No state can exist without taxation. Pakistan is running on empty pockets and is under extreme pressures, internal and external.

The state does not have the economic resources to provide even essential services to the masses, leading to disaffection, frustration, hopelessness, breakdown of social structure, crime, violence, and terrorism. Masses are being deprived of right to live peacefully and comfortably.

Our ruling elite are rapidly descending the country into an abyss rendering it ungovernable. Our tax system discourages investment in the real sectors, particularly manufacturing. It passes on most of the ultimate burden of the taxes to middle and lower income classes totally exempting the elite and is one of the reasons for persistently higher inflation rate.

It is unfortunate that policies are framed by the highest offices in the country keeping in view personal interests and not in the interest of the country and its poor people, there is no real difference in anything on ground even during more than half a century. In fact, tax cheating in Pakistan starts at the top. The richest and the most powerful politicians in the ruling elite pay little or no taxes, setting a horrible example for the rest of the nation.

In fact Pakistan’s elite class, which includes the politicians and bureaucrats, is fostering inequality in the society by not paying tax. The powerful people keep a tight grip on their money. Who pays the taxes: Only the poor people? Beyond the faulty method of collecting taxes, the system is stacked in favor of the wealthy and powerful. The poor are not only without money, they are without resources, without influence, without representation, without political clout — and pretty much, financially speaking, without hope. The people have a tough time making ends meet whereas the system allows the wealthy to live without working and without contributing anything substantial to our economic well being.

Pakistan’s tax-to-GDP ratio is about 9 percent, one of the lowest in the world. Less than 1.5 percent of the country’s 180 million citizens pay any income tax. Farm income, mostly earned by the nation’s feudal ruling elite, is entirely exempt from any income tax under the law. Pakistan’s income from taxes last year was the lowest in the country’s history, but the average assets of members of Parliament nearly doubled in the same period. Presently there is no business in Pakistan which could be run without paying bribes to the concerned high-ups.

The economy of Pakistan is heavily regulated and controlled by the government. The ever-increasing burden of taxes and regulations has given rise to a parallel economy of which tax-evasion and money-laundering are two significant phenomena. For rest poor, Pakistan is a high tax state. The Government has badly failed providing the least of the essential services to its citizens like maintaining law and order, and protecting life, liberty and property of its citizens but it is resorting to high taxes and control over the lives of the people in the guise of war on terror and flood. While Pakistan’s economic policies are not on the right track and its current tax structure is anti-development, anti-growth and anti-poor, survival of the country and the nation lies through fundamental real economic reforms by complete rethinking, revamping and reorganization of the tax system by involving representatives of civil society, trade bodies, accounting institutes, and tax bar associations. Government must focus on reforming tax system of the country, lowering inflation, and controlling its budget to restore the economy.

With a tax-to-GDP ratio of just nine per cent, Pakistan can hardly be considered to be sincerely attempting to alleviate its economic crisis. Important tax reforms such as bringing agriculture and certain other sectors into the tax net have yet to see the light of day, despite being talked about for years. Presently, while the salaried class pays more than Rs.14 billion in taxes, textile barons and stock brokers combined pay less than that.

The indirect taxes currently account for 62% of the total revenues, the direct taxes on real estate, and services are non existent. The largest among is the indirect taxes is the general sales tax (GST) which accounts for 39% of the total tax collections but agriculture – a major money maker for the elite – is totally exempt from tax, and the rich have pushed to keep it that way.

Such indirect taxes are regressive, inflationary, and hurt consumer spending which is a key driver of economic growth. The Government has gathered around a ring of rent-seekers in the shape of politicians, privileged groups, civil and military bureaucrats, etc. who cause to manipulate its policy of taxation to their own benefit. It is crucial and critical for rulers of Pakistan to alter their path, to stop the descent, and to back away from the abyss. So far, progress has been elusive; instead of increasing, the overall tax to GDP ratio has rather declined in the past couple of years.

Taxes are imposed and/or reduced to suit the elite and ordinary man is pushed against the wall through indirect taxes by festering inequality in the society. In spite of having increased assistance through analytical and non-lending technical assistance supported by the UK Department for International Development (DFID), the present Government has not been able to introduce some meaningful reforms in the taxation system.

The government is too much concerned about following directives of international lenders and raising funds through indirect taxes which proves that it is not serious about tax reforms. The legislature, judiciary, the armed forces, the president, and governors have been given relief from any levy because their salaries, perquisites and benefits are exempted from tax under the Second Schedule of the Income Tax Ordinance 2001 (Ordinance).

The government must ensure that taxation is equitable by doing away with all kinds of exemptions allowed to certain powerful lobbies and by reducing the burden on taxpayers. If the government had not dithered on taxing agriculture and capital gains on real estate and stocks, it would not have to rely so heavily on borrowings which are inflationary in nature and create serious distortions in the credit market.
The government’s strategy for increasing tax revenue combines tax policy and tax administration reforms. It requires a highly skilled, highly paid and highly protected bureaucracy.

FBR has the reputation of being corrupt, besides being one of the most politicized departments of Pakistan allegedly usurping Rupees 500-600 annually. Appointments from the office of the chairman to middle and lower ranks are made in FBR on political and financial considerations. Earning money for appointments or postings in departments under the jurisdiction of FBR is a routine matter.

The amount that these people offer, even for a clerical job in customs, income tax or other subordinate departments give a measure of corruption and graft in FBR. It therefore needs complete overhauling. A purely independent institution free of all sorts of political interference for collection of revenue is the only solution.

The bureaucracy is serving only its masters standing behind it with pride and to the best of its abilities rather than serving the nation and the country. Its standard has gone down drastically requiring complete transparency in recruitments on merit. It is in fact the real face of the government that interacts with masses on day to day basis; it is through this machinery that the masses interpret the government.

There is dire need of strictly enforcing the laws to prevent tax evasion and fudging, the laws need revision and rationalization, for it is no secret that some of the wealthiest citizens and enterprises remain untaxed while certain groups, such as salaried citizens, bear the heaviest burden in proportion to their incomes. The dream of economic self-reliance cannot be realized until the government taxes everyone poor or rich without discrimination, without regard to their source of income. On their part, the taxpayers should pay their taxes honestly.

Unfair and inequitable taxation needs drastic changes. Our feudal neither ready to pay tax on huge agriculture income and instead manipulating with government to increase support price of wheat year after year and some time looting the poor masses by forming cartels of sugar and cement. Now buying wheat and sugar by poor labor farmers and others has become impossible and they are committing suicides; need rationalization. Income from agriculture escapes major tax burden which needs to be properly taxed. In addition, the exemptions provided in law to the sectors like poultry farming, cattle farming, fishing and fish processing etc, as well as industrial undertakings set up in the backward areas need to be reviewed.

The current spell of load-shedding is causing productivity loss of Rs.1.8 billion a day to the textile industry alone obviously depressing the tax collection in the country besides threatening the livelihood of millions of textile workers. Infrastructure improvement should therefore be of top priority of the Government enabling the industry to flourish with resultant definite increase in tax collection as well.

Illegal activities such as smuggling, corruption, Black-marketing, narcotics, informal legal jobs etc. constitute the underground economy which undermine the local industry, discourages legal imports and reduce the volume of revenues collected from duties and levies by the state; needs to be curbed with iron hands. The lower the volume of ‘black economy’, the lesser the amount of money laundered. It means that the freer the people to pursue their businesses, the lower the volume of black economy, and consequently, the lesser the amount of money laundered.

Tax system should be remade keeping in mind real income of the people. Levy of Rs. 32 per liter tax on oil is a glaring injustice, as it creates inflation and creates hardship for the poor. The rulers have pushed the country to a state of bankruptcy which now survives on foreign loans. It should now move toward self reliance and avoid further loans rather burden of foreign debt needs reduction to reasonable extent. Loss sustaining public sector entities require immediate attention of the Government for their restructuring.

Taxpayers face a confusing array of different rules, processes and procedures to obtain tax registration, file returns, make payments, manage audits, and file appeals. This creates an unnecessary duplication of services that should be common across all tax types. We are all too familiar with the saying “The basic problem in Pakistan is not the law; it is the implementation of law”. Strict enforcement of law by the law enforcement agencies/ departments may be ensured.

As to the number and rate of taxes, no comprehensive, scientific, and purposeful study has ever been carried out in Pakistan. It is generally believed that everything is to be taxed and is taxed at a far higher rate. The newly introduced Reformed sales tax shouldn’t have any more or any less problems than those that already exist in the present sales tax system. The tax burden would fall very heavily on the poor and middle income people who would still get hit with this highest rate of taxes.

The wealthy would still live lavishly; they spend basically nothing (because they usually end up the year with more than what they started with.). Instead of levying new taxes, the government would have to downsize to a level where it works for poor people but not against them. The current benefit versus burden of government in this country is way on the burden side.

The vicious system of transfer of huge state funds to the MNAs and provincial legislators in the name of public development but actually for their own development should now come to an end. High tax rates have played an important role in retarding the growth of domestic as well as foreign investment, therefore need reconsideration. Tax net should be enhanced and tax rates need reduction to fetch more and more investment. After taking all the possible measures to increase the revenue and decrease the non development expenditure as well as re-appropriation of budget priorities, however, if needed, the taxation based on net worth would be the best possible option ensuring level the playing field a little instead of burdening the poor masses with indirect taxes.

Only a tax on net worth, not income, would fairly distribute the tax burden. If the Government avoids reform its tax system and the donors fail to bail the country out, it is unclear how the nation would come up with the money necessary for reconstruction in the flood scenario. Burdening the poor people with more than their capacity would push the Society towards a civil war.

There is an awful need for taking immediate steps to bring meaningful reforms in the economy by introducing direct taxes, eliminating the loopholes/ corruption, curtailing the leakages in the economy, discouraging ‘black economy’ and strictly adhering to the rule of law and this has to begin from today, lest the result would only be dreadful perhaps becoming out of control of the rulers. Successful and meaningful restructuring should result in bringing strong economy, Inshallah.

E-mail: smzafar101@gmail.com

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