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Corona-toll, negative taxation & charity

Dr. Ikramul Haq

Much before Covid-19 outbreak, the widening income and wealth disparities were highlighted in these columns with solutions to bridge the growing rich-poor divide, but no government paid any heed. During the rule of General Pervez Musharraf [October 12, 1999 to August 18, 2008], a report by Centre for Research on Poverty and Income Distribution (CRPID) revealed that in his first five years, the income/wealth inequalities registered an unprecedented increase in our history.

The report of CRPID showed that 32% of the population was ‘chronic’ or ‘extremely poor’, while 63% were “transitory poor”—https://www.dawn.com/news/164235/63pc-classified-as-transitory-poor. The major devastating factor behind abject poverty was the regressive tax system under which incidence on the poor increased substantively by 35% while was reduced by 47% on the rich facilitating them to amass colossal wealth— http://www.indusconsortium.pk/wp-content/uploads/2016/09/Abolishing-pro-rich-Dr.-Ikram-Final-Study-1.pdf.

The trend set by Musharraf continued unabated by Pakistan Peoples Party and Pakistan Muslim League (Nawaz) during the Decade of Democracy [2008-18]. Prime Minister, Imran Khan, who took oath on August 18, 2018, came to power promising justice in all spheres and building “Naya [New] Pakistan. However, nothing substantially changed as during Covid-19 outbreak, millions of vulnerable workers became jobless and the State’s kitty was strapped to look after them and their families living in sub-human conditions. Premier Imran Khan started making calls for tax-free donations from all, especially Pakistani expats facing also destructive impact of Covid-19. Thus, the tall claims of Pakistan Tehreek-i-Insaf (PTI) converting Pakistan into a welfare State proved a mere lip-service.

Undoubtedly, since removal of Zulfikar Ali Bhutto on July 5, 1977 through a coup d’état, the small farmers, industrial workers, daily wagers and all weaker segments of society have been neglected by all governments—military and civilian alike. As elsewhere, our State has become pro-rich. The Oxfam’s report, ‘Time to Care’ of January 20, 2020, says: “2,153 billionaires have more wealth than the 4.6 billion people who make up 60 percent of the planet’s population”. Pakistan is cited among the countries, where due to elitism, oppressive taxes, rent-seeking, concentration of resources/wealth in a few hands and non-delivery of social services, have been contributing perpetually towards widening the rich-poor divide.

Elites in Pakistan use their influence to secure money whitening & tax amnesties schemes/exemptions/immunities/concessions/subsidies, while showing apathy towards the downtrodden not to provide them even basic entitlements—highlighted in Robber barons, oligarchy and oppressed, Daily Times, April 14, 2020.

Oxfam’s report observes, “In Pakistan even the rich parliamentarians pay negligible taxes important to fund education, healthcare and small-scale agriculture that can play a vital role in reducing inequality and poverty and the poor are hit hardest by petty corruption, which acts as de facto privatization of public services that should be free”.

An op-ed [Where is the empathy?], published on April 15, 2020, noted with concern: There has to be a mechanism of transferring of wealth/income from those who can afford to those who are vulnerable.  Private sector has to bring in all hands on table with the government. Forget about the mantra of being a philanthropic nation. Formal businesses and high net worth individuals have to give in the form of higher taxes to the poor……all the big and medium size businesses organization have come up with requests of waiving of numerous taxes…while the fate of poor is left to government to deal with through its Ehsaas programme… Where is the empathy of rich for the poor? How can they be so blindsided on vulnerabilities of millions of households”?

The author also aptly highlighted, “The battle between haves and have-nots has become uglier where haves want to have whatever fiscal kitty is offering. Out of the package of Rs1.2 trillion announced by the federal government, Rs. 144 billion are being arranged for poor people (Rs12, 000 for 12 million households for four months). That is just to cover food expenditure of those vulnerable for one month”. According to data, 32 million are vulnerable that is 56% of total labour force and 76% of these are “working without any formal contract (43 million people)”.

Our total labour force is 75 million—to give monthly minimum wage of Rs. 17,000 to them—we require Rs. 1.3 trillion per month. For 15% (11 million), who are at the risk of losing jobs due to lockdown, sluggish economy, and decline in earnings of businesses and incomes of individuals, the federal and provincial governments require Rs. 185 billion per month, which they lack! These are wages of policies of many decades of keeping the vast majority of people poor. The State shows “mercy” on the poor rather than making self-reliant and promote charities to get tax-free donations from the rich, who take pride in it as a gesture of piousness earning a place in Jannah [Heaven] for them.

The abdication by State of its responsibility of welfare of public under the Constitution is our real dilemma, no matter which government was/is in power. The ‘Thieves of State’ have always been, and will remain the main beneficiaries of taxes, even of funds given by foreign donors/lenders for mitigating economic suffering of the have-nots. It is highly lamentable that no regime has undertaken fundamental structural reforms to end elitist structures and ensure social mobility of the downtrodden. We spend billions on the perks/benefits of militro-judicial-civil complex and politicians in power, but when it comes to spending on economically deprived segments, there is a standard excuse of running short of funds! Thus, appeal for more tax-free donations!

In May 2019, Special Assistant to Prime Minister, Dr Sania Nishtar, who is also heading Benazir Income Support Programme (BISP), now called Ehsaas, in response to a proposal, sent the message: “Thanks for the innovative idea. I look forward to learning more about this”. The proposal was to introduce Negative Income Tax (NIT) as an alternative to schemes like BISP etc assuring every citizen, earning below taxable income, to get basic guaranteed amount through NIT to subsidize the needy at less cost than the inadequate welfare system. She said: “Yes I agree. Let me settle in and I will request you to brief me in detail to explore options”. This has yet to happen. Undoubtedly, she is highly committed to the cause of uplifting the poor and has shown extraordinary performance/dedication in the present crisis.   

Had funds of billions allocated to BISP since its inception alone were used for empowering the have-nots, making them earning hands and not beggars, we could have avoided the present crisis and humiliation faced by the recipients. The current challenge offers a golden chance to the federal and provincial governments to join hands to prepare national data of all households determining their economic status. Through NIT and other tax-financed schemes [Making 2020 year of prosperity, Daily Times, December 29, 2019], we can provide universal pension and social security to all citizens, food stamps to the chronic poor and unshackling their poverty trap through economic empowerment and not through charities—this is the only solution and a lesson to be learnt from a calamity like Covid-19.

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

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