Dealing with rich-poor divide

Huzaima Bukhari & Dr. Ikramul Haq

CPI basket includes luxurious items while SPI based on basic necessity items. About 60% of the population falls in the “transitory poor” category (Bukhari and Haq, 2019) it means a substantial population has no access to luxurious items; their needs revolve around basic necessities. The rules for indexation to the CPI have several potential disadvantages. They prevent real wage and employment adjustment in the presence of real shocks, causing suboptimal employment. In the presence of nominal shocks and inflation, indexation to prices can generate inconsistencies. The shock of inflation is not uniform for basic and luxurious commodities. The inflation through CPI is not suitable to be used for indexation as it cannot capture the inflationary shock to all income groups—Pay Indexation in Pakistan, Saud Ahmed Khan and Amena Urooj and Ahmad Fraz

In Pakistan, the average net worth of a parliamentarian is $900,000, yet few of them pay taxes. Instead, elites in parliament exploit their positions to strengthen tax loopholes—Fair Taxation for Poverty Reduction And Equality (Huzaima& Ikram, 2016).

Much before Covid-19 outbreak, the widening income and wealth disparities were highlighted in various 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. 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.

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—especially in the wake of deadly third wave—millions of vulnerable workers became jobless and the State’s kitty is strapped to look after them and their families living in sub-human conditions. Premier Imran Khan even made 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 so far has 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 [Pro-people Laws, Insensitive Legislators, Surkhyian, November 15, 2020].

Elites in Pakistan use their influence to secure money whitening & tax amnesties schemes, exemptions, immunities, concessions and subsidies, while showing apathy towards the downtrodden not to provide them even basic entitlements. 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”.

The Great Divide in today’s Pakistan relates to income and wealth disparities between the rich and the poor. The wealth of the nation is confined to a few families. The main burden of taxes—70% collection is from indirect taxes (even many in the garb of income taxation in the form of withholding taxes)—is on the less privileged classes and the rich are not even ready to share a very negligible portion of their collossal wealth with the have-nots. Even in the presence of Article 19A of Constitution of Islamic Republic of Pakistan [“the Constitution], the public has no access to assets of top military brass, honourable judges of Supreme Court and High Courts and grade 21and 22 civil servants [Legislators, declarations and accountability, Surkhyian, January 20, 2020].

It is pertinent to mention that Article 19A of the Constitution of Islamic Republic of Pakistan [“the Constitution] confers inalienable fundamental right to every citizen to know about the assets and tax declaration of persons holding any judicial position, government post or public office or where information is of public importance.  Even courts cannot curtail this fundamental right as Article 19A of Constitution says: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law”. This was explained by the Supreme Court of Pakistan in Watan Party & Others v Federation of Pakistan & Other PLD 2012 Supreme Court 292 as under:

“Article 19A has thus, enabled every citizen to become independent of power centres which, heretofore, have been in the control of information on matters of public importance….. Article 19A is a grant of the Constitution and, therefore, cannot be altered or abridged by a law enacted by Parliament…It, therefore, will not for this Court to deny to the citizens their guaranteed fundamental right under Article 19A by limiting or trivializing the scope of such right through an elitist construction whereby information remains the preserve of those who exercise state power.”

The most unforgivable crime of the ruling elites is grabbing of State property and non-payment of taxes on unprecedented perquisites and perks enjoyed by them—they get State lands as rewards and awards (free or at throw-away prices) and a host of free benefits but do not pay taxes due on them even where the law so requires. Adding insult to injury, the taxes collected from the masses are shamelessly wasted on their luxuries—palatial bungalows, fleets of cars, army of servants, foreign tours and what not.

Inequalities in income and wealth in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets. Since the poor have virtually no assets and the lower middle class own very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common man at affordable prices and installments; the sale of shares of public enterprises in smaller lots; human resource development; and credit to the micro, small and medium enterprises are some of the ways that might help the poor in acquiring assets. However, the role of official bodies set up by federal and provincial governments in this regards (much-publicized Benazir Income Support Programme (BISP) now renamed as Ehsaas or Khushal Pakistan Fund etc!) is simply hopeless—due to various weaknesses—the main is not empowering the needy but to make them beggars, even the BISP was abused by government officials [State, elitism and poverty alleviation, Surkhyian, January 18, 2020].

The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government. Study of Pakistan from this perspective is very painful as our society is fast moving towards dehumanizing characteristics, unfettered and unchallenged—the poor recipients of Ehsaas Emergency Cash Programme were humiliated to come in centres and wait for hours to amounts. We were facing economic disparities, undernourishment, starvations, scarcity of eatables, power shortages and lack of essential services even before coronavirus epidemic but after the outbreak and lockdown these are expanding at a pace that is alarming. The Great Divide in today’s Pakistan between the rich and the poor, if not reduced through immediate curative measure, may eventually lead to civil commotions.

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 70 million, out of which the number of unemployed people in has been estimated to reach 6.65 million during the fiscal year 2020-21, compared to 5.80 million of the outgoing financial year—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 current complete and partial lockdowns, 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 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, 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 [see details in Covid-19 pandemic & Rich-poor Divide, Surkhyian, April 23, 2020].

__________________________________________________________________

Ms. Huzaima Bukhari, MA, LLB, Advocate High Court, Visiting Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram and Huzaima Ikram & Ijaz, leading law firms of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals.

She has coauthored with Dr. Ikramul Haq many books that include  Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Dr. Ikramul Haq, is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

She regularly writes columns/articles/papers for Pakistani newspapers and international journals. She has contributed over 1500 articles and research papers on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.

________________________________________________________________________

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, IT, intellectual property and international tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation. He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax.

He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.