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December 21, 2018

Wealth creation and poverty


December 21, 2018

Speaking at a function held by the Pakistan Business Council on December 13, 2018, Prime Minister Imran Khan stressed the need for wealth creation in Pakistan for poverty alleviation.

No reference was made of wealth concentration in a few hands, which is one of the causes of poverty in the country. The rich and mighty in Pakistan do not pay due taxes. The majority of the participants in the event, representing about 78 rich business houses, probably did not pay Income Support Levy, a progressive tax imposed in 2013. This tax, meant for the poor, was not even paid by most parliamentarians.

It is shocking that while pleading the cause of wealth creation, the constitutional obligation of paying taxes for the welfare of the poor and the needy was ignored. The premier also missed the point that that in Pakistan undesirable practices like monopolies, cartels, stealing electricity, gas and taxes are rampant. Pakistan is a classic model of crony capitalism. The record of the Federal Board of Revenue (FBR) shows that less than 4000 individual paid income tax exceeding Rs10 million in the tax years 2013–2017.

According to the Parliamentarian Tax Directory for the year that ended in 2013, released by the FBR on February 28, 2014, out of 1172 parliamentarians (senators and members of national and provincial assemblies) less than 10 members paid the income support levy, a law that was passed by the National Assembly with the following objective:

“Whereas it is desirable to provide financial assistance and other social protection and safety net measures to economically distressed persons and families;

“And whereas under the principles of policy as given in the constitution of the Islamic Republic of Pakistan, the state is obliged to promote social and economic well-being of the people and to provide basic necessities of life;

“And whereas it is expedient to provide for financial resources for running an income support fund for the economically distressed persons and their families through a levy to be called [the] Income Support Levy……”

While pleading the case of the levy, the then finance minister made the following remarks in the budget speech of 2013:

“It is incumbent on all of us who are blessed with exceptional favours from Allah (SWT) to contribute to the welfare of those not so fortunate. Many of us who may have earned our assets while working abroad have negligible tax liabilities under the existing laws and double taxation treaties. Yet we must share the burden of helping our weaker segments of population. In order to mobilise additional resources for enhancing the income support programme for the poorest families in Pakistan, it is proposed to impose a small levy on such persons.

“This levy shall apply on net moveable assets of persons on a given date at the rate of 0.5 percent. The receipts under this head will be credited to [the] income support programme of the government…Let me admit that I shall be amongst the first ones who will be hit by this levy. According to my estimation, I will have to pay an additional Rs2.5 million on this count this year, but I will be too happy to make this contribution for the welfare of our poor people”.

However, in the budget speech of very next year, the Income Support Levy was withdrawn on the pretext that members in the House and businessmen “did not accept this measure”.

In his business council speech, PM Imran Khan praised the rich and mighty, who have been amassing wealth at the expense of the poor and never bothered to pay a tax that was to be utilised for social protection of the economically distressed persons and families. In Pakistan, there are no means for the poor to create wealth, but the rich have all the opportunities for wealth concentration. No political party in Pakistan has an agenda for fair distribution of resources to alleviate poverty.

It is highly unfortunate that millions of Pakistanis are living below the poverty line but huge amounts are spent on the personal comforts and luxuries of public officeholders and state functionaries. An unfair tax system, like the one in Pakistan, promotes inequalities. Wealthy individuals avoid taxes, and the burden is shifted to ordinary citizens through taxes on labour and consumption. As a result, wealth and power are being increasingly concentrated in the hands of a few – one percent of the population of Pakistan owns 95 percent of assets. This aspect escaped the attention of PM Imran Khan while he was speaking with the rich. It is an established fact that the majority of the rich are not paying full tax on their colossal incomes and wealth.

A vast majority of Pakistanis is helplessly witnessing violations of human rights, like the right to food, housing, education or health. Income inequalities have increased sharply since 1990 and the trend continues unabated.

The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax/expenditure structure of the government. In Pakistan, on the contrary, the single most devastating factor for increased income and wealth inequalities remains regressive taxation. A study of Pakistan from this political economy perspective is very painful as society is fast moving towards dehumanising characteristics due to income-wealth disparities and rising poverty. Even though during the Decade of Democracy [2008-18], the economy was struggling, our lawmakers did very well; from 2008 to 2017, the average net wealth of parliamentarians increased by over 200 percent.

Interestingly, many prominent figures and rich people, including some in the current government, acquired expensive apartments in the Grand Hyatt Tower – a project in Islamabad that fetched revenue of over Rs8 billion by the sale of 240 residential apartments. Declared illegal by the Islamabad High Court, its regularisation is on the card now, while the property of others (not that rich and influential) is being bulldozed.

This is the model of wealth creation in Pakistan. Tragically, our well-to-do parliamentarians and officials from all institutions of state protect and promote this model. Poverty alleviation requires judicious and equitable distribution of assets and resources and not the concentration of wealth in the hands of a few individuals as happens in Pakistan.

The writer is an advocate of the Supreme Court and adjunct faculty at LUMS.

Email: [email protected]

Twitter: @drikramulhaq