Tax Evasion in Pakistan

Reuters in Islamabad

Nawaz Sharif, Pakistan’s prime minister, declared that he paid $26,000 in income tax last year. Photograph: T Mughal/EPA

Nearly half of Pakistan’s MPs pay no taxes, according to a study that may endanger billions of dollars in IMF and other loans and aid to Pakistan.

Cracking down on rampant tax evasion is a main condition of a $6.7bn (£4.1bn) International Monetary Fund programme aimed at stabilising the country’s economy. Big donors such as Britain, which has committed more than £600m to Pakistani education, are considering slashing aid unless more rich Pakistanis pay tax.

The report, which identifies some ministers among the politicians who pay no tax, was drawn up by the Centre for Investigative Reporting in Pakistan, an independent research group. The group based its report on documents from the election commission, which publishes financial declarations of political candidates and their statements from the tax authority.

Tariq Azeem, a spokesman for the ruling party of the prime minister, Nawaz Sharif, said tax authorities and the election commission used different forms to gather tax data. He said that may explain the discrepancies. Asked why some legislators appeared never to have registered with tax authorities, Azeem said: “I don’t know.”

Spokesmen for other political parties said they had not read the report and could not comment. None of the politicians the report identified as tax evaders was available for comment.

Pakistan has one of the world’s lowest ratios of tax to gross domestic product. Fewer than 1% of citizens file income tax returns.

Legislators have a tiny amount deducted from their official salaries but almost all of them have lucrative second careers. The average net worth of a legislator in 2010 was £490,000, according to a study of their asset declarations by the Pakistan Institute of Legislative Development and Transparency. More recent figures were not available.

Umar Cheema, the author of the report, said: “If politicians don’t pay taxes themselves, they have lost the moral authority to impose taxes on others.”

The finance ministry said tax collection in December was up by about a quarter compared with last year. Cheema said nearly 80% of that was through indirect taxes on items such as fuel. “Whenever there is pressure from the donor agencies, they just increase indirect taxes which shifts the burden on to the poor and lets the rich off again,” Cheema said.

Nearly half of all national and provincial legislators did not declare paying any taxes, Cheema said in his report. More than one in 10 legislators had never registered with tax authorities.

Of those who paid, a third had discrepancies between income and tax declarations and data provided by tax authorities. Many legislators reported paying minuscule amounts of tax. Many paid less than $100, while some paid as little as $17.

There was even a discrepancy in the record of Sharif, according to the report. Sharif, who returned to power in May, declared that he paid $26,000 in income tax last year, although the Federal Board of Revenue said he paid $22,000. The prime minister’s office was not immediately available for comment.

“We expect everyone to be honest and forthcoming, that goes without saying, but there is no such thing that they have to verify with [party] headquarters. It is an individual’s own business,” said Azeem, the party spokesman. “If we find anyone has knowingly misled income tax authorities, we will take serious action.”

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