Thursday June 20, 2024

The tax net

By Dr Farrukh Saleem
July 21, 2019

In 1958, FM Ayub Khan wanted to expand the tax net. In 1969, General Yahya Khan wanted to expand the tax net. In 1976, PM Bhutto tried to expand the tax net. In 1986, General Ziaul Haq wanted to expand the tax net. In 1997, PM Nawaz Sharif wanted to expand the tax net. In 1999, General Musharraf tried to expand the tax net. In 2008, President Zardari wanted to expand the tax net. In 2016, PM Nawaz Sharif once again tried to expand the tax net.

Question: Why have the best and the most powerful failed to expand the tax net? Answer number 1: There are 101 million women in Pakistan. The female labour participation rate (FLFP) hovers around 24 percent. Pakistan’s FLFP means that 77 million women are not employed. Surely, these women cannot be expected to pay income tax.

Answer number 2: If the “poverty line is $2 per day…..then 60.19 percent of the population falls below poverty line in Pakistan.” Lo and behold, 124 million Pakistanis earn Rs320 or below per day. Surely, 124 million Pakistanis earning Rs320 per day or below cannot be expected to pay income tax.

Answer number 3: A UNDP report states: “64 percent of the total population is below the age of 30.” Lo and behold, 133 million Pakistanis are below the age of 30. How much do 30-year-olds make in Pakistan? Not much, I reckon. Surely, 133 million who are under 30 cannot be expected to pay income tax.

Answer number 4: Nearly 37 percent of us are ‘food insecure’. That’s 77 million Pakistanis who are ‘food insecure’. Can anyone in their right mind expect to collect income tax from ‘food insecure’ Pakistanis?

Yes, there must be a few thousand Pakistanis who are not paying their fair share of income tax. Get them all and make them pay their due share. Yes, the government can probably raise an additional Rs50 billion. Lo and behold, the budgetary deficit is Rs3,200 billion. Surely, the issue is not ‘inadequate taxes’. Surely, the issue is ‘excessive government spending’. Imagine, current government expenditures have gone up from Rs1.5 trillion in 2008-09 to a whopping Rs7.2 trillion.

Yes, the government continues to throw away Rs1.1 trillion into Public Sector Enterprises every year. Yes, the accumulated circular debt now exceeds Rs1.7 trillion. Yes, the government’s commodity operations have taken on Rs734 billion worth of debt. Yes, a good $2 billion worth of natural gas somehow ‘leaks’ out every year. Yes, the government will be paying around Rs1,000 billion this year in ‘capacity payments’ to power plants. Do you still think that the problem is inadequate taxes?

Did you know that Pakistan only has 1.3 million credit cards? This really is the potential tax pool – no more. Can anyone show me a country where the government’s current expenditures have gone up by 500 percent in just 10 years? This year, the government collected Rs3.8 trillion in taxes. Divide that by around 30 million Pakistani households and on average every household is paying Rs125,000 in taxes.

Everyone who should be in the tax net must be brought into the tax net. But doing this will not cure our disease. Doing this will not save the Titanic from sinking. Please focus on who is filing the government treasury – and who is emptying it out. Once again, the issue is not ‘inadequate taxes’. Once again, the real issue is ‘excessive government spending.

The writer is a columnist based in Islamabad.

Email: Twitter: @saleemfarrukh