(042) 35300721
Mon - Fri 09:00-17:00
Free consultant

Sordid story of tax reform

Dr Ikramul Haq[1]

The tall claims made by the government about six months back that by 1st January 2001, it would introduce majors tax reforms and even promulgate a new Income Tax law proved to be yet another promise not kept. The deadline has now been extended to budget time when the finance ordinance will be announced. This was not something that came as a surprise as most of the claims by our government are in the category of “wo wada hi kya jo wafa ho gaya” (promises are not made to be fulfilled). We will have been much happier if the hasty attempts to further destroy the existing enactments and tax structures were abandoned, but it seems that some vested interests are bent upon to do so in the hope that they will get enormous money (for this poor nation it will be loan of $ 100 million) from the World Bank for this vandalism. This is the most painful part of the whole exercise.

A number of news items published in Press recently exposed these vested interests, which have already approached the World Bank for $100 million loan to implement some “half-baked”, substandard and meaningless reform proposals. The Task Force on tax administration reform is facing a dilemma as the consultants hired to conduct studies have reportedly produced substandard work, which, it is feared, may not be implemented. The Task Force has recently expressed its reservations over the work produced by the consultants. One of the members of the Task Force has even resigned protesting over the quality of the reforms being recommended finally.

It is worthwhile to mention that after assuming power, the military government hired 17 advisors/consultants to help the financial wizards in pulling the country out of its present economic quagmire, for which tax reform was on the top of the agenda. Most of these advisors/consultants have already drawn hefty remunerations, besides enjoying other facilities. The financial impact of public spending on these “experts” runs into millions of rupees. Among the 17 advisors/consultants five are serving on honorary basis even though the government provides them secretariat facilities. Two of these honorary experts are also provided Club class air tickets to the United States.  Eight of these experts were hired by the Chief Executive (CE) which include one recruited through the Establishment Division; three appointed by the finance minister; four by the secretary-general finance who himself is a re-employed retired government servant; and one by the State Bank of Pakistan.

This is the way our rulers have been handling the crisis situation and making “sincere” and “concrete” efforts to reform the tax system. The borrowed money from IMF and other donors, who have been imposing people-hostile conditions, has been wasted in a ruthless manner on the perquisites of the so-called experts. One would have no irk or objection if they have delivered the goods after taking substantial amounts. But they not only failed to meet the deadlines, the reports submitted by them are reportedly much below the required standards. I have only studied one, which is a mediocre work clearly showing that information was collected from here and there and was put together in a shabby manner. I am positive that any intelligent Deputy Commission of Income Tax (who gets less than Rs. 10,000 per month as salary) could have produced a much better report on the subject from his first hand knowledge of the issues involved. But our rulers and foreign masters want gora sahibs to do the job, though they never chose to live in this country. They are totally oblivion of our mundane realities. One wonder what reforms can they suggest? They hardly know the ground realities prevailing in Pakistan.

 The consultants hired from a local university have no idea what tax laws and procedures are in Pakistan. As regards ex-bureaucrats, they are the people who should have been avoided in any reform plan, as in their own times in power, they destroyed the tax systems to show higher “collections” for securing extensions. One of them, I remember, evolved a rather innovative way to increase revenue by amending the law that all the companies must pay tax for 18 months rather than for 12 months! The man is still a federal secretary on contract in 22 Grade (even after retired about 5 years back). What a tragedy that Mir kya sada hain bimar huay jis ka sabub, usi attar kai londe se dawa latain hain (What a simple soul is poor Mir that he still takes prescription from the person who was the cause of his illness.  Another Chairman to show marvelous results introduced presumptive taxation system that has destroyed the whole concept of progressiveness of direct taxes in Pakistan. Yet another managed to get higher tax collections by demanding advance tax on gross turnover from the companies and registered firms. All of them are guilty of destroying our tax system just to secure extensions and contractual appointments after retirement.

According to a Press report, three of the five reports (on different aspects of the tax administration reforms) currently under circulation for comment of different authorities are found far away of the target and too generalized. Despite this the authorities have already approached the World Bank for $100 million loan to implement these “half-baked” reform proposals. However, the World Bank has reportedly told the authorities to first firm up their proposed reform. On December 16 while giving a presentation to the Chief Executive on the recommendations of the Task Force a very rosy picture was portrayed with regard to the future shape of the tax collecting machinery. However, only five days before that (on Dec 11) Syed Shahid Hussain, Chairman of the Task Force, in a letter addressed to all members and advisors of the task force, admitted “major gaps” in the consultants’ analyses.

This is the story (sordid and disgusting) of tax reforms so far. The so-called experts invited from abroad (who cannot even drive themselves home on Pakistani roads) are not capable of understanding the ground realities prevailing in Pakistan. They may be very competent, and sincere too, but the task of tax reform in Pakistan cannot be successfully carried out by them or the tax bureaucrats sitting in CBR. The present Chairman and Members of CBR were termed as “most honest” by Chief Executive in his Press conference in Lahore on October 10,2000. What a pity that to be honest is a qualification in this country, whereas it is an accepted and required norm in civilized societies. This shows the terrible level of our moral decay; as we always look for “honest” people. The important question is what is the requirement of the job; “honesty” alone or honesty with competence. The CE has not “certified” them as the most “competent” as well. As regards his certification of “honesty”, all know that what is what in this Hamam. The Chairman of the Task Force certainly lacks insight into the peculiar socio-economic circumstances prevailing in our society. How can he cure the system when he himself is not part of the system?

 The local experts are now repenting as to why they devoted their precious time for the whole exercise. Of course all of them are respected names in their fields, and they joined hands with the government for a noble cause of national importance. However, they have been deceived by the crooked bureaucrats and greedy consultants; an unholy alliance of so-called experts coming from abroad and their local lackeys sitting in the bureaucracy, universities and elsewhere, knowing nothing about the taxes, but very keen to make money or fulfill the agenda of their foreign masters. They are all Moeen Quershis, claiming to be sons of the soil, but getting their NICs on arrival at the airport.

People raised a number of important questions, when the Task Force (sic) was formulated by the government to suggest tax reform. The most important ones are:

  • Do we really need a new Income Tax Law?
  • What is wrong with the present one?
  • Can we really improve the tax system and tax apparatus by just promulgating a new law?
  • Do the present government against whom taxpayers have no right to vote has legal or moral authority to enact a new tax law?

These and many other questions of pivotal nature have not been addressed publicly and instead wasteful adventures are made by neem hakims (quacks) to further destroy the existing tax legislation. We do not need a fresh legislation in any tax laws. However certain amendments are required that should be made after proper consultation with all the concerned and by eliciting professional advice. I tried a pun by drafting a new law (sic), just to prove my point that if only rewriting a new code is the solution of the problem, it can be done single-handedly by many of us and there is no need to waste colossal money and bringing in so-called experts from abroad and hiring of exorbitant local consultants on for this meaningless task. However, they even failed to appreciate my pun and seriously discussed my draft in a meeting. This shows the level of their intellect. If they cannot understand an innocent pun, one wonders what havoc they are going to play with the existing tax laws, procedures and system. May Allah save all of us from their recklessness.

The Royal Commission on Taxation in Canada (the Carter Commission) and the Musgrave Commission in Columbia are said to have done the finest work up to that time in applied public finance because of their comprehensive analysis, rational approach and recommendations which could not have been possible, if a short time frame had been prescribed. Relatively successful reforms in Indonesia, Jamaica, Malawi, etc., were carried out in three to four years’ time and these involved substantial preparation and transition arrangements including extensive consultations with all the parties affected by tax reform. One wonders how in Pakistan, this task can be achieved in just a few months? All the members of the Task Force and the worthy Finance Minister are living in a Fool’s Paradise. What magic wand Mr. Shahid Hussain has brought from Washington DC? The tax reform programmes and strategy involve continuity in key decision-makers and major educational campaigns concurrent with the introduction of tax reform proposals to familiarise taxpayers with the new requirements. In Pakistan our undemocratic rulers, against whom we have no right of representation, want to do it in a slip shot manner, just in a few months time without any public debate and democratic process, ignoring what devastating effects it can have for the large majority of the people.

[1] Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, human rights, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 7226953, e-mail: irm@brain.net.pk; website: http://www.paktax.com.pk). He is also a member of the visiting faculty of the Institute of Direct Taxes in Lahore. He served for 12 years as Deputy Commissioner of Income Tax. He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law, some of which are co-authored with his wife, Mrs. Huzaima Bukhari, Additional Commissioner of Income Tax. He has been awarded Doctorate of Law for his research: Tax Reform in Quasi-Constitutional Perspective.

Related Posts

Leave a Reply