It was more than 75 years ago that Schumpeter used the term “Tax Culture” in his celebrated article “Economic and Sociology of the Income Tax”.
Schumpeterian perspective factor is that “Tax Lifestyle is an idea of individuals’ spiritual techniques and creativity”. Some function on “Tax Culture” can also be discovered as performed by Armin Spitaler (1954) and he does have his own viewpoint while interpreting this phrase. In the same way Tax Lifestyle can be discovered with the articles of other economic professionals like Pausch (1992), Hartmann and Harbner (1997).
According to Spitalar’s comprehension “Taxation is affected by financial, public, public, traditional, regional, mental and further variations existing in the person nations all over the community and their societies”. Alfons Pausch knows the Tax Lifestyle of the nation as being attached with the individualities, identifying the progress of tax method.
However, the most trustworthy function on this phrase and topic these days has come to focus of a In german College student, Birger Nerre of School of Hamburg. According to him, the patient matter of Tax Lifestyle seems to be accurately at the junction of the professions, overall expenditures, sociology and historical past. Here as come about in the season 2001 identifying “The Knowledge of Tax Culture”, he identifies and elaborates the phrase of Tax Lifestyle by saying: “A country-specific tax culture is the whole of all appropriate official and relaxed organizations attached with the nationwide tax method and its realistic performance, which are typically included within the nation's culture, such as the dependencies and jewelry due to their continuous interaction”.
The event of Tax does not are available in clean or otherwise it is certainly not something that is summary. This is rather very much definite which is based in the very fiber content on the planet or what Birger Nerre calls it that there is an embeddedness of Tax Lifestyle. Moreover, the Tax Lifestyle of a nation or team is certainly not the result of any individual element and the descriptions which defined such restricted and small methods have used out eventually. Now this has generally provided comprehension among the surfers of this topic that Tax Lifestyle is the sum completes growing out of: 1. Personalized made of Taxation, 2. Conversation of Characters such as Political figures, Instructors, Tax Authorities, Individuals, Tax Experts and 3. The Cultural Principles like “Honesty, “Justice”, and “Sense of Duty” etc.
This three pronged agglomeration tends to create out the tax culture of a particular nation and this interaction has been strongly described by Mr. Birger Nerre in the immediate determine counsel. The arrows indicate interaction between different categories of gamers as well as between the associates of one and the same team. The writer of this counsel has proven the immediate interaction among all the categories / stars except between the “taxpayers” and “academics” on the example that he was not sure about the everyday living of any (Direct) connection between these two categories. However, with particular public milieu of Pakistan, you would acknowledge with my statement that the function of “tax experts” is relatively more essential and critical strenuous more solicitation as without their effective engagement, concurrence and validation, any ingredients of viewpoint or value and any performance of program of measures would tragedy its failing.
While dealing with “tax”, we are of course divulging on something which is extremely “disliked”. This is not only the situation with Pakistan and Pakistani Individuals but this symptoms is very much there in relax of the components on the planet such as nation like U.S. While examining the newspaper on the “New Wish for the Upcoming Providing on Pakistan’s Economic Reform” this “disliking” of the tax by the People was even recognized and admitted by Mr. Johnson W. Simons, Jr. Former U.S. Ambassador to Pakistan.
George Leader (1999) Reverend for Taxation & Responsibilities of the European Federation pointed out that “There is not any nation where individuals are delighted to pay taxes but they do pay taxes because of their tax culture”. However Economic technique Reverend in German Graf (2000) is very apt when he declares that he absolutely knows that “a tax culture cannot be inculcated in one year”.
Going into the inner causation of this event, Dr. Ignacio Ruiz Jarabo, in his newspaper provided at the 33rd Typical Set up of Inter – National Center of Tax Management (CIAT), clearly mentioned that there are aspects that provide challenging the public popularity of the tax method, starting with the truth that the interactions between the tax supervision and the person are noticeable with a certain stage of anxiety and issue.
According to him, this noticeable anxiety and issue are due to the truth that taxes are financial problems of an essential characteristic from which the tax payer does not generate a immediate, individual and immediate advantage.
At this factor, I would like to gain access to the terms of Mr. Alain Zenner, Authorities Commissioner of The country that is very honest and immediate in saying “… the tax companies too often provide the impact as if they would only have one essential endeavor and that is: taxation ! … Taxation is often seen as a beautiful objective, an suitable that would rationalize all indicates. (However) … this can last no longer! The objective of the tax supervision is not to tax at all expenditures, but to restore the reasonable tax. From there the need to change the values that should be complied with by the tax supervision in the training of its duties.”
Before continuing further, this would be valuable to have a quick evaluation of traditional improvements in to the official initiatives for the codification of the taxation regulations. First of all, I would like to put the situation of Earnings Tax and 1860 is the essential season when the northeastern makes promulgated the first Earnings Tax Act. This was very much designed after the structure of taxation seen in USA, Kingdom; however, discussing in the viewpoint of sub-continent, this was a talk attempt to end the budgeting lack which followed the war of flexibility of 1857.
This very Act survived five decades when this had to be absolutely taken followed by a Vacuum interval of two decades when there was no Earnings Tax Law in power. However, this was re-enforced with a new name of The Certificate Tax Act 1867 and this would be for the attention of the individuals that income gained more than Rs. 200 yearly was created taxed at the amount of 2 %. Therefore improvements offered increase to a new Earnings Tax Act in 1886 which will have to provide way to the taken Earnings Tax Act of 1918 and during the all of the intervening interval only one significant variation was created in the season 1903.
Certain issues emanated out of this newest lawful guidelines, where upon Earnings Tax Act 1922 was promulgated and the same was implemented by our nation after successful flexibility in the season 1947. This very Act you will find very much in the area to be changed only by the Earnings Tax Law 1979. Between 1922 and 1979, as many as 71 variation functions were handed down by the law makers. Here comes the most debatable value of Earnings Tax Law 2001 and this is very exclusive function of this element of lawful guidelines that before plenty of period of its administration, the Govt created as many as 322 changes in it through Money Law 2002. The disputes over it run through the places of typographical mistakes, creating problems, lawful lacunas, variance, conceptual myths / dichotomies so on and so forth.
The excise regulations goes again to the season 1934 when a compendium was selected which agglomerated more than ten individual excise functions which had developed piecemeal over many decades. Another useful attempt was created in the season 1944 when a combined and individual enactment saw the lamination of the day and which still supports the area in the excise regulations to be known as the Middle Excise Act, 1944.
The customized regulations, which in accordance parlance, is also named as the “Law of Notifications” due to the rapidity and consistency of replicated announcements. This division of law has been on the law guides for more than a millennium. The Sea Traditions Act was introduced in 1878. It protected sea aspect of the nation. Transfer and move through area tracks were worked under the Land Traditions Act, 1924 whereas the air visitors were controlled by the guidelines provided under the Air Mail Act, 1911. The present Traditions Act 1969 combined all such regulations on the patient matter into one law.
Last but not the least is sales tax which according to its contribution in the total revenue qua the remaining taxes surpasses the all. According to Govt. of India Act 1935, as adopted for Pakistan on independence, sales tax was a provincial subject. As the exigency of the situation demanded, the federal government enacted law called the Pakistan General Sales Tax Act 1948 by virtue of which the sales tax became a central subject. Again this would be information for the distinguished participants that according to this act, every dealer with an annual turn over of more than Rs. 5,000 was amenable for assessment.
This created resentment among the dealers where upon a sales tax committee was appointed by the government and on its recommendations, the Sales Tax Act 1951 was adopted. As against the levy of sales tax at multiple stages as was the case with the former Act, instead the latter law accommodated the demand of the traders to levy the sales tax only at one stage. In order to fashion the sales tax in accordance with the changed economic and social realities, a need was strongly felt over time to re-enact this branch of the law where upon the instant Sales Tax Act 1990 came into being. Progression of the sales tax into Pakistan’s key revenue earner is more than manifest from the recent statistics released by the CBR.
While talking about the state of taxes in our country, I would quote the data collected by the Chamber of Commerce & Industry, Karachi in the year 1996, it was found that there were 79 taxes in all, in Pakistan – 20 federal, 21 provincial, 14 municipal and 24 others. This is again a stark reality that the major chunk of the effecters belongs to the poor class. Let us see how Mr. Shaukat Aziz, the highest economic manager in the country enumerates this malady “a society where a large segment of the population, particularly the poor, bears the greater burden of cost of governance while a small group of influential rent seekers reap its benefits is bound to promote upheavals.” Far from suffering from a culture of tax evasion, as somebody quotes it, Pakistanis, particularly the poor are the most indirectly taxed people in the world.
Let’s go into some observations regarding the Evolution of Pakistani’s Tax System as made in the famous report of Mr. Shahid Hussain, Chairman of The Task Force on Tax Administration (2000-2001).
First, legal and administrative changes are frequent and ad hoc. Taxpayers have insufficient knowledge of their obligations and tax collectors have substantial discretion.
Second, major tax policy changes are not accompanied by adequate changes in administrative framework.
Third, the relationship between the taxpayer and tax collector is largely adversal.
Fourth, organization, business processes, systems, facilities and budget have not kept pace with the growing demands on tax administration.
Fifth, the management of human resources is severely deficient. Most tax officials are not paid a living wage; nobody is paid a middle class wage. For most, honesty is an impossible proposition. Most of the 33500 persons employed in the tax administration are in lower ranks with low productivity and are a drag on the system.
In particular case of Pakistan, we inherited the legal system of the colonial era and the tax code is no exception in any way. We will have to appreciate that the colonial masters promulgated such fiscal and tax laws which were better suited to their own vested interests. They extracted maximum out of the minimum from the local populace for furthering their imperialistic designs. However, after winning independence, this was an uphill task to refashion and remodel the taxation laws according to our own peculiar socio – economic and politico, religious – cultural circumstances. Although various efforts were made and multiple commissions and task forces were constituted but I’m sorry to say, that all these exercises could not be channelized for the greater aim of enacting a true and workable tax code sensitive to the genuine objective conditions of the local population particularly that of the poor class. Despite of recent additions of withholding, presumptive, capital value and turnover taxes, the situation has not improved.
There are certain salient features of our Tax Culture and without their proper appreciation and understandings, I’m afraid; we would remain yearning for the quest of maximum revenue collection but without the actualization of the insurmountable targets.
(1) Tax Illiteracy
This is very much known that according to official statistics, the literacy rate in our country is not more than 36% and in this figuration there are those people who can merely read or write their names. When this is the state of literacy in our country, we can very well judge that to what extent our population or otherwise the taxpayers would be equipped with the proper understandings and education of our tax code. While talking about the evolution of tax culture of our country, we’ll have to launch a mass campaign of tax literacy.
(2) Complexity of the Tax Code
Keeping the overall low level of literacy among the population aside, the problem of proper understanding of the tax code due to its intricacy and complexity becomes enormous and manifold. A very little effort has yet been made to simplify the tax code for its easy grasp and smooth application. The prevalent legislation on taxation is so much complex and difficult that even the tax experts take great pains for its due comprehension what to talk about the commoners who happened to come across with the same. A concerted effort with a strong will is abundantly needed to simplify the tax code. For this, we all of us being the stake holders in the existing tax milieu should share our responsibility for evolving and proliferating a shorter, easier and simpler tax code. Writing of texts of law is indeed a difficult task. This is to be conceded that whatever may be the efforts to simplify the statute, its complexity can’t be altogether abated, but serious efforts should be continued to ease down its tone and texture.
(3) Warding off Foreign Dictation
As we’re mostly dependent on foreign loans for the survival of our economy and even for the running of our day to day state business, we’ve to take heavy loans. These donor states and institutions always dole out these loans with a certain package of “prerequisites and conditionality”. We being the recipient country have to surrender, sorry to say, a limb of our sovereignty and have to make compromises against the interest of our already marginalized population. So much so the donors impose on us greater burdens to be shifted on the already vulnerable taxpayers who have been destined to become at their tether end. This would be an appeal to the people at the helm of affairs to ward off the foreign pressures, to the maximum possible extent, if not altogether, in order to safeguard the paramount interest of the local population.
(4) Mis-declaration of Income
Honest declaration of income is all the more pivotal when we talk about Income Tax liability. I must concede and realize it to the respectable participants that we as a nation have not been loyal enough to expose what we own and what we have. I’m talking about the growing tendency among the taxpayers regarding concealment of their true income and mis-declaration on their part while tendering their “returns”. Mr. Vakeel Ahmad Khan, the Member Direct Taxes, Central Board of Revenue is very right when he says that it is simply not possible for the Government to reduce the tax rates in the current scenario where the declaration of actual income isn’t the norm of the day. Two pronged measures occur to my mind for grappling with the deviant culture of mis-declaration of income, one which I rate very high and above the other is the nurturing of moral obligation among us for being true in our affairs qua the country and of course qua the tax department, the other which I would talk in some detail under a separate head note is the true enforcement of laws to disdain the tax evaders. Our tax culture should be based on trust, fairness and mutual respect.
(5) Broadening the Base of Taxpaying Population
Again I would talk about Income Tax and moot the point which you’re very well cognizant of is it that the total number of income taxpayers in our country approximately makes up one million. This figure speaks itself that how there is only a meager segment of population presently in the tax net while there is a more significant strata among population which is beyond and out of the tax net. According to the statistics of CBR, 36% people in the opulent areas do not contribute to the national exchequer. So many tax surveys have been conducted and many amnesty schemes have been introduced to “grab” and “lure” the non taxpaying community but Mr. Chairman, your Honor being the head of the CBR would concur that the required targets have yet to see the light of the day. To remain out of the tax net is the ignominious feature of our tax culture. There may be many causes behind this phenomenon, some might have been noticed and many may not, but this is crying need of the day to address the same to tackle with and arrest the tax evading culture. Improvement in the collection of taxes is so crucial that government can’t and should not wait, nor will half measures do. Widening tax net will allow reduction in tax rates, without reducing revenue.
(6) Rampant Corruption in the Tax Administration
The melody of corruption is a much talked of subject in these days. This isn’t restricted within any circumscribed boundaries or any specific class of people. Since the tax institutions is part of and linked with the other institutions, it isn’t immune from the negative effects permeating in those others. I would not let myself to raise eyebrows against any specific person or any particular segment; however, I would be failing in my duty if I do not concede that many of us have not been able to clean their Augean stables to transform a cleaner and transparent tax culture. Encouragement and flourishment of tax culture can only take place through the removal of gray areas and discretionary powers presently used with impunity by taxation officers. Removal of corruption will ensure wise and prudent expenditure of collected revenue, which will encourage and mobilize new taxpayers who are hesitant to contribute and continue to remain outside the tax net.
(7) Mistrust and Misgivings about use of Tax Money
On the one hand there is very insignificant population which is in the tax net while on the other, there is a feeling of mistrust and obscurity among the taxpaying community against the government as to the fact that the funds generated out of their taxes are not properly used rather they are mishandled and so to say are bungled. In this background, many taxpayers don’t feel the moral obligations to fulfill their part of institutional contract between the state and its citizens as long as the state doesn’t fulfill its part in a proper way. The values of integrity, trust, respect, commitment to service, teamwork, personal responsibility and continuous improvement should be upheld.
(8) De jure Taxation and De facto Taxation
By de jure taxation I mean the tax system and the tax code as it stands and exists which is likely to be observed and implemented in the community while by the de facto taxation I amplify the tax system and the tax organism as it is practiced and followed. I see a visible gap between these two systems of taxation as one is aspired and the other is in vogue. We should solicit means and should carve out ways to bridge the gap existing between two systems of tax administration and tax code. The sooner this dichotomy is resolved, the better it would be for the introduction of a transparent and true tax culture in our country. The basic principle of taxation, viz equity, certainty, convenience, economy and simplicity had been ignored prior to enacting tax laws.
(9) Restoration of the Self esteem of the Taxpayer
The instances are not infrequent when the taxpayers have been harassed or blackmailed by the personnel of the tax machinery. This leads to the feelings of hatred and avoidance on the part of taxpayers and this attitude has its resultant repercussions on the state interest of maximum revenue generation. According to rough estimates 73% of the tax is collected through the mechanism of withholding tax while 13% is voluntarily paid by the assesses with the returns and 14% of the total tax revenue is collected by the tax machinery working under the aegis of CBR. Mr. Chairman, frankly I’m not after your coveted slot but can we dare ask that if this is only that 14% for which is a much extended tax bureaucracy is engaged and again this is the area where most complaints regarding harassment and abuse of power are emanating . Mr. Chairman, I would very respectfully submit that now the taxpayers have started questioning the raison deter of this very large establishment, when the income tax contribution towards the total revenue from all sources is 16% which is inclusive of income tax deducted at source. Furthermore, about 80% of the total income tax is paid by 1, 000 multinational companies.
(10) Apprehension of Tax Evaders
Although I solicit that taxpayers should have an independent environment where they could act and pay their taxes without any fear or coercion, however, by this I do not mean that the taxpayers should be let escort free not to be answerable to the tax administration. I would add that over the period of time, many deviants and tax defrauders and hobnobbing and colluding with the tax collecting personnel and the “middleman” to completely evade from the tax net or otherwise to pay minimum tax although they should pay higher taxes according to the quantum of their income/assets. The existing cultural realities and social attitudes do warrant for taking a very stringent action against these delinquents and deviants. The machinery of the state should come into play with full force against them for bringing them to book. The CBR should come out to liaise with various departments of the federal and provincial governments, contact private and public institutions, tap banking sources both at home and abroad, and obtain information from newspapers, advertisements, informants and third parties on taxpayer’s incomes, expenditures, bank accounts, properties, assets and investments.
(11) Certainty of Tax Code or Legislation
I’ve no hesitation in saying that this has been the common characteristic of our tax culture that there happen frequent and haphazard changes in the tax code of the country. Mr. Chairman, let me say who’s here who doesn’t understand the vagaries of the phenomenon of SROs. Even the substantive and procedural parts of the tax legislation have continually been in the throes of repealing and amendments. My humble request on this eventful occasion would be to the legislators and the policy makers that please give some semblance of permanence and perpetuity to the tax code. It is quite apparent that income tax law has not been enacted with clear objectives and on long term basis. Moreover, there are abrupt and periodical amendments, which adversely affect the tax collection and business community.
(12) Automation of Tax Machinery
A culture isn’t straight jacket nor is it a water-tight compartment not to allow fresh intakes. Similar is the case of Tax Culture. We should always be open ended to give due room to the fresh ideas and to the modern technology. To be more precise, I’m talking about equipping the tax administration with the latest automation and reaping full benefits of the recent age of Information Technology. I appreciate and understand the constraint of our scarce resources but I would stand for the conviction and you would agree with me that we will have to leave no stone unturned for harnessing the best available modern automation infrastructure to meet the challenges of the day.
(13) Advertising
Advertising is a persuasion technique that can greatly support the articulation and development of tax culture. Tax Administration should have an aggressive communication policy to achieve the voluntary acceptance of taxes. I believe that the campaign for promoting and developing the tax culture through advertising can remove the inhibitions and persuade the citizens to promptly pay their taxes. Careful use of contents and message can obliterate the irritants and can further promote the tax consciousness among masses. It is obligatory to reinforce in the message, the norms, values and strengths that govern the tax system, focusing and centering attention on the concepts of transparency, efficiency, effectiveness, modernization, simplification, honesty, professionalism, ethics and service. I believe that the information campaign may instill in the taxpayers the spirit for paying their taxes voluntarily. The best way to promote tax culture in the people is to convince them that the revenue generated out of their taxes is being used by the Government honestly and for the greater welfare of the society. The mass media can further build a strong public opinion for the denouncement of those who happen to evade taxes. Only thus it will be possible to generate a true interaction between the different social sectors and the tax administration.
The culture can’t be changed only in a year or in a few years-that is what we’ve to do by promoting a new tax culture but of course we should tread on the right path not being disillusioned from achieving the object of a prosperous and bright future. I hope that the theory of tax culture will be able to lower the gap between pure Theoretical Economic Fiction and Cultural Reality, particularly in the sphere of taxation.
This is very much known that according to official statistics, the literacy rate in our country is not more than 36% and in this figuration there are those people who can merely read or write their names. When this is the state of literacy in our country, we can very well judge that to what extent our population or otherwise the taxpayers would be equipped with the proper understandings and education of our tax code. While talking about the evolution of tax culture of our country, we’ll have to launch a mass campaign of tax literacy.
(2) Complexity of the Tax Code
Keeping the overall low level of literacy among the population aside, the problem of proper understanding of the tax code due to its intricacy and complexity becomes enormous and manifold. A very little effort has yet been made to simplify the tax code for its easy grasp and smooth application. The prevalent legislation on taxation is so much complex and difficult that even the tax experts take great pains for its due comprehension what to talk about the commoners who happened to come across with the same. A concerted effort with a strong will is abundantly needed to simplify the tax code. For this, we all of us being the stake holders in the existing tax milieu should share our responsibility for evolving and proliferating a shorter, easier and simpler tax code. Writing of texts of law is indeed a difficult task. This is to be conceded that whatever may be the efforts to simplify the statute, its complexity can’t be altogether abated, but serious efforts should be continued to ease down its tone and texture.
(3) Warding off Foreign Dictation
As we’re mostly dependent on foreign loans for the survival of our economy and even for the running of our day to day state business, we’ve to take heavy loans. These donor states and institutions always dole out these loans with a certain package of “prerequisites and conditionality”. We being the recipient country have to surrender, sorry to say, a limb of our sovereignty and have to make compromises against the interest of our already marginalized population. So much so the donors impose on us greater burdens to be shifted on the already vulnerable taxpayers who have been destined to become at their tether end. This would be an appeal to the people at the helm of affairs to ward off the foreign pressures, to the maximum possible extent, if not altogether, in order to safeguard the paramount interest of the local population.
(4) Mis-declaration of Income
Honest declaration of income is all the more pivotal when we talk about Income Tax liability. I must concede and realize it to the respectable participants that we as a nation have not been loyal enough to expose what we own and what we have. I’m talking about the growing tendency among the taxpayers regarding concealment of their true income and mis-declaration on their part while tendering their “returns”. Mr. Vakeel Ahmad Khan, the Member Direct Taxes, Central Board of Revenue is very right when he says that it is simply not possible for the Government to reduce the tax rates in the current scenario where the declaration of actual income isn’t the norm of the day. Two pronged measures occur to my mind for grappling with the deviant culture of mis-declaration of income, one which I rate very high and above the other is the nurturing of moral obligation among us for being true in our affairs qua the country and of course qua the tax department, the other which I would talk in some detail under a separate head note is the true enforcement of laws to disdain the tax evaders. Our tax culture should be based on trust, fairness and mutual respect.
(5) Broadening the Base of Taxpaying Population
Again I would talk about Income Tax and moot the point which you’re very well cognizant of is it that the total number of income taxpayers in our country approximately makes up one million. This figure speaks itself that how there is only a meager segment of population presently in the tax net while there is a more significant strata among population which is beyond and out of the tax net. According to the statistics of CBR, 36% people in the opulent areas do not contribute to the national exchequer. So many tax surveys have been conducted and many amnesty schemes have been introduced to “grab” and “lure” the non taxpaying community but Mr. Chairman, your Honor being the head of the CBR would concur that the required targets have yet to see the light of the day. To remain out of the tax net is the ignominious feature of our tax culture. There may be many causes behind this phenomenon, some might have been noticed and many may not, but this is crying need of the day to address the same to tackle with and arrest the tax evading culture. Improvement in the collection of taxes is so crucial that government can’t and should not wait, nor will half measures do. Widening tax net will allow reduction in tax rates, without reducing revenue.
(6) Rampant Corruption in the Tax Administration
The melody of corruption is a much talked of subject in these days. This isn’t restricted within any circumscribed boundaries or any specific class of people. Since the tax institutions is part of and linked with the other institutions, it isn’t immune from the negative effects permeating in those others. I would not let myself to raise eyebrows against any specific person or any particular segment; however, I would be failing in my duty if I do not concede that many of us have not been able to clean their Augean stables to transform a cleaner and transparent tax culture. Encouragement and flourishment of tax culture can only take place through the removal of gray areas and discretionary powers presently used with impunity by taxation officers. Removal of corruption will ensure wise and prudent expenditure of collected revenue, which will encourage and mobilize new taxpayers who are hesitant to contribute and continue to remain outside the tax net.
(7) Mistrust and Misgivings about use of Tax Money
On the one hand there is very insignificant population which is in the tax net while on the other, there is a feeling of mistrust and obscurity among the taxpaying community against the government as to the fact that the funds generated out of their taxes are not properly used rather they are mishandled and so to say are bungled. In this background, many taxpayers don’t feel the moral obligations to fulfill their part of institutional contract between the state and its citizens as long as the state doesn’t fulfill its part in a proper way. The values of integrity, trust, respect, commitment to service, teamwork, personal responsibility and continuous improvement should be upheld.
(8) De jure Taxation and De facto Taxation
By de jure taxation I mean the tax system and the tax code as it stands and exists which is likely to be observed and implemented in the community while by the de facto taxation I amplify the tax system and the tax organism as it is practiced and followed. I see a visible gap between these two systems of taxation as one is aspired and the other is in vogue. We should solicit means and should carve out ways to bridge the gap existing between two systems of tax administration and tax code. The sooner this dichotomy is resolved, the better it would be for the introduction of a transparent and true tax culture in our country. The basic principle of taxation, viz equity, certainty, convenience, economy and simplicity had been ignored prior to enacting tax laws.
(9) Restoration of the Self esteem of the Taxpayer
The instances are not infrequent when the taxpayers have been harassed or blackmailed by the personnel of the tax machinery. This leads to the feelings of hatred and avoidance on the part of taxpayers and this attitude has its resultant repercussions on the state interest of maximum revenue generation. According to rough estimates 73% of the tax is collected through the mechanism of withholding tax while 13% is voluntarily paid by the assesses with the returns and 14% of the total tax revenue is collected by the tax machinery working under the aegis of CBR. Mr. Chairman, frankly I’m not after your coveted slot but can we dare ask that if this is only that 14% for which is a much extended tax bureaucracy is engaged and again this is the area where most complaints regarding harassment and abuse of power are emanating . Mr. Chairman, I would very respectfully submit that now the taxpayers have started questioning the raison deter of this very large establishment, when the income tax contribution towards the total revenue from all sources is 16% which is inclusive of income tax deducted at source. Furthermore, about 80% of the total income tax is paid by 1, 000 multinational companies.
(10) Apprehension of Tax Evaders
Although I solicit that taxpayers should have an independent environment where they could act and pay their taxes without any fear or coercion, however, by this I do not mean that the taxpayers should be let escort free not to be answerable to the tax administration. I would add that over the period of time, many deviants and tax defrauders and hobnobbing and colluding with the tax collecting personnel and the “middleman” to completely evade from the tax net or otherwise to pay minimum tax although they should pay higher taxes according to the quantum of their income/assets. The existing cultural realities and social attitudes do warrant for taking a very stringent action against these delinquents and deviants. The machinery of the state should come into play with full force against them for bringing them to book. The CBR should come out to liaise with various departments of the federal and provincial governments, contact private and public institutions, tap banking sources both at home and abroad, and obtain information from newspapers, advertisements, informants and third parties on taxpayer’s incomes, expenditures, bank accounts, properties, assets and investments.
(11) Certainty of Tax Code or Legislation
I’ve no hesitation in saying that this has been the common characteristic of our tax culture that there happen frequent and haphazard changes in the tax code of the country. Mr. Chairman, let me say who’s here who doesn’t understand the vagaries of the phenomenon of SROs. Even the substantive and procedural parts of the tax legislation have continually been in the throes of repealing and amendments. My humble request on this eventful occasion would be to the legislators and the policy makers that please give some semblance of permanence and perpetuity to the tax code. It is quite apparent that income tax law has not been enacted with clear objectives and on long term basis. Moreover, there are abrupt and periodical amendments, which adversely affect the tax collection and business community.
(12) Automation of Tax Machinery
A culture isn’t straight jacket nor is it a water-tight compartment not to allow fresh intakes. Similar is the case of Tax Culture. We should always be open ended to give due room to the fresh ideas and to the modern technology. To be more precise, I’m talking about equipping the tax administration with the latest automation and reaping full benefits of the recent age of Information Technology. I appreciate and understand the constraint of our scarce resources but I would stand for the conviction and you would agree with me that we will have to leave no stone unturned for harnessing the best available modern automation infrastructure to meet the challenges of the day.
(13) Advertising
Advertising is a persuasion technique that can greatly support the articulation and development of tax culture. Tax Administration should have an aggressive communication policy to achieve the voluntary acceptance of taxes. I believe that the campaign for promoting and developing the tax culture through advertising can remove the inhibitions and persuade the citizens to promptly pay their taxes. Careful use of contents and message can obliterate the irritants and can further promote the tax consciousness among masses. It is obligatory to reinforce in the message, the norms, values and strengths that govern the tax system, focusing and centering attention on the concepts of transparency, efficiency, effectiveness, modernization, simplification, honesty, professionalism, ethics and service. I believe that the information campaign may instill in the taxpayers the spirit for paying their taxes voluntarily. The best way to promote tax culture in the people is to convince them that the revenue generated out of their taxes is being used by the Government honestly and for the greater welfare of the society. The mass media can further build a strong public opinion for the denouncement of those who happen to evade taxes. Only thus it will be possible to generate a true interaction between the different social sectors and the tax administration.
The culture can’t be changed only in a year or in a few years-that is what we’ve to do by promoting a new tax culture but of course we should tread on the right path not being disillusioned from achieving the object of a prosperous and bright future. I hope that the theory of tax culture will be able to lower the gap between pure Theoretical Economic Fiction and Cultural Reality, particularly in the sphere of taxation.
