Huzaima Bukhari & Dr. Ikramul Haq
No government in Pakistan, including the present one, ever thought of establishing knowledge-based research platforms for all sectors that need reforms. For example, not a single study is available outlining step-wise tax reforms or promoting tourism. The word “reforms” is a cliché unless backed by a solid research, executable plan and strategy to implement the same. The coalition governments of Pakistan Tehreek-i-Insaf (PTI) in the centre and provinces, like other parties, lacks a plan to restructure and revamp the tax system. We need pragmatic roadmap to make Federal Board of Revenue (FBR) and other tax agencies efficient, for which many models are available for study and then devise the best that suits us, for example, Mauritius Revenue Authority (MRA), Swedish tax agency (Skatteverket) and Canadian Revenue Agency (CRA).
We need tax and non-tax revenues to not only eliminate fiscal deficit and retire debts, but provide ample funds for infrastructure projects, human resource development, health, education, transport and housing etc. With accelerated growth in agriculture and agro-based value-added industries, Pakistan can retire external and internal debts and become self-reliant, but where is the research and executable plans. This is our real dilemma!
The path to prosperity requires investment, training of human resource and tapping huge unexploited mineral resources and promotes blue economy, generate exportable surplus, establish import-substitution-based industries—all these can provide jobs to millions. For generating sufficient revenues, we have already suggested a model, based on low-rate taxes on the broadest possible base. This or any other model can only succeed if we have good tax administration—see details in Revamping tax system, Political Economy, The News on Sunday, December 7, 2014 and Too taxing, Political Economy, The News on Sunday, June 22, 2014. Tax reforms must concentrate on convincing the masses that money collected from them would be spent for their well-being. Mere promises will not work. We need to redesign systems providing the masses quality health and educational facilities, decent housing/transport and universal pension. Taxes and benefits must go hand in hand for creating a tax culture of voluntary payments. The PTI Government has so far shown only good intentions—but clichés alone will not bring the desired results. Both federal and provincial governments must come out of complacency and work on improving systems by undertaking much-needed and long-overdue structural reforms in all spheres of governance.
As generally believed and propagated, the sole root cause of our economic problems is not tax collection but inefficient and corrupt government apparatus, loss-bearing public sector enterprises, wasteful expenditure, circular debt—just to mention a few. For progress, we need to dismantle all elitist structures and empower masses at grass root level as required under Article 140A of the Constitution. This alone can ensure prosperity for all. No other strategy will work, not even the US$ 400 million loan from World Bank for Pakistan Raises Revenue Project. Even if FBR collects Rs. 5000 billion after new taxes as proposed by IMF, after transfer to provinces under National Finance Commission (NFC) Award, net tax collection available to the federal government will be around Rs. 2400 billion—whereas debt servicing alone this year will be more than Rs. 3000 billion against budgeted target of 2891 billion!
The PTI Government is becoming unpopular as people are feeling the real heat of monstrous inflation. It still has a chance to win the confidence of people by reversing all anti-people policies and considering the following:
- For reducing fiscal deficit to the level of 6% of GDP, it is imperative to (i) curtail unproductive and wasteful expenses by 30%, (ii) increase non-tax revenues by leasing out valuable state lands and assets e.g. GORs and palatial government houses etc through public auction for specific activities to generate employment/boost economic activity and (iii) taxes at all levels—federal, provincial and local—should be made simple, low rate, broad-based, payable with ease as the Punjab Government recently decided to abolish around 50 taxes.
- All individuals having taxable income or below taxable limit should be facilitated to file simple tax returns [no wealth statement]. Those earning below taxable limit should be paid income support [negative tax]. Return form should be in English/Urdu/all regional languages. Reporting of real income by all will help create data bank at national level of all households—about 37 million as per last census. Their earning levels will determine who need to pay and who should be entitled to social benefits under Ehsaas and other like programmes.
- All entities—individuals, association of persons/firms/companies/artificial juridical persons—should be offered to pay income tax/sales tax for any tax/assessment year/tax period for any past lapse under National Tax Clemency Scheme. They should be encouraged and facilitated to pay past liabilities and thereafter would not face any penal action—prosecution, penalties, additional tax, default surcharge etc.
- The State must not offer any amnesties/immunities—these are incentives to the dishonest and penalising the honest taxpayers. Those who filed but underpaid be offered to make up deficiency paying due tax with no penal action/audit. It would bring in much-needed revenues—even exceeding the revised target of FBR at Rs 5.2 trillion.
- In the next three years’ time, the businessmen instead of being overburdened with advance/heavy taxes/duties/other charges should be facilitated by improving all indexes of ‘Ease of Doing Business’ that must also include reducing cost of doing business. They should be given tax credits/incentives for compulsorily investing in human resource so we have trained and qualified workforce in all areas—providing employment and paying them decent/livable wages.
- We must encourage and offer all possible facilities and incentives to all kinds of entrepreneurs, especially Small & Medium Enterprises (SMEs) to concentrate on growth and productivity.
- All the governments—federal, provincial and local—should join hands and prepare national level data of all citizens determining their economic and social status. There should be universal pension, social security and food stamps for the needy at the same time empowering them to come out of poverty trap.
- In three years, after achieving consensus through consultation with all stakeholders we should have National Tax Agency manned by members of All Pakistan Unified Tax Services having professional expertise in all related fields. This Agency would be in a position to communicate to all citizens what their income/expenditure levels are—it will determine tax obligations as well as who needs income and social support from the State.
- After national debate and taking input from all stakeholders national and provincial legislators should go for simple, predictable and low rate taxes—there should be income tax on all incomes including agricultural income to be under the exclusive domain of federal government and harmonised sales tax on goods and services to be given exclusively to the provinces—it will create fiscal consolidation and make federal and provincial governments self-reliant.
- We must abolish multiple taxes and collect local taxes e.g. property, vehicle taxes etc to meet the needs of local residents by allocating funds to local governments to provide services of health, education, civic amenities of all kinds, and recreation etc.
- All citizens and other entities should be given a chance to declare all untaxed assets for any past year, at home or abroad, by paying due tax liability in full or in installments to overcome cash liquidity problems—of course paying additional tax for grace period(s). After the deadline, stringent action under the law should be taken including confiscation of property, fine and/or imprisonment.
Somebody needs to tell the Prime Minister that the iniquitous prescription of IMF of more taxes, austerity and high interest rate will not solve our problems—this has miserably failed in the past. The only solution is to reduce wasteful expenditure, right-size the monstrous size of the government, monetize all the perquisites of bureaucracy and make taxes simple and low-rate. State lands, lying unproductive, should be leased out for industrial, business and commercial ventures. It will generate substantial funds and facilitate rapid economic growth.
The writers, lawyers and authors, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)