Pakistan: wither tax reforms — the case of large taxpayers’ unit, Islamabad

Abstract

Pakistan tax system reforms carried out during 2001-2010, were overwhelming, expensive, and a failure. The reforms were financially afforded and technically assisted by World Bank. While both Government of Pakistan and World Bank agreed on the failure of tax reforms, each blamed the other for the failure. A consensus, however, does exist as regards the fact that the reform program left the tax system more gridlocked, retrofitted, and incapacitated than before to generate both sufficient and healthy revenues. The paper adopts case study approach to explore into the factors of failure of the reform program. The study is anchored in Large Taxpayers' Unit, Islamabad - a flagship taxing field formation established under the reform project. The data are produced from Large Taxpayers' Unit, Islamabad, to assess its jurisdictional, functional, and operational capacity and explain why its tax collection curve flattens after 2012. The insights so derived at micro-level are made to feed back into macro-canvass of the program and enhance our holistic understanding and see its failure in a different and closer-to-reality light. The analysis is extrapolated to the national level to argue that as soon as political ownership and donor oversight - the key drivers - were omitted from the equation, the resultant resource constrains were enough to frustrate and fail the entire reform program. The conclusions drawn are generalizable to most similarly-circumstanced developing countries and their rigidly underperforming tax systems.