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Reducing corruption in tax collection via mobile payments in PakistanM-Tax system by Civic Synergies
Background and Need
Pakistan has one of the lowest tax collection rates in the world In 2012, only 0.6 percent of Pakistanis paid income
taxes (Tran)
A low tax revenue stream… Prevents the government from earning sufficient
revenue to support public services Forces the government to borrow heavily and seek
aid from abroad Raises inflation rates
Factors contributing to low tax collection
Many factors lead to low tax collection rates in Pakistan Wealthy misreport financial information Tax payers refuse to pay because lack of trust in
government Low penalties for tax evasion Complicated tax code
Government solutions Transgender tax collectors
Corruption
Corruption a major contributor for low tax collection Tax collectors prefer to take bribes rather than taxes Tax payers rather pay bribe than full amount of tax
In 2002, tax payers paid Rs. 3,858 (about 36 USD) in bribes to tax collectors in total for the year Paid up to Rs. 5,586 (about 52 USD) on average to
receive an underassessment
32.2% paid a bribe to reduce the tax Almost 14% paid to reduce fictitious assessments About 13% paid a bribe to for under assessment
Solution: Collect/pay taxes by mobile
Payment by mobile allows tax payers to directly pay government their taxes owed No exchange of cash with collector Receipt via SMS lets them know their payment was
received
Tax collector paid immediately on commission for taxes Reduces incentive to ask for bribe
Simple and secure system increases tax collection rates Generates revenue for government Helps growth
M-money success in other countries
Successful use of m-money technology by other developing country governments Tanzania
Pay vehicle license fees with m-money Afghanistan
Paying police officers via m-money
Mobile phone use in Pakistan
Majority of population has access to mobile phone 89% of population owns or has access to mobile phones 47% of phone owners use SMS due to low texting costs (0.32
cents per message in Pakistan, compared to 22 cents in US) Equal access of mobile phones across socio-economic classes;
among Pakistani adults, 37% of the poorest 60% own a mobile phone
How it works
Tax collector arrives to collect tax from individual
Tax collector texts system with person’s ID number and receives alpha-numeric code; Tax collector shows unique code to tax payer
Tax payer uses mobile money system to pay taxes owed, using unique code
Tax payer receives SMS from system confirming payment, and information on how many other people have paid their taxes so far
Tax collector receives immediate m-money payment from system for successful collection
Additional impacts
Propagates use of mobile payment technology Pay collectors, encourages citizens to use m-money services
Improves buy-in/trust in public authority by society Tax payers know government received taxes they paid, know other
citizens pay their taxes Potential for expansion
Use in other government departments, countries Electronic data collection for use by government
Information about who is paying their taxes No need for tax collectors in future Could contribute to existing literacy initiatives by improving
ability to read and send text messages
Challenges and solutions
• Run a media campaign to inform tax payers of proper procedures and prevent collectors from providing false information
Complexity of tax code may prevent collection via m-
money• Existing vendors, such as Easypaisa, can expand business and provide
m-money access• Only 5% of Pakistani households use m-money, but recent report
finds potential for viral uptake of m-money technology in Pakistan• Offer discount on first payment or rebate on taxes
Tax payers lack access to mobile phones or m-money
accounts
• M-money vendors can provide confirmation of tax receipts OTCTax payers may hesitate to use m-money or borrow
phones without confirmation
• Media and financial literacy campaigns can empower women to purchase and use mobile phones and become financially independent
Women may lack access to m-money (only 5% of m-money
users are women)
Challenges Solutions
Cost-Benefit Analysis
Costs of program: Research Cell phones for tax collectors Software or partnership with third-party to transfer money and
track tax payments using m-money
Cost Savings Bribes: tax payers pay collectors Rs. 3,858 on average to lower tax
rates or determine correct tax assessment
Revenues Tax Revenue: In comparable countries, 15% of the population pay
taxes. Even if 5% of the population pays taxes (up from less than 1%), the government could generate significant revenue
Implementation
Identify partners: donor agency, tax collection agency, m-money firms
Additional research on tax collection practices and bribe amounts
Identify urban neighborhood with high use of mobile money for beta trial
Training course with tax collectors
Awareness/media campaign of new tax collection in selected neighborhood
References
Mark Tran, “Pakistan Needs to Recoup More in Taxes Before Any Aid Boost, Says MPs,” The Guardian, 3 April 2013, http://www.theguardian.com/global-development/2013/apr/04/pakistan-recoup-taxes-aid-mps.
Sabrina Tavernise, “Pakistan’s Elite Pay Few Taxes, Widening Gap,” New York Times, 18 July 2010, http://www.nytimes.com/2010/07/19/world/asia/19taxes.html?pagewanted=all&_r=1&.
Zain Chaudhry, “Dealing with Pakistan’s Tax Problem,” Pakistan Today, 8 January 2012, http://www.pakistantoday.com.pk/2012/01/08/news/profit/dealing-with-pakistan%E2%80%99s-tax-problem/?printType=article.
Financial Inclusion Tracker Surveys Project, “Mobile Money in Pakistan: Use, Barriers and Opportunities,” Intermedia April 2013, 4, http://www.intermedia.org/wp-content/uploads/2013/06/FITS_Pakistan_FullReport_final_REV1.pdf. Rose Athumani, “Tanzania: Mobile Tax Remittance System Rakes in Sh4.7 Billion,” Tanzania Daily News, 6 September 2013, http://allafrica.com/stories/201309060354.html.
“Nature & Extent of Corruption in the Public Sector 2002,” Transparency International (Karachi: Transparency International-Pakistan, 2002), http://www.transparency.org.pk/documents/csr.pdf.
Riaz Haq, “Pakistan Leads the World in Low Cost Texting,” South Asia Investor Review, 12 January 2012, http://southasiainvestor.blogspot.com/2012/01/pakistan-leads-world-in-low-cost.html