Tuesday July 16, 2024

Got taxes? Post-budget survival guide

We have known for decades that there is a need to broaden the base of taxpayers in the country

By Dr Ayesha Razzaque
July 10, 2024
A labourer bends over as he carries packs of textile fabric on his back to deliver to a nearby shop in a market in Karachi, Pakistan June 24, 2022. — Reuters
A labourer bends over as he carries packs of textile fabric on his back to deliver to a nearby shop in a market in Karachi, Pakistan June 24, 2022. — Reuters 

Are you feeling disgusted and enraged post-budget 2024? Because every salaried person in the country rightfully is. We have known for decades that there is a need to broaden the base of taxpayers in the country.

In the last few years, record numbers of people have been pushed back below the poverty line, and this has necessitated some of the severest belt-tightening on families that at least I can recall in my lifetime. More than any other time in our history, this was the time to break the mold in which past budgets were cast, be innovative, (finally) do what is right, reduce indirect taxes, and start collecting direct taxes from defaulters and untaxed sectors.

Instead, we got the most unimaginative budget, one that resorted to the usual: squeeze the same 1.4 per cent of the population that made the mistake of ever registering themselves as tax filers. Meanwhile, the other 98.6 per cent (minus children) may party on, not as tax evaders worthy of prosecution (how other countries label and treat people that do not give a due account of their income and pay their taxes), but as members of a unique category designated ‘non-filers’.

It has been a few weeks since details of Budget 2024 were released, and commentators have identified several outrages it contains: simpletons who believed government assurances that eventually the base of taxpayers would be broadened have been rewarded with a Scandinavian-level income tax rate of up to 45 per cent and will receive public services worse than in most Sub-Saharan African countries in return. There are taxes on stationery to punish anyone who dares to send their children to school and get an education and even higher taxes on packaged milk, lest anyone should get the bright idea to keep themself and their family safe from the dangers of open, unregulated milk.

All this is old news by now. What I am wondering is: what message does this budget send to educated twenty-somethings who are about to join the workforce, particularly in the documented economy, and what considerations should they have?

But before I move on, let me qualify my lament. The budget was not bad news for everyone. For anyone in a robe, suit, or uniform who receives a taxpayer-funded paycheck, the gravy train continues to roll on (Yay!). Whatever the official story might be, this country very much has a social caste system.

At the very top, we have radical extremist clerics, untouchable the way only street power can do. There is no question of asking for any accounting of how their lifestyles and activities are funded. Right underneath them is our warrior class who are in turn supported by the political class. The political class, in turn, pulls the levers of the people in the class of civil servants below them. Finally, the base of the pyramid is made up of the powerless class – everyone else.

In the current circumstances, my number one advice is to get a slice of any kind of power if you can – the power of the pulpit, the power of the gun, the power of politics or the power of the bureaucracy. Enjoy tax exemptions the powerless cannot, and receive a 25 per cent raise even when the government claims the rate of inflation has dipped well under 20 per cent. Austerity is for other people. Residential plots, official residences, a guaranteed pension on retirement, boondoggles, and, in time, probably official cars and drivers - the taxpayer will take care of you. You’re welcome!

I would never advocate for any illegal action, like tax evasion, but you would be negligent not to practice tax avoidance. Tax avoidance is just the legal reduction of your tax liability by taking advantage of incentives and loopholes in laws – it is what all the fat cats are doing.

In the event that you cannot break into one of the top four classes of society, given how the tax code will squeeze you, your best option to avoid being taxed to death is to move abroad. Do not bother getting a local job and becoming a filer if it can at all be legally avoided – once a filer, always a filer (until death or you acquire another citizenship and renounce your current one). Finding a job abroad right out the gate without any work experience is no easy feat.

Emigration has been a hot-button issue for the past year. According to figures from the Bureau of Emigration and Overseas Employment, the number of people leaving on work visas has been near the 2015 all-time high (946,571) in 2022 (832,339) and 2023 (862,625) and is, so far, projected to hold steady in 2024 (281,367 until May). Anecdotally, however, the desire and intention to leave are widespread. How many will be able to manifest these intentions is a different question.

Many Pakistanis have taken the approach to travel to the UAE on a visit and use their time to apply for job openings in the hopes of transitioning into employment. Some are successful, some are not and return and some illegally overstay their visas. This has become so common that it made it necessary for the Pakistan Embassy in Abu Dhabi to make an announcement discouraging Pakistanis from making this expensive gamble (The National, ‘Pakistan envoy urges citizens to abide by UAE visit visa rules or risk being sent home’, July 4, 2024).

Some countries now have special visa programmes for freelancers in the online gig economy. A report by Duke University in January this year put the number of countries with such visa programmes at 58. In this region, the United Arab Emirates’ Digital Nomad visa program has proven popular with many takers in Pakistan. For many programmes, achieving escape velocity requires that you establish yourself as a steady online worker who makes a steady amount every month over some time.

Another popular and legal way to make the transition into an overseas job market is to earn a (higher) qualification from a university in that country first. The cost of even a one-year graduate programme can be prohibitive and out of reach for many people in Pakistan which makes it necessary to secure a generous scholarship.

Finally, if personal circumstances do not permit you to leave the country, try to secure employment that lets you earn in foreign exchange. This may be more of an option for graduates in the computer science or technology sector. Freelancing on global platforms qualifies as foreign income and is taxed at a much lower income tax rate than local salaries. Some well-meaning Pakistani employers with foreign clients that earn revenue in foreign exchange have begun paying their employees in forex to compensate for much of the backbreaking inflation. Some have devised mechanisms that allow employees to receive and keep their earned salary in overseas accounts.

The selfishness and the exceptionalism the people in power have allotted themselves at the expense of tax filers is scandalous and betrays a disconnect from reality. You have very few choices left: Either join the people feeding from the taxpayer-funded trough and acquire the power to grant yourself legal exceptions to the laws the rest are all subject to. Alternatively, make an exit or stay and get incredibly lucky.

The writer (she/her) has a PhD in Education