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Of “true VIPs” & tax evaders    

Dr. Ikramul Haq

The Prime Minister, while speaking at the awards ceremony held for top 150 taxpayers on February 20, 2019, said “The true VIPs of Pakistan are those people who pay the most tax and such citizens should be felicitated and honoured”. He also said there was a need to change the mindset “under which wealth creation is considered a sin, so that people could be encouraged to invest in Pakistan”. He directed officers of Federal Board of Revenue (FBR) to take all tax dodgers to task, “those who have a lavish life style but pay meagre or no tax”. He candidly admitted that “only 72,000 people from across the country declared an income of over Rs. 200,000” and added “it is understandable why people shied away from paying taxes because of their concern that their money would not be fully utilised for the uplift of the lower segments of society”.

The Prime Minister undoubtedly highlighted the dilemma faced by Pakistan. The rich and mighty are busy in making wealth but not ready to pay their due taxes. He has not talked about the members of mighty militro-judicial-civil complex who enjoy unprecedented tax-free perks and perquisites as well as majority of parliamentarians who cannot justify the means of their lavish life style. The worthy Prime Minister should start the process of tax accountability from the parliamentarians and members of militro-judicial-civil complex. In a social democracy, taxes play an important role—sovereign Parliament possesses exclusive power to levy them and citizens pay the same under social contract to the State for general welfare of all. The elected representatives of people as legislators and role models have greater responsibility in discharging all legal obligations—tax payment is vital amongst these.

Shockingly, a vast majority of public officeholders are negligent, lax and blasé about their tax obligations. This list, lamentably, includes even the top office holders of the country and heads of major political parties. For example, a progressive tax (Income Support Levy), imposed in 2013 and withdrawn the very next year, remains unpaid till today by 99% parliamentarians and rich Pakistanis. According to Parliamentarian Tax Directory for Year Ended 2013, released by the Federal Board of Revenue (FBR) on February 28, 2014, out of 1172 parliamentarians (senators and members of national and provincial assemblies) hardly 10 members paid Income Support levy. Is our Prime Minister, totally oblivious of this fact? His Finance Minister and State Minister for Revenue, both brilliant and intelligent persons, should brief him on this sorry state of affairs and ask FBR to take its recovery as a test case.    

Premier Imran Khan has raised a very vital question. Why has Pakistan failed to enforce voluntary tax compliance? The answer is also given by him that in true social democratic countries like Scandinavians, people can feel and even measure tangible benefits of taxes paid by them. They get facilities of health, education, transport, housing and pension, just to mention a few. In Pakistan they get nothing. Therefore, the citizens find it futile to pay to the government, though Pakistanis are among the leading philanthropists in the world as mentioned by Prime Minister. So, the present government under the dynamic leadership of Imran Khan knows where the problem lies. Now, what to do to overcome this situation is the real issue and challenge.

Rich and mighty, with the help of crafty tax advisers, easily avoid taxes exploiting weak enforcement and lacunas in laws. Admittedly, non-reporting and under-reporting of incomes and evasion of sales tax/customs/federal excise duty is rampant in Pakistan but it must be seen in the context of giving unprecedented tax concessions, immunities and amnesties by the successive governments, military and civilian alike. They never bothered to crack down on untaxed money. On the contrary, the ruling elites have been appeasing tax cheats by extending generous tax amnesties and whitening schemes like section 111(4) of the Income Tax Ordinance, 2001. In the face of these realities, people ask why we should pay taxes. The government of Pakistan Tehreek-i-Insaf (PTI) must ponder about it before reforming the tax system that for them and donors means more taxes!

The men sitting in FBR (Revenuecracy) say that problems persisting for the last more than 70 years cannot be solved in a few months. Many in PTI also say that reforms are not possible even in 5 years’ term for which they are elected. They claim that their main problem is how to deal with powerful bureaucrats who are inefficient and corrupt. The same rulers, who express helplessness before bureaucracy, openly commit tax evasion and seek protection behind laws and amnesty schemes. There exists an unholy alliance between the politicians and bureaucrats. Bureaucrats and Revenuecrats please political masters and in return get favours. If elected representatives are sincere, they should pass asset-seizure legislation and confiscate all the ill-gotten money and untaxed assets. This step will not only ensure accountability and transparency but solve the most pressing issue of eliminating fiscal deficit and debt burden.

As soon as political elite starts paying taxes, bureaucrats or businessmen will be left with no excuse but to follow suit. If the present government brings 3 million ultra-rich into the tax net asking them to pay low-rate flat-tax, imposes single-stage 8% sales tax across the board, there will be no fiscal deficit. This goal can only be achieved if the PTI Government simultaneously brings much-needed reforms in civil services, tackles tax evasion through asset-seizure legislation and counters rampant corruption in the tax machinery by not throwing some officers out of job but making the system workable—the staff should be paid justly with strong accountability.

Pakistan is capable of substantially reducing or even eliminating its fiscal deficit and debt burden in a couple of years provided that a comprehensive and well-designed work plan based on multi-dimensional strategy is prepared and implemented for resource mobilisation and debt retirement coupled with ending all tax-free perks and benefits to militro-judicial-civil complex by monetizing the same (it is worthwhile to mention that such a plan was handed over to the Finance Minister in person in September 2018). The huge and expensive properties occupied by state oligarchy should be converted into income-yielding assets or leased out through public auction as is the case in all big cities of the world that are the real growth engines of all the prosperous countries.

The best talent should be recruited and retained in the civil services and they should get composite pay package, based on market wages, as is the case in private sector e.g. banks and arrange their own residences and conveyance. They must live among the masses and not in fortified areas called GORs. Their alienation from the masses, whom they are supposed to serve, and quest to preserve elitist structures are the root cause of dissatisfaction of citizens with the system. It is hoped that the Prime Minister, his team and dozens of advisers will look into it seriously. 


The writer is Advocate Supreme Court and Adjunct Faculty at Lahore University of Management Sciences (LUMS). Email: ikram@huzaimaikram.com; Twitter: @drikramulhaq

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