To pay or not?

In the last quarter of Pakistan’s financial year which begins next month (April), the country faces the dangerous possibility of a return to a glaring contradiction.

After months of repeated official promises of pursuing an oft-repeated ‘broadening’ of Pakistan’s tax collection base, the uncomfortable writing on the wall presents a dismal picture. And the gap is visible nowhere more than the pursuit of a tax on farm incomes, long at the centre of recurring disputes between Pakistan’s urban versus politically powerful rural lobbies.

In recent months, Pakistan’s provinces have stepped ahead under the IMF’s pressure to finally slap the agricultural sector within their jurisdictions, with a farm tax. But the move is strikingly caught under an all too familiar gap.

Early reports from the provinces -- notably Punjab and Sindh -- suggest a failure to create a credible collection mechanism, despite legislation framed through local legislatures. For years, successive governments in Islamabad faced with calls from domestic and international groups to impose a tax on farm incomes, have placed the onus of responsibility on the provinces.

Federal governments have repeatedly taken the plea that taxation of farm incomes is a provincial matter under Pakistan’s constitutional division of authority. Recent legislation in the provinces after succumbing to pressure for taxation of farm incomes, could well have marked a sea change if indeed there would have been a meaningful shift.

The case of this all-too-familiar gap points towards the proverbial ‘mother of all evils’ yet again blocking Pakistan’s path to reforming the country’s deeply troubled economy. For the moment, Pakistan relies on a much too narrow segment for tax collection, anchored mainly on roughly two per cent of the population that has been forced into the net of income taxpayers.

While Pakistan suffers from a widespread incidence of poverty, it is equally true that the remaining 98 per cent of the population that exists outside the income tax net, must include many tax evaders.

Consequently, the scene has been set with an all too oft-repeated reality. Before the closing days of the present financial yet, it is already clear that there may be a mad scramble to meet the gap surrounding tax collections.

Other sectors of the economy, notably banks that paid a whopping Rs700 billion in taxes during the present financial year, may be set again to face renewed pressure from the tax collectors. The case of banks vividly illustrates how the few sectors of Pakistan’s economy that continue to perform relatively better than the rest, must also pay a price for their success.

The failure to impose a credible farm tax is embedded both in Pakistan’s politics and the country’s sorry economic history. There is an overwhelmingly large presence of wealthy farm owners who populate the federal and provincial legislatures. Historically, it is this segment that has repeatedly resisted moves to be taxed at par with the rest of Pakistan’s population.

Yet, the debate will remain incomplete unless it is taken forward in tandem with a discussion on the disaster that has plagued Pakistan’s farm incomes since the present government arrived in Islamabad and the provinces, notably Punjab, just last year.

Their choice of first announcing a price for purchasing last spring’s wheat harvest and then retreating from that promise continues to hit Pakistan’s farm sector as never before. The dreadful fallout from fast-evolving climate change has added to the woes surrounding Pakistan’s already fragile food security.

To make matters much worse, the government’s choice of pursuing fanciful projects in the name of development such as high-speed roads and train lines visibly illustrates a disregard for a powerful reality. As Pakistan remains dangerously close to the proverbial cliff driven by climate change, the country’s best course for the future lies in reviving the agricultural sector. With the revival of farm incomes, the case for taxation of the agricultural sector will only strengthen.

Across the board, the evidence of a deep-rooted disconnect between our rulers and our realities is much too visible. Misplaced developmental priorities have a long history in Pakistan. Anecdotal evidence of expenditures incurred in areas such as elected politicians being armed with funds for development in their constituencies presents overwhelming evidence of a fundamental error that only fuels blatant corruption.

As Pakistan remains tied to thin economic lifelines, such glaring contradictions must immediately end with funds instead allocated to a powerful and independent National Planning Commission. The increasing stress surrounding Pakistan’s water deficiency must point towards a powerful case for pooling all available resources to build new water reservoirs urgently, in tandem with aggressively reorienting agriculture to meet the challenge posed by climate change.

For a country faced with the fallout from poverty in ways such as malnutrition, unemployment and a failure to stamp out illiteracy, the case for reorienting policies is much too urgent to be delayed, even briefly.

The writer is an Islamabad-based journalist who writes on political and economic affairs. He can be reached at: farhanbokhari@gmail.com