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Budgets of, by & for elites

Dr. Ikramul Haq

Like every budget of Pakistan since decades, the latest one, expected on June 11, 2021, will be no different and having the same features: burdening the common people, appeasing the mighty, not withdrawing benefits available to the rich and following the dictates of the lenders/donors. Majority of experts say that it is not surprising as beggars cannot be choosers. We have no option but to obey the commands of the International Monetary Fund (IMF) and withdrawal of exemption on items of common use will increase their financial woes when food inflation is already at 18% and incomes are decreasing. Milton Friedman’s famous quote that “inflation is taxation without legislation” aptly applies in Pakistan.

The covid-19 economic toll led to suspension of IMF US$ 6 billion bailout package which finally got revived when on March 30, 2021 when its executive board approved second to fifth review and released US$ 500 million tranche on fulfillment of a host of conditions having negative impact for growth. The Pakistan Tahreek-i-Insaf (PTI), contrary to its claim of making Pakistan a self-reliant country, is now depending on the IMF—the lender of last resort—and others and accumulated unprecedented debt of 90 percent of GDP.

Shaukat Tarin, the fourth Finance Minster of Premier Imran Khan, before taking oath of office on April 17, 2021 criticised IMF for “harsh conditions” and policies of Dr. Abdul Hafeez Shaikh and Raza Baqir, Governor State Bank. After news of 4 percent growth by Asad Umar, Minister for Planning, Reforms and Special Initiatives, he was left with no choice but to retreat from the praise “good progress made because of prudent policies of Imran Khan and his financial team”. He made it clear though of not acceding to demand of IMF to increase electricity and gas tariffs and to deal with circular debt through alternate strategy not yet revealed. On the fiscal front, he said our targets would be close to those demanded by IMF that is around Rs. 5.8 trillion. The FBR after blocking refunds of Rs. 300 billion made “historic” (sic) collection of Rs. 4.17 trillion in the first eleven months of the current fiscal year and is confident to achieve the revised target of Rs. 4.7 trillion by the end of June 30, 2021.    

Shaukat Tarin and Dr. Waqar Masood, Special Assistant to Prime Minister on Revenue and Finance are working on various proposals to generate extra taxes of Rs 480-500 billion through withdrawal of sales tax exemptions, abolition of concessionary/reduced sales tax rates, changes in Federal Excise Duty (FED) regime, raise in tax burden for higher income slabs in salaried class, reduction in the number of personal income tax slabs from 11 to five, adjustment of rental income, installation of Point of Sale (POS) machines at 85,000 branded chains in urban centres with lower rate of 12 percent sales tax for textile and 14 percent sales tax for other sectors. This confirms where the actual tilt lies—no concern whatsoever of the disastrous impact of oppressive taxes on the poor, salaried class and middle-income groups already affected by Covid-19 endemic.  

The unjust indirect taxes are going to make life of the less-privileged and downtrodden further miserable, but no new tax on the rich to create fiscal space to help revive the small and medium enterprises (SMEs) by reducing huge tax burden on them. Those who availed generous money whitening schemes in the past would amass more wealth by passing burden of indirect taxes on the end consumers for commodities of daily use.      

The tax bureaucrats and donor-imposed technocrats keep on singing the mantra of “more taxes” without admitting that about 105 million individuals not earning taxable incomes pay advance income tax of 12.5% as mobile users and 19.5% sales tax on services to provinces. The lenders/donors in their conditions/studies do not stress upon the governments to reduce wasteful expenditure and spend adequately on health, education, infrastructure and human resource development for sustainable growth. We, however, should not criticise them as it is we who go to them and they of course want their funds back—our rulers are the real culprits who, over the period of time have pushed the country into a deadly debt prison.  

It is an admitted fact that the rich are not paying income tax according to their real incomes—total number of individuals paying tax exceeding ten million rupees is less than twenty thousand. Over 75% taxes collected are indirect, many even under the garb of income tax that are pushing millions below the poverty line every year. The Finance Bill 2021 will contain nothing to correct this distortion. On the contrary, it will raise prices of many daily use items like wheat, sugar and ghee, consumed by the poor, and impose additional and cumbersome liabilities on withholding tax agents.

It is an undisputed fact that the present and earlier governments have perpetually demonstrated, that they have no desire or concern for making Pakistan an egalitarian State through fair and just taxation. The prerequisite of such taxation is improving contribution of direct taxes as a tool of redistribution of wealth. The share of direct tax in GDP is only 3.2 percent.

Overwhelming reliance on indirect taxes and withholding taxes raise serious questions about the fairness of Pakistan’s tax system—besides eroding tax base and creating fiscal imbalances, this has been continuously pushing the masses below poverty line. Since Pakistan is controlled by predatory elites, there is no political will to alleviate poverty by taxing the privileged classes. Enjoying free luxuries met from taxpayers’ money and/or loans, and getting State land on throwaway prices are unique features of our elitist economy—so they keep on levying more oppressive and unjust taxes on the masses rather than ending these VVIP facilities, free benefits including expensive plots on prime locations.


The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE)

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