INTRODUCTION

In the era of Globalization, the development of any country massively depends on the effective utilization of resources, but in the case of less developed countries, inadequate public infrastructure and corruption of government official are always hindering effective utilization of the resources, thus slowing down economic growth (Dang & Pheng, 2015). Also, it has been noticed that government of less developed economies are unable to provide reasonable public services due to many factors (Akpan-Obong, Trinh, Ayo, & Oni, 2022). Out of many, one of the prominent is lack of tax collection (Awdeh & Hamadi, 2019)

Tax collection in an economy serves as life blood for the government. The ratio of gross domestic product (GDP) and average revenue, in the developed countries, was almost 35% in mid 2000s (Belcaid, 2022). In under-developed countries, this ratio was almost less than half (15%), whereas, in third world countries the same being observed i.e.12% of GDP (Gallus, Schiaffino, Vecchia, Townsend, & Fernandez, 2006).

The crisis for the recent elected governments of Pakistan has always been embedded with the performance of public sector organization. Since late 1980s, the public sector organization has been in mess. Though, on and off, different programs and packages have been introduced by the different governments, but it has been an issue in most of the developing countries that either strategic planning is not being implemented fully, or grass root level corruptions or incompetency effect packages.

However, recent modernization of FBR has been considered as the most implemented, as for tax year (2019), FBR claimed that they have achieved the milestone in terms of having 2.8 million income tax filers (FBR, 2019). However, question remains about the authenticity of income tax filing. It has been claimed that these 2.8 million income tax filers may not be submitting their actual income and wealth status due to either tax avoiding culture or complicated e-filing forms available on IRIS portal of FBR, where sometimes even business graduates failed to submit their own income tax returns. Here, we must consider the fact that avoiding income tax e-filing does not mean that people are not paying taxes, people are paying taxes, but they tend to avoid complete disclosure of their income and assets to the relevant government authorities.

RESEARCH OBJECTIVES

One of the main objectives of this research is to explore strategic perspective of the top critics and players in relation to recent advancement. In addition to exploring strategic perspective of top critics, the challenges and issues of digitization of taxation system, has also been explored. Pakistan’s economy being undocumented, the challenge to bring maximum people under tax net is always been a matter of policy concerns.

This research also analyzes the behavioral perspective of the general public in relation to tax avoidance. Ultimately, this study will provide base for future research for exploring different possible factors or causes/reasons of avoiding income tax e-filing in Pakistan.

SIGNIFICANCE OF STUDY

This study will assist relevant tax bodies to understand the causes / reasons of avoiding income tax e-filing and evasion, in order to make new policies that may be implemented to minimize the size of undocumented economy by removing current and potential causes or reasons of avoiding income e-filing.

LITERATURE REVIEW

Lefebvre, Pestieau, Riedl, and Villeval (2011) in France, Belgium and Netherlands (Flanders and Wallonia) did a research to investigate the behavior of the people. He made comparisons on how people behave, when it comes to tax evasion and welfare benefits. The findings showed that the people behave less dishonestly when receiving the welfare benefits than paying taxes, and people cheat the system more frequently in France and the Netherlands. The link between personal income tax evasion and cultural elements even as devoutness, faith in the authority, and lawful enforcement is the subject of a work being done in Nigeria (Uadiale, Fagbemi, & Ogunleye, 2010). This study discovered a beneficial effect of government and legal enforcement trust on personal income tax. However, there was no connection between tax avoidance and religious factors in Nigeria.

Boylan and Sprinkle (2001) have done a research, in which they seek to inspect the factors of tax avoidance. They employed an experimental approach to accomplish their objectives, including figuring out what drives tax compliance and what distinguishes non-compliant taxpayers.Pommerehne, Hart, and Frey (1994) carried out research to point out the causes of tax evasion; in their work, they analyzed the absolute existence of grievance. Results showed that the tax evasion went up and the degree of tax morale dropped, as the sentiments of grievance increased in absolute terms.

To interrogate the behavioral causes of tax evasion,Fisher, Goddeeris, and Young (1989) looked into the actions of the taxpayers. To achieve his goals, such as identifying the variables of tax compliance and the traits of non-compliant taxpayers, he employed a random survey strategy.Skinner and Slemrod (1985) carried out survey to look at the causes of tax evasion. Only stringent economic components suggested by the influential samples were used in this investigation. According to the study, a sizable portion of productive tax compliance is impossible to describe by these single factors. While investigating the factors that contribute to tax evasion, (Srinivasan, 1973) also presented pioneering abstract models and performed research.

(Allingham & Sandmo, 1972) carried out research to analyse the behavioral factors that lead to tax evasion by presenting a fundamental theoretical framework. Inside the work, they outlined how tax evasion behavior was based on risk aversion, the severity of the fine, and the likelihood of an audit. Additionally, the study discovered a murky connection between tax evasion and the marginal tax rate or income. According to Cobham (2005), the chief cause of tax evasion is high level of inter-district mobility, and it was claim that the strength of wage earners, paid individuals, and self-employed individuals, with constant and known location, plays a significant part in tax evasion, because they always go place to place to obtain lawful paper money. Additionally, he discovered partial evasion's causes, such as dealers' poor record-keeping and resentment of the illiterate who only declare their salaries and wages as non-taxable income.

Awdeh and Hamadi (2019) studied MENA region and identifies, corruption as one of the factor hindering gross domestic product, he concluded tax evasion hinders growth of economic activities in MENA Region.

METHODOLOGY

RESULT AND ANALYSIS

The way of doing business in Pakistan has always been cash-based. People are not habitual recorder of their transactions. As a result, they tend to estimate their income and assets rather than calculate. This results in shadow economy or undocumented economy, and if no proper records is being made, they always underestimate their income, whenever it comes to sharing part of their income with government.

"Since the volume of our undocumented economy is higher than the volume of the documentary economy, when the government tried to document the economy, it resulted in resistance"

  AQM, JF Discussion

The problem with public sector infrastructure has always been hindrance for smooth transition from shadow economy to documented economy. Although advancement of technology has been utilized for the process but the people involved in the process from government side are always making general public fearful about bribery and corruption. This has been prominent among the most of the content sources.

"the effects of fear and uncertainty are visible, which is alarming."

AM, JF Discussion

"due to NAB's performance, no one is willing to compromise at this time"

AQM, JF Discussion

Apart from issues lies within public sector administration, general public, too, do not want to pay tax and go to the extent that they are not differentiating between tax avoidance and tax evasion. They are willing to pay consultant more fee just to evade tax.

"if the number of tax filers has reached 28 lakhs, then it is not necessary that they all want to pay their share of tax"

AQM, JF Discussion

"People themselves ask their tax consultant for the means to subdue their income so that they have to pay less tax, and some of the tax consultant, to retain the clients or capture other’s clients, do this."

MM, JF Discussion

“Nowhere in the world is a person willing to pay tax willingly”

AQM, JF Discussion

The tax evasion factor is prominent, because there is no or very little accountability or punishment for tax evasion.

“The second action of the government is that if a person is caught by the government for tax evasion, then punishment is mandatory, so this is deterrence”

AQM, JF Discussion

“When clients got notice due to non-compliance of income tax return, their tax consultant make them more fearful and show them mean to bribe government officials so that actual status of income may remain unknown. Although a practice of past, things are changing now”

MM, JF Discussion

One of the theme related with need of automatic submission of income tax return during content analysis was found, which was more of a suggestion.

“We need to move towards automation without fear of accountability. That's what is happening around the world right now”

AQM, JF Discussion

“To create willingness of paying tax first deterrents are created, the first deterrent is automation. That automation should be so good that the data comes to you, you will be happy to hear that in many countries of the world, in Sweden, Switzerland, etc., tax returns are made by themselves, people only have to verify it, and If they do not confirm by the given date, the tax return made by them is considered final, the reason for this is the system created by them”

AQM, JF Discussion

“When the first tax reforms were launched, the World Bank gave 67% of the money only for automation. Because it is understood in the world that you can do everything better when you have a data bank”

AQM, JF Discussion

Another theme which identified was tax slabs structure in Pakistan. Multiple tax slabs and different income tax rates.

“At present, Pakistan has eleven tax slabs, while the world has gone to six slabs. Turkey has 5 slabs, Vietnam has 7, China has 7 and Egypt has 7 slabs. Until we take direct taxes, we will continue to kill the poor with these direct taxes. In this economy, 63% of direct tax has been done”

AQM, JF Discussion

“Let’s take the example of withholding tax on income, we have 1.5% and 3% WHT on purchase of immovable property, whereas 2.5 and 5% on sale of immovable property, on some items 4.5% and 9% on purchase of inventory, whereas, it is 0% on some item and 0.5% and 1% on some other items, this is where imparity is going to distort the economic situation. Avoiding the cannon of simplicity in tax collection is creating another deterrence. Tax reforms should include this also”

AQM, JF Discussion

CONCLUSION

Tax collection has always been a matter of concerns for the developing economies. In Pakistan where, most of the informal sector is based on undocumented economy, tax collection authorities are trying their maximum to increase the collection of public revenue. To bring informal sector into formal sector, the need of documented economy is inevitable. Hence, at strategic level, efforts are being made for the tax reforms. The main evidence of this is mandatory e-filing of income tax in the last five years, for which IMF and World bank have supported each and every step. At policy-making level a lot of work has been done but at operational level, the nitty and gritty of policy-making is in continuous improvement which is evident in the post Covid environment of IRIS portal, where all the application, notices and return filings can be done electronically.

Therefore, continuation of existing policy reforms via government stability is essential requirement for larger tax collection in Pakistan. Moreover, government should pay special attention to all the economics activities which may raise tax revenue and should follow expansionary economic policies to increase larger tax to gross domestic product ratio. Public should also avoid tax evasion and discourage such practices in their day-to-day transactions. It has been recommended by the government to always take a receipt (cash memo) from the local vendors, this will keep a record of shop-keeper earnings, and they won’t be able to manipulate the declaration of actual earnings. Law abiding citizens create economically and socially secure environment and ensure economic perseverance which is fundamental in the success of any nation.

Conflict of interest statement

The authors declare no conflict of interests.