The prevalent tax policies and reliance on indirect taxes are detrimental for economy and social justice
The brutal abuse of taxpayers’ money by rulers for unprecedented luxurious living, tax-free perquisites, even personal visits like Umrah for entire family and clan and foreign yatras (visits) is simply loathsome. They keep on repeating that Pakistanis do not pay taxes, but reality is just the opposite.
The people of Pakistan are the most heavily taxed nation in Asia. The privileged classes -- militro-judicial complex, businessmen-turned politicians and absentee landlords -- are the real culprits who do not pay due income taxes on their colossal incomes, besides guilty of plundering and wasting public money.
The government has become so callous that people living below the poverty line are subjected to sales tax on almost all items of daily need. People are dying of hunger, but the president, prime minister, governors, chief ministers, the army of ministers, state ministers and their lackeys are wasting millions on their "security", personal comfort, lunches, dinners and visits (domestic and international). Adding insult to injury, prices of utilities and petroleum products are increased frequently by levying higher taxes.
The less-privileged classes have to bear the heavy brunt of indirect taxes that are nearly 75 per cent of total revenue collection by Federal Board of Revenue (FBR). Take the example of taxes on petroleum products -- the government is charging taxes and levies of 30-40 per cent on diesel and petrol. Commercial users of these products pass the burden on the users -- inflation and poverty are directly linked to such oppressive taxation. Industry is also suffering due to such heavy indirect taxation, making their products more and more uncompetitive in international markets.
People do not even know how excessively they are being taxed through extra levies on these products, the consumption of which has increased manifold in the recent years. From colossal taxes collected on POL products -- Rs20 trillion during the last 20 years -- no government ever bothered to develop public transport system that could have reduced petroleum import. It constitutes more than one-third of the country’s total imports.
The heavy spending on oil import is responsible for the depletion of forex reserves and increasing current account deficit. For its tax collection (sic), FBR relies heavily on imports, therefore, there is no will to ban import of unnecessary items as the same would have a tremendous negative impact on government revenues. Besides, the rulers will have less money for personal comforts!
The brunt of oppressive taxation has been disastrous for the Pakistani society. "The value for income share held by highest 10 per cent in Pakistan jumped to about 35 per cent in 2016 from 25.29 per cent in 1997. The value for income share held by lowest 10 per cent in Pakistan declined to 4.52 in 2016 from 4.32 in 2007"--Source: World Bank, Development Research Group. Data are based on primary household survey obtained from government statistical agencies and World Bank country departments. Data for high-income economies are from the Luxembourg Income Study database. For more information and methodology, see PovcalNet -- an online analysis tool for global poverty monitoring.
Erratic taxation has widened the rich-poor divide to an alarming level. According to official figures, the contribution of income tax [although major portion of it now comprises indirect levies or expenditure taxes) as percentage of GDP is continuously declining; it was merely 2 per cent in 2014-15, 2.1 per cent in 2013-14, 2.2 per cent in 2012-13, 2.4 per cent, in 2011-12, 2.5 per cent, in 2010-11, 2.6 per cent, in 2009-10, 2.9 per cent, in 2008-09, 3.2 per cent, in 2007-08, 3.3 per cent in 2006-2007, whereas in 2005-2006 it was 3.5 per cent [source: YEAR BOOKS 2005-06 to 2014-15 of FBR and Economic Surveys]. Even a cursory look at FBR’s Year Book 2014-15 reveals that main reliance (80 per cent) is on indirect taxes, burden of which is borne by the poor, the weaker and the less privileged sections of society. This fact has been concealed through jugglery of figures showing many indirect taxes as part of income tax collection.
Undue reliance on indirect taxes is contributing to rising poverty. People who possess enormous income and wealth are not being subjected to income taxation in Pakistan (wealth tax and other progressive taxes like capital gain tax, gift tax and estate duty have been abolished to favour the rich) while main incidence is on the middle and poor classes. Thus the very purpose of redistribution of wealth as the principal object of taxation is being defeated. Reluctance to collect taxes from the rich and mighty, rather giving them free benefits and perquisites at State’s expense, is worsening the situation.
FBR should tell the nation how much income tax was paid by the rich 10 per cent of Pakistanis including judges, generals, bureaucrats, parliamentarians, politicians, professionals, industrialists and traders, during the last 10 years. It must explain to the nation how these wealthy classes have accumulated colossal assets without paying due taxes. Can FBR explain to the citizens what prevented it from issuing notices to the rich and mighty who received free plots and paid no tax under section 13(11) or section 39(1)(j) of the Income Tax Ordinance, 2001?
People have the right to ask why FBR is reluctant to tap tax delinquents sitting in the parliaments having taxable income but failing to file tax returns and wealth statements under the law. FBR has failed to enforce sections 114, 115 and 116 of the Income Tax Ordinance, 2001 across the board, without any hesitation forcing those who qualify under law to file tax returns/statements or be prepared for penal actions.
Undoubtedly, the prevalent tax policies are detrimental for economy, social justice, business and industry. Those who possess more economic power (income and wealth) should contribute more to the public exchequer and vice versa. It is tragic that in a country where the wealthy and the mighty have invested billions outside Pakistan in real estate, the government is going from pillar to post with a begging bowl to meet international commitments of paying debt service charges.
At present, the economy is faced with a dilemma, where it can neither afford to give any meaningful tax relief package to the common man, trade and industry [due to huge fiscal deficit] nor can it achieve a satisfactory level of economic growth [due to retrogressive tax measures]. This is a vicious circle that will have to break.
The solution lies in growth-oriented taxation, drastic reduction in non-productive expenses, investment in human resource, providing skills to youth in particular, rapid industrialisation and improve productivity -- these steps will ultimately result in more resource generation, national wealth, and then through equitable distribution, the fruits of economic growth would be enjoyed by all.