k Smokey Bandit
Armagh volunteer who served nine years over explosives haul pleads guilty to role in cigarette smuggling op The court was told Daire McKenna had taken a second job as a truck driver An Armagh GAA TV volunteer who was previously jailed over a Continuity IRA explosives haul is due be sentenced after being caught with 100,000 smuggled cigarettes. Daire McKenna, who once served nine years for explosives offences, appeared before Dundalk Circuit Court last week in relation to the illegal cigarette haul. The court heard McKenna (41), from Pier Rampart, Derryadd, Craigavon, Co. Armagh, was arrested in the car park of the Rosewood Country Club, Ravensdale, Dundalk, with 100,000 cigarettes on October 29, 2020. The court heard the estimated loss to the State from the smuggled cigarettes was €56,000, including excise and VAT, and the offences were contrary to Section 78(3) of the Finance Act 2005, as amended by Section 56 of the Finance Act 2013. Gardaí said they stopped McKenna at around 5pm that day and searched his car, where they found 5,000 packets of Excellence branded cigarettes. The court was told Daire McKenna had taken a second job as a truck driver The court heard the maximum sentence for the offence was five years imprisonment or a fine not exceeding €12,695. Details of McKenna's previous convictions were read out to the court, including a nine-year sentence in relation to a CIRA explosives haul in Lurgan, Co. Armagh, in April 2006. Police linked McKenna and two other republicans to the explosives, an ammonium nitrate-based fertiliser and sugar mix, which would have been sufficient to make a 250lb car bomb. The find was made at a breaker's yard on the Antrim Road in Lurgan and McKenna was charged with possessing explosives with intent to endanger life. He later pleaded guilty to the lesser charge of possessing explosives with intent to enable others to cause serious damage to property. Daire McKenna At his sentence hearing, a judge said the operation was clearly on a 'considerable scale'. When he appeared in court last week his defence counsel said he was a family man with two young children. The court heard he works as an account manager for Staffline Ireland and was a 'dedicated volunteer' and 'excellent videographer' for Armagh GAA TV. 'He videos and livestreams all of the matches for people who can't attend the matches.' References were handed into court, including from a man who said McKenna was a 'valuable mentor' who had given him great guidance. His barrister said McKenna accepts his role in the smuggling operation, which was to transport the cigarettes. He said he was a 'different man today' than the person caught with the cigarettes. He added that now has as second job as a HGV driver to 'supplement his income'. Daire McKenna Judge Dara Hayes adjourned the case to April 28 for sentencing. Sources in Armagh said while McKenna was wild in his younger days, he had calmed down significantly since his release from prison and they were surprised to see him caught up in cigarette smuggling. McKenna was not the only member of his family arrested in relation to explosives. His brother, Damien McKenna, was jailed for 15 years in 2009 after he and two others admitted having an armour-piercing mortar bomb, support frame and propulsion unit found in a field near Lurgan on April 5, 2007. As they were jailed at Belfast Crown Court in 2009 the court erupted into cheers and applause, with a Tricolour being held aloft as men and women shouted 'up the 'Ra'. It is believed the group had planned to carry out a mortar bomb attack on PSNI officers but were foiled following a surveillance operation. Another brother, Ryan McKenna, was arrested with the other three men. He denied involvement and told police he was on his way to his sister's home when he bumped into his brother and his associates. He subsequently moved to Mayo and was later extradited back to the North to face trial in 2014 on explosives and conspiracy charges. However, he was acquitted of all charges after the prosecution offered no further evidence and invited the judge to find him not guilty.
