State oligarchy & tax breaks  

Huzaima Bukhari & Dr. Ikramul Haq

In a country where development outlay is cut drastically every year and an indomitable State Oligarchy enjoys unprecedented tax-free perquisites and perks at the expense of taxpayers, what can one expect other than fiscal chaos and double talk about loyalty to state. The self-styled defenders of “national cause” and “ideological frontiers” have done little to eliminate naked and brutal forms of exploitation prevalent in society, although it is the command of Article 3 of the Constitution that the State would ensure: “from each according to his ability to each according to his work”. However, they require complete and unquestionable submission from everybody of their “authority” and actions, even if these fall outside their jurisdiction and/or patently unlawful. The elites and pressure groups flout the rule of law with impunity—for them, vulgar ostentation of power and/or money is essential to prove their might and importance. In this scenario, the victims and sufferers are the poor and helpless masses.

Nobody is ready to expose the role of predatory elites—militro-judicial-civil complex, businessmen-turned-politicians, absentee land owners and unscrupulous traders—in our politico-economic decay. The unholy alliance between politicians, state functionaries and unscrupulous businessmen is the root cause of our many ills—including politically-motivated loan write-offs and illegal flight of capital from the country leaving the masses in miserable conditions. Billions have been lost annually due to this unholy alliance. Since the rich and mighty do not pay due taxes, regressive taxes are imposed hurting the poor and middle class. On the one hand, Pakistan is a country with one of the lowest tax-to-GDP ratio, and on the other, bulk of collection is wasted mercilessly for non-productive expenses—funding monstrous state machinery and luxuries of the elites.

Those in power grab state property under the pretext of rewards and awards (free or at throw-away prices) and pay no tax on it. The taxes ruthlessly collected from the masses are brazenly spent on their luxuries—palatial bungalows, fleets of cars, army of servants, foreign tours and what not. Due to meagre or non-taxation of luxury and commercial properties e.g. clubs and golf courses, unprecedented exemptions given to generals, judges and high-ranking civil officials, the national kitty suffers huge losses. The narrative that Pakistanis do not pay taxes, popular with analysts, TV anchors, academicians, policymakers and foreign donors, is abhorring—the reality is that the poor are victims of oppressive taxes, whereas the elites are thriving on labour of the down-trodden.

Tragically, citizens whose income falls below taxable limits under the income tax law are criminally taxed through the cleverly-woven web of withholding tax regime. Funds, extorted from their hard earned money, are plundered and wasted by the ruling elites. The militro-judicial-civil complex, Prime Minister, President, Governors, Chief Ministers, ministers, state ministers, advisers, MNAs and MPAs together squandered billions in the fiscal year 2017-18 on perks, perquisites etc. Not only this, these predatory elites did not pay tax on free or concessionary benefits and/or plots allotted in utter violation of section 13(11) of the Income Tax Ordinance, which says: “Where, in a tax year, property is transferred or services are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the property or services determined at the time the property is transferred or the services are provided, as reduced by any payment made by the employee for the property or services”.

It is sad to note that predatory elites have been blatantly violating tax provisions and not paying taxes due on getting plots, free accommodations and other benefits—all covered in section 13(11) and 39(1)(j) of the Income Tax Ordinance, 2001. The Federal Board of Revenue (FBR) is not at all inclined to tax them—their top notches are also beneficiaries of these advantages. They also show subordination and submission to the political masters as well as to the rich and mighty for self benefits, of course!!

Our elites are neither willing to give up their unprecedented/exorbitant perquisites and benefits, nor to pay taxes on it and resultantly, the burden of taxes is shifted on the weaker sections of society. This is the real dilemma of Pakistan. During the government of of Pakistan People Party (2008-13), an ex-Member of FBR wrote a letter to then Finance Minister, Abdul Hafeez Shaikh, that massive tax evasion/loss of revenue had occurred due to non-taxation of government property/benefits given to high-ranking officials free or at concessional rates. He took no action and the same was the case when Ishaq Dar took office. He is now a fugitive and proclaimed offender.

It was expected that Finance Minister, Asad Umar, and State Minister for Revenue, Hammad Azhar, would take action on the letter which has been lying unattended for last many years. All the previous heads of FBR also remained silent on this issue. Track record of the present Chairman of FBR shows that he would be least interested to nab the rich and mighty. Occupying key posts in Punjab under self-proclaimed Khadim-e-Aala, especially as Chief Secretary, he never bothered to ask the concerned secretary to collect agricultural income tax from the rich absentee landlords or mighty urban property holders. On the contrary, through an illegal executive order, the collection of agricultural income tax from the rich mighty absentee landowners of Punjab was suspended when he was serving Shehbaz Sharif as Chief Secretary. Now as Chairman FBR, it remains to be seen whether he would be able to nab about 3.5 million ultra-rich (these include his colleagues in bureaucracy, judges and generals). Till today, he has even failed to force those who live lavishly, to file their income tax returns what to speak of taxing the ultra-rich and mighty members of State Oligarchy. 

The people voted for Pakistan Tahreek-i-Insaf (PTI) so that they would take the powerful predatory elites and tax cheats to task. They wonder why FBR has been sparing tax- delinquent elected members (99% of them even did not bother to pay Income Support Levy for Tax Year 2013 after lapse of 5 years), unscrupulous traders, mighty military and civil officers for not paying due taxes under section 13(11) and 39(1)(j) of the Income Tax Ordinance, 2001. Recouping of lost revenues of billions of rupees from them by PTI government will certainly convey a loud message to all that they mean business and that nobody is above law. As the mighty sections of society are not paying taxes due from them, the common people argue against discharging their tax obligations, especially when the State has failed to protect their lives and properties, what to talk of providing basic facilities of education, health, clean drinking water, housing, transportation etc.

The powerful in the Land of Pure live in palatial homes with all free utilities, and enjoy free and/or subsidized facilities of golfing and club life—all these at the expense of taxpayers’ money, while the poor are suffering from malnutrition. About 60 million lack even basic facilities like clean drinking water, sewerage etc. Not only that the powerful do not pay taxes on perks and benefits, there exists within a specific group blatant discrimination. For example, superior judicial allowance of the judges of the Supreme Court and High Courts and almost all allowances are exempt under clause (56), Part I, Second Schedule to the Income Tax Ordinance, 2001, whereas judicial allowance is taxable in the hands of judges of subordinate judiciary. Does this not call for suo moto action on the touchstone of Article 25 of the Constitution? The custodians of fundamental rights are denying the same to their brothers!  One hopes in the forthcoming mini-budget, that the government of PTI will take care of this at least!!

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The writers, lawyers and partners in Huzaima, Ikram & Ijaz are Adjunct Faculty at Lahore University of Management Sciences (LUMS).