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Taxes, inflation & public welfare

Dr. Ikramul Haq

The Federal Board of Revenue (FBR) has achieved a milestone of collecting for the first times taxes of Rs. 3.965 trillion in the first seven months of the current fiscal year, for which its top management, the entire team at headquarter and officers/staff in the field deserve kudos. This is extraordinary performance, especially during extremely capricious economic circumstances. However, the real credit goes to taxpayers (majority of even affluent citizens is not filing returns of income tax/sales tax) as 95% taxes of FBR are collected at import stage, through withholding provisions (nearly 50 in income tax and sales tax on goods), advance tax and taxes with returns.

There is a consensus that this year’s GDP growth will be less than 2.5 percent. The situation of stagflation is more than alarming. We have hyperinflation in the daily food items along with rising unemployment. The continuous erosion of purchasing power is creating huge financial difficulties for the poor and fixed-income earners.

The latest Press release of Pakistan Bureau of Statistics (PBS) for January 2023 shows a 48-year high inflation that skyrocketed to 32.3% in rural areas and 24.4% in the cities. Food inflation for the first time reached 45.2% in rural areas and 39% in cities. With thousands of containers of food items, raw material etc stuck up at ports for want of dollars, the prices of daily use items are out of reach of the common people, especially when the economy is at its lowest ebb with poverty and unemployment touching new heights. The worst sufferers are those living in rural areas, where income levels are extremely low. The most worrisome aspect is fast deteriorating food security situation. Once Pakistan was a food surplus country and a major producer of wheat, but now even its availability is a big issue. Majority of population, especially young women and children are badly affected by malnutrition—hardly 10% are getting minimally accepted diet.

The incumbent Prime Minister and his mega-large cabinet have yet not considered the issue of high food inflation and food insecurity as a formidable challenge with serious future ramifications. The alliance government of Pakistan Democratic Movement (PDM) in the Centre, allies in Sindh and caretakers in two provinces have failed to take any meaningful steps to bring the prices of essential food items down. The growers and end users are suffering but the middlemen and those having money power (cartels, monopolies and mafias) are taking benefit of the situation. Tall claims of the PDM government of taking them to task have proved to be just lip-service.

Institutions like, Competition Commission of Pakistan (CCP) and Federal Investigation Agency (FIA) initiated many inquiries in the past against the culprits and even filed many cases, but failed to prosecute what they call “all-powerful mafias and cartels”. The CCP once issued show cause notices to 19 poultry feed companies for cartelisation and a collective increase in feed prices, but it resulted in an increase in the prices of chicken and eggs.

It is highly lamentable that people with money power are exploiting the financially vulnerable classes by their criminal activities of hoarding essential commodities like wheat, oil, ghee and sugar, just to mention a few.

It is time that all political parties, despite perpetual antagonism, must engage and unite in exposing such criminals in their parties—they are playing with the country’s future, and will get tickets in all coming elections. There must be “one-point charter” that whosoever is in power, top priority would be elimination of money power and welfare of masses through equitable, higher and sustainable growth to provide employment to the huge youth bulge for which 2.5 million jobs are required every year. They are the future of this country—Let all join hands to save it.             

In all coming budgets—federal and provincial—the main emphasis should be on achieving higher growth and inclusive development benefitting all. This goal cannot be met under the existing oppressive tax system. Direct tax collection at federal level is less than 4% of the GDP proving beyond any doubt that the poor and the less-privileged segments are subjected to tyrannical taxation while the rich are contributing negligibly. What makes the situation more painful is the fact that taxes collected are used less for public welfare and more to finance luxuries and benefits of elites—militro-judicial-civil complex, businessmen-turned-politicians and absentee landowners in power.

The elites enjoy tax-free perquisites, benefits, palatial residences, free utilities, army of servants etc and also get expensive plots at prime locations either free or at concessional rates. The way our governments—military and civilian alike—have been wasting and plundering taxpayers’ money is no secret. Since independence, no serious effort has ever been made to undertake institutional reforms to democratise mighty militro-judicial-civil apparatus that has miserably failed to deliver. This is the main cause of our economic subjugation by International Monetary Fund (IMF) and others. We asked for it!

We have failed to achieve political stabilisation and sustainable economic growth due to perpetual failure of the ruling elites. The twin menace of burgeoning debt and monstrous fiscal deficit testify to continuous fiscal mismanagement. The country is surviving on bailouts from IMF, courtesy constant failure to tax the rich and not slashing enormous expenditures, now about 25% of GDP. Governments—civil and military—have sacrificed revenues worth trillions since 1977 extending unprecedented tax amnesties, money-whitening schemes, exemptions/concessions to the privileged.

In today’s Pakistan the dire need is to tap the real tax potential and make the country a self-reliant economy, stop wasteful, unproductive expenses, cut the size of cabinet and government machinery, restructure or privatise loss-bearing government-owned corporations, accelerate industrialisation and increase productivity, improve agricultural sector, reduce inequalities through a policy of redistribution of income and wealth. It is high time that professionals and civil society campaign against oppressive, anti-people tax policies and relentlessly raise their voice for establishment of an egalitarian state.

We can make Pakistan a self-reliant/prosperous country through fiscal decentralisation and grassroots spending at local government level. Solutions are available but what we require is to force our political parties to implement these when in power. This should be the demand of every voter faithful to any party. 

Implementation of Article 140A of the Constitution is indispensable. Political, administrative and fiscal decentralisation is the key to democratisation of institutions. This is our most neglected area. We need to establish effective local governments for providing health, education, housing, solid waste management, maintenance of roads, streets, water supply and sewerage, land-use planning and all matters relating to the residents’ free-time recreation etc.

Municipalities working on the principle of self-governance alone can ensure that revenues are spent exclusively for the benefit of public and not the powerful segments of society alone. The new elected Parliament should unanimously pass Taxpayers’ Bill of Rights (draft at https://primeinstitute.org/tax-payers-alliance-pakistan-tpap/) assuring that money collected from citizens would be spent prudently on public welfare and not for the benefit of the elites alone.


The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE)

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