Pakistan does not have a working tax system and many high income earners pay no tax, according to an article in the New York Times.
Much of Pakistan’s capital city looks like a rich Los Angeles suburb. Shiny sport utility vehicles purr down gated driveways. Elegant multistory homes are tended by servants. Laundry is never hung out to dry.
But behind the opulence lurks a troubling fact. Very few of these households pay income tax. That is mostly because the politicians who make the rules are also the country’s richest citizens, and are skilled at finding ways to exempt themselves.
Similar, though less extreme, statements could be made about Italy, Greece, Spain and Portugal. Possibly one of the strongest indicators or an economically broken state is an ineffective tax system.
In Australia in the 70s it was said that paying tax was becoming voluntary. The Bottom of the Harbour and other schemes were marketed as easy ways to avoid tax. Legislation and prosecutions got rid of most of these devices and I think that the rate of tax compliance is pretty high.
I guess there must have been some economic research on the effects of lack of tax compliance on a state, though I can’t find it.
