APD | Reforms increase Pakistan’s tax collection, bribe rates: report

By APD writer Muhammad Sohail

ISLAMABAD, April 9 (APD) -- Performance-based salaries of tax officials in Pakistan have significantly increased tax collection but the government move has also enhanced bribe rates, according to a recent study by the International Monetary Fund (IMF).

The study report in the topic of “Tackling Corruption in Government” analyzed more than 180 countries and found that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. 

The study also determined that when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes.

The report studied recent performance-related incentives that Pakistan offered to its tax officials, which had both desirable and undesirable consequences.

According to the study, performance-based salaries of tax officials in Pakistan led to a significant increase in tax collection by as much as 50 percent, bribe requests increased by 30 percent.

The IMF suggests combining higher wages with monitoring and sanctions to deal with this problem. Such reforms in Georgia, for example, reduced corruption significantly and tax revenues more than doubled.

Combating corruption is one of the United Nations sustainable development goals because of the widespread perception that tackling corruption is critical for macroeconomic performance and economic development.

The study points out that corruption also distorts the governments’ priorities.

For example, among low-income countries, the share of the budget dedicated to education and health is one-third lower in more corrupt countries. It also impacts the effectiveness of social spending. In more corrupt countries school-age students have lower test scores.

The IMF notes that corruption also prevents people from benefiting fully from the wealth created by their country’s natural resources.

The study also discusses the association between corruption and revenues and determines that cross-country econometric analysis confirms this link. 

The study argues that gains would be greater considering that lower corruption would raise economic growth, further boosting revenues.

The IMF notes that by distorting the incentives of policymakers and civil servants, corruption undermines the quality and effectiveness of government policies. 

This, in turn, has a negative effect on governments’ ability to promote economic growth and reduce poverty.

The study shows that countries with lower levels of perceived corruption have significantly less waste in public investment projects.

The study argues that fighting corruption requires political will to create strong financial institutions that promote integrity and accountability throughout the public sector.

The study suggests that high levels of transparency and independent external scrutiny help fight corruption as does a free press.

Reforming institutions increases the chances for success in the fight against corruption. Chances of success are greater when countries design reforms to tackle corruption from all angles.

The study also suggests greater cooperation among nations as it would make it harder for corruption to cross borders. The IMF notes that more than 40 countries have already made it a crime for their companies to pay bribes to gain business abroad.

“Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends. It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation,” the study concludes.

(ASIA PACIFIC DAILY)