Dateline Report
ISLAMABAD: In a shocking revelation, the Auditor General of Pakistan (AGP) has unearthed a massive tax evasion scheme involving all provincial governments in Pakistan. According to a detailed report, these governments failed to deduct and deposit federal taxes amounting to Rs33 billion from 2017-18 to 2021-22, leading to severe financial implications for the country. This dereliction of duty comes at a time when Pakistan is grappling with a dire economic crisis, raising serious concerns about the state of governance and fiscal responsibility at the provincial level.
The AGP’s findings indicate that provincial governments across Pakistan have been consistently evading federal tax obligations over the past several years. The report highlights that these governments failed to deduct and deposit federal income tax from the salaries of various officials employed in different government departments. This lapse has resulted in a staggering loss of Rs33 billion to the national exchequer during the four-year period under review.
The Punjab government is the largest defaulter, with Rs16.3 billion in unpaid taxes. This amount represents the tax that should have been deducted from the salaries of provincial employees and deposited into the federal treasury. However, the Sindh government also showed significant non-compliance, with Rs8.6 billion in taxes evaded during the same period. The Khyber-Pakhtunkhwa government owes Rs5.07 billion in unpaid taxes, further exacerbating the financial strain on the federal government. The Balochistan government, while responsible for the smallest amount, still has a substantial Rs2.34 billion in taxes that were not remitted to the Federal Board of Revenue (FBR).
The report also includes specific instances of tax evasion, such as a case involving a prominent public sector university in Lahore. The university, while deducting income tax at source from its employees’ salaries, totaling Rs166 million from 2019 to 2023, failed to remit this amount to the FBR. Instead, the funds were diverted to manage the university’s operational expenses, in clear violation of tax laws. It is important to note that while public sector universities in Pakistan are exempt from paying taxes on their generated income, this exemption does not extend to the salaries of their employees, which are subject to federal income tax.
The AGP Office has formally communicated these findings to the chief secretaries of all provinces, emphasizing their constitutional duty to deduct and deposit federal taxes. Despite these communications, the report suggests that no substantial action has been taken by the provincial governments to rectify the situation, leading to continued non-compliance. In light of these alarming revelations, there are growing calls for an independent and comprehensive inquiry into the matter. If the allegations of tax evasion are substantiated, immediate corrective measures must be implemented. There is also a strong argument that if the provincial governments continue to neglect their legal obligations, the federal government should intervene by deducting the owed amounts directly from the provinces’ share of the federal divisible pool.
This scandal not only highlights the inefficiencies and neglect within the provincial governments but also raises serious questions about their commitment to fiscal responsibility. At a time when Pakistan is facing unprecedented economic challenges, such blatant disregard for tax obligations is both irresponsible and unacceptable. The federal government, already stretched thin, cannot afford to overlook this issue. Immediate action is required to ensure that all federal taxes are collected and deposited into the national treasury, and that those responsible for this dereliction of duty are held accountable.
