Budget & oppressive taxes

Dr. Ikramul Haq

In the forthcoming budget, to be announced on June 11, 2019 under a new economic team selected by Pakistan Tehreek-i-Insaf (PTI) on the dictates/recommendations of International Monetary Fund (IMF), there will be enhancement in rates of existing taxes and imposition of new duties as target of Rs. 5500 billion has been agreed with lender of the last resort! The new Chairman of Federal Board of Revenue (FBR), chartered accountant with vast experience in the field of taxation and dealing with big business houses (once clients of the firm he headed), wants to bring meaningful long-term changes in tax policy/administration. The history of tax reforms is that of failed experiences—all efforts were largely donor-designed. No effort has ever been made to take all stakeholders on board to devise a fair, simple and investment-friendly taxation system. Tax maladministration is one of the ugliest faces of our poor governance. No agenda of tax reforms will work unless we first convert FBR into an effective and people-friendly organisation.      

The National Economic Council (NEC) in its meeting headed by Prime Minister on May 29, 2019, approved a target of 4% GDP growth for the coming financial year [FY 2019-20]. According to Press reports, it approved national development outlay of Rs.1.837 trillion that includes allocations for the federal Public Sector Development Programme (PSDP) and the provincial Annual Development Programmes (ADPs). The NEC for FY 2019-20 fixed targets of growth of 3.5%, 2.2% and 4.8% for agricultural, industrial and services sector respectively. The meeting reviewed the draft of the 12th Five-Year Plan (2018-23) with main themes included: balanced and equitable regional development, sustainable, inclusive and job-creating export-led growth, resource mobilisation and improving governance, improving social protection, ensuring food and water security, enhancing connectivity, promoting the knowledge economy and a clean and green Pakistan.

While approving the 12th Five-Year Plan in principle, the NEC decided that the plan would be further fine-tuned, especially in terms of its implementation mechanism, in consultation with all stakeholders. About the PSDP 2019-20, it was revealed that focus would be on new initiatives in the fields of agriculture, information technology, higher education, science and technology and technical education and training. It was resolved that there would be targeted interventions in the less-developed districts to bring them at par with other parts of the country for regional equalisation. On paper all the actions proposed in NEC sound good but the issue of resource mobilisation to fund these remains shrouded in mystery. As usual, the political leadership in power and its economic and tax managers failed to discuss the most vital areas: Why in Pakistan taxpayers’ money is not spent for the welfare of public at large. Why the big chunk of it is consumed by white elephants running the state apparatus. Why huge public funds are embezzled/wasted/abused mercilessly.

The substantial portion of taxes goes into debt servicing, defence and for providing extraordinary perks and perquisites, concessions and unthinkable luxuries to the privileged classes. In democratic countries, people enjoy many benefits in lieu of taxes paid by them. They get good facilities of health, education, justice, transport, housing and pension benefits, just to mention a few. In Pakistan, taxpayers are harassed, condemned and citizens are denied fundamental needs (health and education etc ensured as fundamental rights). Therefore they find it worthless, rather irritating, to pay to the government, though Pakistanis are still among the leading philanthropists of the world.

The donors and lenders, IMF, Asian Development Bank, World Bank and Department for International Development etc hardly mention the oppressive side of our tax system and non-availability of public services. They are very fond of discussing low-tax-to-GDP ratio in isolation. They continuously emphasise the need for more revenues, without pointing out where the taxpayers’ money goes to. Not a single report/study of these agencies/bodies mentions that the powerful militro-judicial-civil complex and political elite—real beneficiaries of tax money—also thrive on funding/aids/grants/loans. The lenders/donors, in fact, support the parasitic elites by giving them more money for further luxuries, personal gains and/or wastage. Never ever have they raised the issue as to why our oppressive tax system burdens the less-privileged Pakistanis? On the contrary, they recommend more regressive and oppressive taxes eagerly supported by our bureaucrats sitting in Ministry of Finance and FBR.

Taxpayers and people of Pakistan are justified to pose a question: Can you please first identify the real beneficiary of taxpayers’ money and cost to national exchequer in providing free perks to militro-judicial-civil-complex and public office holders in the form of palatial residences, army of servants, expensive cars, golf courses, rest houses, foreign tours, banquets, etc? They legitimately ask about the utilisation of billions collected as super tax, imposed under section 4B of the Income Tax Ordinance, 2001, for rehabilitation of Internally-displaced Persons (IDPs) in the wake of Zarb-e-Azb. Where has this money gone? Can the Government explain the reasons for perpetual plight of IDPs despite super tax imposed initially as one-time levy in 2015 but then extended till 2020 on an income of Rs 500 million or above of individuals, association of persons, companies, and on banking companies, regardless of quantum of income. All those championing human rights and talking about plights of IDPs must listen to their personal experiences highlighted in a video, https://www.youtube.com/watch?v=Kb5nKTv-nRMto investigate the reasons for abuse of tax, exclusively collected in their name.

While foreign lenders and donors give money to us for tax reforms why do they conveniently ignore the vital question of abuse of taxes? Why do they and our rulers never talk about unbearable burden of oppressive taxes borne by the poor and their miseries, and in contrast to that the life of luxury enjoyed by politicians and bureaucrats funded by taxpayers’ money and grants/aids/loans!

Why have donors and lenders been giving money to rulers when they persistently failed to collect taxes from the rich and mighty? They know that a fair tax system can easily fetch Rs. 8000 billion at federal level alone as suggested in Towards Flat, Low-rate, Broad and Predictable Taxes (PRIME, 2016).  However, the donors/lenders should not alone be criticised and abused as the real culprits are their cronies in Pakistan, who knowing well that it will make Pakistan a self-reliant country, deliberately avoid fundamental reforms as oppressive institutions and policies ensure their control over hapless citizens, who will not vote for them if it became educated, financially independent and free from the clutches of thana, katchery and patwar.

The so-called reforms agenda of donors/lenders and our ruling elites, including the present government, will never include actions such as ending oppressive taxes, monetization of all perks and benefits available to militro-judicial-civil complex and commercial utilisation of expensive properties occupied by them that can bring enormous funds to the government to retire debts as well as future savings of billions and regular income as explained in detail by Dr. Nadeem Ul Haque in his book, ‘Looking Back: How Pakistan Became an Asian Tiger by 2050’.

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The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)