A state with no social contract

We will never find out who killed Saleem Shahzad. From Daniel Pearl of the Wall Street Journal to Mohammed Salahuddin of the right-wing magazine Takbeer – journalists in Pakistan have died before. There has been no real change in the vulnerability of intrepid reporters meeting with a sick and ghastly fate. Debates about whether the ISI was involved or not are largely fruitless. As with most murder mysteries we will point fingers at those that we are pre-disposed to distrust and be fearful of.
For every ten people that blame the ISI, there are twenty that raise the question of foreign intelligence services, trying to malign Pakistan. Neither side has incontrovertible evidence. This circus of unproven allegations flying around like mosquitoes near a swamp suits the elite of Pakistan just fine. As long as nobody has the right answer everybody can busy themselves quarrelling over the specific versions that suit specific narratives. While the mainstream bickers over the details, the incompetent, corrupt and myopic Pakistani elite – be they among the military, the politicians, the bureaucrats, the judiciary, or the religious right-wing – is allowed to enjoy a carte blanche.
The lack of accountability within the overarching national framework of Pakistan is deeply rooted, extremely well-constructed and even more vociferously defended. The military is at the apex of this Mt Zion of unaccountability, but it is not alone. It simply cannot be. The architecture of sustained unaccountability requires a feedback mechanism that necessarily involves acquiescent politicians, judges, federal and provincial secretaries, DIGs and IGs of police, and the vast majority of insidious right-wing leaders. The sum total of the Pakistani elite co-operates together, and co-opts challengers together. The national culture of a lack of accountability thus sustains. Press the button of accountability on one or more of these groups and the spectrum is threatened.
The problem will not be solved by vilifying one group or another among the elite. Politicians may be corrupt, but no other class of Pakistani puts as much at risk as constituency politicians do, to serve their constituents – ask Azeem Ahmed Tariq’s family, ask the Sherpaos, and ask the Bhuttos. Similarly, though the military has been at the centre of most of the institutional morbidity in Pakistan, every individual soldier and officer has signed up to die to protect Pakistan. It is shameful and disgraceful that the decisions of a few men over the last 63 years have led us to the point where the national discourse is so acerbic about the role of the military in Pakistan. Vilifying either group is useless – we can’t be rid of either, nor can we wave a magic wand to transform either. Both are indispensible to Pakistan, and both require sustained long-term change.
This change is impossible in the absence of a clear and linear social contract. Too often these prescriptions are amorphous and abstract, but Pakistan needs to invest in a reality check, or rather an economy check. Pakistan is a state and society operating without a modern social contract. The state exists and persists without a linear fiscal relationship with the people. In plain English, the state is unaccountable to the people of Pakistan because the people of Pakistan do not pay taxes. The state doesn’t “owe” the people any services, or answers, and the people don’t feel that they owe the state any money.
The total number of registered taxpayers in Pakistan is less than three million. Of this number, only roughly two million or 1.1 percent of all Pakistanis file returns every year. This is a woefully inadequate number. Don’t let political propagandists tell you otherwise. Pakistan’s tax potential is exponentially higher than what is being tapped. The reason is simple. Like their brethren in the American Tea Party and on the right-wing of the Republican Party, Pakistan’s elite do not want to pay for the tea party that they are enjoying.
The poorest 10 percent earn less than Rs2,700 per month. Undoubtedly, this is social safety net territory. This may be a country of vast poverty, but this poverty in unequally distributed. This simply means that unlike what the elite would want you to believe, there is plenty of money that can be taxed without going anywhere near the mouths and wallets of the barely middle class, and the decidedly poor.
The richest one percent of Pakistanis, or what Shahid Javed Burki has called, Pakistan’s super rich, earn almost Rs500,000 (or 5 lacs) per month. The top 10 percent of Pakistanis, or simply rich Pakistanis earn about Rs50,000 per month. The total direct taxes paid by Pakistanis come to about Rs529 billion. This means, even if we make the assumption that all 1.8 million of the richest Pakistanis are paying taxes, that each one of them pays less than Rs25,000 per month in taxes. This is less than five percent.
Now here’s the thing. Pakistan’s total tax to national income (or GDP) ratio, which includes not just income, but also sales taxes and excise and customs duties, and all other indirect taxes, hovers around 10 percent. This means that while the super rich, even if we make the generous assumption that they are paying taxes, only pay five percent of their own incomes, the country is generating twice as much, around 10 percent of its overall income of GDP.
So where does the balance get sorted? Simple. It gets sorted when you buy basic consumer goods – milk, rice, cereal, biscuits and a wide range of other fast moving, essential items. Sales tax is a cancer that was conceived of by rich people to ensure that the rich get to keep as much of their money as possible. Instead, sales tax and other indirect taxes are an instrument to get the widest possible net of people to contribute to the national exchequer. This is bad if you are interested in economic and distributive justice. It is certainly bad if you claim to be a party of roti, kapra and makaan. Most of all it is bad for democracy. Sales taxes and other indirect taxes are insidious because they hide the relationship between the state and the citizen, reducing it to a small percentage of each purchase. Citizens are not able to keep track of what they are putting into the national kitty, and since sales taxes are fungible, an ordinary citizen cannot even claim having paid his or her dues. The fungibility and inequality of sales taxes makes them a death blow for democracy and economic and distributive justice.
Of course, the reason successive governments in Pakistan are so enamoured by the sales tax is because imposing such a tax allows the elite to escape the net of income taxes. The truth is that undocumented wealth probably accounts for a substantial portion of national income. If the rich were to become documented, the tax to GDP ratio would shoot up. More importantly, as more and more people were included in the income tax net, a growing body of citizens would demand accountability for the funds that the government takes from them.
Right now, that relationship is non-existent. As the proportion of Pakistanis that drink mineral water, live in gated housing communities, hire private security guards, send their children to private schools and choose private hospitals and doctors for their healthcare grows, Pakistan’s “statehood” shrinks. The answers to the big mysteries of Pakistan, like Saleem Shahzad’s murder, are the same as the answers to the mundane realities, like why 40 million Pakistani kids are out of school. A state without a social contract, where the elite are unaccountable, will do the small things badly, and the big things even worse. Fixing it begins with taxing the rich.

The writer advises governments, donors and NGOs on public policy.