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Reducing corruption in tax collection via mobile payments in Pakistan M-Tax system by Civic Synergies.

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Presentation on theme: "Reducing corruption in tax collection via mobile payments in Pakistan M-Tax system by Civic Synergies."— Presentation transcript:

1 Reducing corruption in tax collection via mobile payments in Pakistan M-Tax system by Civic Synergies

2 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

3 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

4 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

5 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

6 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

7 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

8 How it works Tax collector arrives to collect tax from individual Tax collector texts system with persons 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

9 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

10 Challenges and solutions Run a media campaign to inform tax payers of proper procedures and prevent collectors from providing false information 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 OTC Media and financial literacy campaigns can empower women to purchase and use mobile phones and become financially independent ChallengesSolutions

11 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

12 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

13 References Mark Tran, Pakistan Needs to Recoup More in Taxes Before Any Aid Boost, Says MPs, The Guardian, 3 April 2013, development/2013/apr/04/pakistan-recoup-taxes-aid-mps. Sabrina Tavernise, Pakistans Elite Pay Few Taxes, Widening Gap, New York Times, 18 July 2010, Zain Chaudhry, Dealing with Pakistans Tax Problem, Pakistan Today, 8 January 2012, 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, 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, Nature & Extent of Corruption in the Public Sector 2002, Transparency International (Karachi: Transparency International-Pakistan, 2002), Riaz Haq, Pakistan Leads the World in Low Cost Texting, South Asia Investor Review, 12 January 2012, cost.html cost.html

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