The Federal Board of Revenue (FBR) is likely to miss its target by approximately Rs 485 billion according to recent reports. Reduced tax rates, the abolition of tax on certain items, cut in government spendings, import compression and a couple of other factors are being put forth to explain the shortfall. It is yet to be seen how the next finance bill addresses these concerns. The good thing is the introduction of tax policy. This is the first such policy in the country’s history. Taxes are primarily levied to fund government expenditures. To ensure rationality. policymakers do observe certain standard principles. A tax going beyond the people’s ability to pay is a bad tax. Similarly, it also matters how much benefit a class of taxpayers get in lieu of a particular levy. Given the severe income inequality; a high proportion of indirect taxes, in total tax revenue collection go well beyond the paying capacity of 39 percent of the population. However, to keep pace with the burgeoning fiscal pressure and to stabilise the economy, the governments tend to run short of options. But how long will this continue? The tax policy may be the answer. The latest data shared by the State Bank of Pakistan (SBP) for the last ten years reveals that collection of direct taxes has never been above 40 percent of the total tax collected in the country, whereas indirect taxes have always posted 60 percent or more in terms of share in the total tax collection. 40 percent of direct taxes are withheld at the source and direct collection in the wake of self-assessment and amended assessment is perhaps not even half of this. Hence, the figure of 40 percent merely attempts to make national accounts look good. In reality, the country is massively dependent on indirect taxation which, without any reservation, is inherently unfair. In fragile political environments, the sheer lack of political will hinders reforms in tax structures Indirect taxation does not value one’s ability to pay. The poor and rich pay alike. Hence it strengthens economic inequality and aggravates poverty. According to the Asian Development Bank (ADB)’s analysis of tax administrations in Asia and the Pacific published in July 2018; out of 28 countries studied, only four have been found to be having a proportion of indirect taxes over 60 percent. These include Bangladesh, Cambodia, Kyrgyzstan, and Nepal. Pakistan is the fifth, but it didn’t participate in the study. Interestingly, all these countries have one factor in common: political instability. In fragile political environments, the sheer lack of political will hinders reforms in tax structures. The politicians want to implement taxes but don’t want to be seen to be doing this. Consequently, indirect taxes dominate the tax structure. Political stability is a long term and evolutionary process. Structural changes also require time. However, for the time being, if the tax gap is minimised, it may pave the way of requisite structural reforms. A report published by the World Bank last year indicates that the potential tax capacity of the country is 22 percent of the GDP, whereas its collection is only 12.5 percent. This tax gap is one of the reasons for over-reliance on indirect taxes, because evasion of indirect taxes is difficult and less frequent in contrast to direct taxes. The country can lower the proportion of indirect taxes by bridging the tax gap which is possible even without structural changes. It requires tinkering on the administrative front. There are multiple issues in the administration of taxes. For instance, writ of tax authorities is either scanty or nonexistent in large parts of the country. There are around three hundred administrative subdistricts (tehsils) in the country, surprisingly, more than two hundred of these don’t have proper tax offices. There are two dozen tax secretariats in main cities. How effectively tax collectors ensure enforcement and carry out audit while sitting hundreds of miles away from the business units don’t need further elaboration. Particularly, when economic activities are not documented, transactions occur through non-banking channels, how do tax men sitting in tax secretariats manage to assess the quantum of real taxable income is surprising. Interestingly, the government is also eyeing an administrative solution to the country’s tax problem i.e the creation of a new revenue agency. Has it been assessed what ails the existing one? Are there any resource constraints? How much is it understaffed? How much is it independent like other functional revenue agencies in the world? Does tax official have ease of accessibility and mobility to tape revenue leakages? Are they motivated and trained enough to perform the delicate task? Was the existing law drafted keeping in view the socio-cultural settings of the country? What management model does it follow? Is it prone to political pressures? The list goes on. Everybody in the business knows the answer but then goes the saying “don’t tax you, do not tax me, tax the fellow behind the tree.” The writer is a public policy scholar at Lee Kuan Yew School of Public Policy, Singapore Published in Daily Times, March 26th 2019.