Consequences of Tax Evasion on General Public

Consequences of Tax Evasion on General Public

Pakistan has a tax oppressive system that only benefits the elites and the rich rather than poor and deprived.

Common men are helpless to bear the brunt of 17pc sales tax on daily use commodities. It is due to unimpeded government system on the taxation.

The evasion of tax is one of the much distorted factors in the taxation system of Pakistan. It often involves taxpayers deliberately misrepresent the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such as declaring less income, profits or gains than the amounts actually earned, or overstating deductions.

As there is the increase in the tax evasion, it results in the increase of the country’s tax gap. Hence, it vividly shows that the magnitude of the country’s tax gap is proportionate to the extent of tax evasion in the country. From other effects of tax evasion one of them is, it adversely affects the performance of the country’s tax system. The possible effects of tax evasion on the performance of country’s tax system in terms of revenue yield, economic efficiency and interpersonal equity are rampant.

Due to the incidences of tax evasion, the government nastily uses higher tax rates to achieve a given revenue target, and high tax rates cause the increase of the surplus burden of taxation on account of the law of the square rate. There is another cause of the surplus tax burden that is the cost to government of administering the tax system. Besides, the evasion of tax increases the administrative costs of taxation; as a result, it further aggregates the excess burden of taxation.

High-income individuals are often less tax compliant because they have greater scope to evade taxation and avoid detection than low and middle income individuals. If this is indeed the case, tax evasion compromises not only the intended horizontal equity of a tax system but its intended vertical equity as well.

There are also many other causes of the tax evasion in Pakistan such as illiteracy of tax calculation, lack of adequate tax incentives, common public do not have knowledge about it, we have very poor relationship of tax payers and the authority, proliferation of taxes, non-existence of an equitable efficient tax system,  absence of tax morality and etc.

The evasions of taxes effects on overall revenue of the country – when the revenue is effected It cannot meet with current expenditures that further leads toward distressing situation for the general public of the country. The ultimate effects of tax evasion fall on common people because government increases the rates of the indirect taxes instead of direct. The common man in the country since decades has been squeezed due to pitiable taxation policies. Each government whether its provincials or federal have mentioned in their manifestoes of 2013 elections that they would bring progressive taxation system where the rate of direct taxes would increase, but it is very sorry to say that it did not happen.

The tax evasion is one of the great hindrances for progressive Pakistan. Government, with its sincere efforts and commitment can combat with the problem to remove it and bring tax progressive system. For that government needs to be accountable to control or eliminate the widespread corruption because it will motivate the taxpayers to pay their due share of taxes.  Our tax system is so complicated for common man to understand it; therefore, it should be made easy and communal for everyone. Those who want to pay taxes; on the pretext, they don’t pay, that government will not use it for the public welfare or benefit.

The rates of the taxes should be low down according to the income and wealth – as everyone could pay. Those individuals or corporations, who evade the taxes, should highly be reprimanded or there should be a strict policy against the tax evaders. 

Moreover, to benefit general public and overall development of the country’s economy some more steps are needed to curb the incidence of tax evasion. For instance, there should be tax  survey  in  the country  to  know  the  existing  number  of  the taxpayers whether they are individuals, businessmen or corporations so that the tax evasion incidences should be reduced. There should be an accountable and earnest audit and tax clearance certificates may also be issued to the taxpayers so that ongoing corrupt activities of tax officials could be detached. In addition to, for those who pay taxes on time should be rewarded with incentives.

High seriousness is needed to encounter with this increasing challenge for the economy of Pakistan, to relieve the general public from excessive burden of indirect taxes.


MurtazaTalpur is working with Indus Consortium as a Research Officer. He is based at Islamabad.