Pakistan’s tax collection system is at a critical juncture, grappling with deep-rooted issues like corruption, a lack of expertise, and a significant lack of transparency and accountability within the public sector. These challenges have eroded public trust and continue to contribute to substantial revenue losses.
It is time for Pakistan to think about a more out-of-the-box solution to a problem that has plagued every government since Pakistan’s creation — the immediate implementation of a private sector tax and revenue collection service.
There is a myriad of challenges in Pakistan’s tax collection system. Pakistan’s public sector, especially the revenue department, is marred by corruption, which undermines public trust and results in massive revenue leakages.
The tax collection process necessitates a deep understanding of intricate tax laws and regulations, a specialised skill set often absent in the public sector. With more recent changes in how business is conducted, the current tax offices are ill-equipped to deal with the gig economy, online selling, crypto trading and, in fact, any kind of complex marketing and sales jobs.
Using the successful example of other countries, Pakistan should consider harnessing private sector expertise to facilitate an immediate turnaround in revenue collection
The existing system often falls short in terms of transparency and accountability, rendering it susceptible to manipulation and fraud, while bureaucratic red tape, convoluted procedures, and inefficiencies in the tax collection process impede economic growth and discourage tax compliance.
Implementing a private sector tax and revenue collection service offers a plethora of compelling advantages. The expertise and specialisation that is missing in the public sector can be easily addressed. Private sector entities have the capacity to recruit and train specialists in tax collection, ensuring precise assessment and collection of taxes.
The inefficient and often slow pace of taxation officials won’t be tolerated in private organisations, which are much better at ensuring efficiency, adopting state-of-the-art technology and best practices to streamline tax collection processes.
Through accountability and transparency, the private sector can truly come into its own. With a very specific remit, protected by international insurance companies, private sector operations can be made subject to rigorous oversight, thereby fostering transparency and accountability in revenue assessment and collection.
A properly incentivised private entity can be let loose against tax avoidance practices and tax evaders of all ilk without fear or favour. Thus aligning their objectives with the government’s revenue needs.
All of this will be built on treating the taxpayer as a customer who should be accorded the proper respect and treated with common human courtesy, something all too often lacking in the way the public sector ‘lords’ run the tax offices. Private sector organisations prioritise customer service, delivering taxpayers a more positive and efficient experience.
Pakistan can draw inspiration from several countries that have successfully implemented private-sector tax authorities:
One such example is the United Kingdom’s HM Revenue and Customs (HMRC). The HMRC collaborates with private sector firms to help collect debts and enhance efficiency. This strategic partnership has allowed the UK government to recover significant sums in unpaid taxes.
Another example is the Swedish tax agency. While Sweden’s primary tax collection agency remains public, the country has outsourced the collection of unpaid taxes to private debt collection firms, resulting in substantial revenue recovery.
Through the Ghana Revenue Authority, Ghana has established public-private partnerships to modernise its tax system, integrating technology and private sector expertise to increase tax revenue and improve services to taxpayers.
South Africa outsources specific tax collection functions, particularly in debt collection, to private entities using the South African Revenue Service.
If the Pakistani establishment is really interested in making a go of the reforms that it has pledged, then a reformed tax department should be at the top of its list. The current system is not fit for purpose, and no amount of tinkering will solve this problem. In the drive to privatise state-owned entities, the first on the chopping block should be the federal and provincial tax and revenue departments.
Implementing a private sector tax and revenue collection service offers a solution that holds the potential to revamp the system, significantly enhancing its efficiency, transparency, and accountability. Drawing inspiration from international successes, like the United Kingdom, Sweden, Ghana, and South Africa, Pakistan can harness private sector expertise to facilitate an immediate turnaround in revenue collection. The time for this innovative approach to tax reform in Pakistan is now, and it must be prioritised for the nation’s fiscal well-being and the restoration of public trust.
The writer is a barrister
Published in Dawn, The Business and Finance Weekly, October 16th, 2023