Hurting the poor Huzaima Bukhari & Dr Ikramul Haq Friday, June 14, 2013 From Print Edition thenews.pk/Todays-News-9-183610-Hurting-the-poor The writers, tax lawyers, are members of the adjunct faculty at Lahore University of Management Sciences (LUMS). Budget 2013-14, unveiled by Finance Minister Ishaq Dar on Wednesday evening, confirms one thing – there is no political will to tax the rich in Pakistan. The budget portrays a routine and ritualistic annual exercise that offers no meaningful structural changes in the existing system – resultantly neither is the fiscal deficit going to recede nor will sustainable growth be achieved. It also confirms that, once in power, political parties do not prepare policy papers and undertake no homework to meet challenges. Instead, they totally rely on bureaucratic inputs – and this is the main reason why we are currently in such a terrible situation. Not a single progressive tax has been proposed in the Finance Bill 2013-14, despite the fact that all experts have unanimously been recommending that the rich be taxed to correct the imbalance between direct and indirect taxes in Pakistan. The rich are not paying income tax – the total number of people showing income exceeding Rs1 million is a few thousands only. As a result, our tax-to-GDP ratio is one of the lowest in the world at just 9.2 percent. Over 75 percent taxes collected are indirect, many even under the garb of income tax in the form of presumptive taxes. As expected, the tax bureaucrats sitting in the FBR have managed to retain the powers to issue notifications (the infamous SRO system), even bypassing laws passed by the sovereign parliament. This discretion available to them is the root cause of massive tax leakages and corruption in Pakistan. Powerful lobbies frustrate tax laws through the SRO system, which has become a tool for protecting and promoting cartels. The FBR skilfully protects, with the support of political masters, the vistas of tax evasion, business houses collecting sales tax from people but with the connivance of taxmen depositing only a fraction of it in the government treasury. This is the story of tax in the land of the pure. A handful of people in the Ministry of Finance and the FBR faithfully serve their political masters. Millions of people have been pushed below the poverty line due to regressive taxation. Citizens of the land – the masses – are controlled through an oppressive, inequitable, tyrannical, unjust, and anti-people tax system. The FBR is the neo East India Company. There exist remarkable similarities between the FBR and the East India Company. The company’s henchmen would go to rural areas and snatch away most of the produce from the peasants. According to many historians, the East India Company’s tax collectors used to take away half to two-thirds of the crops. Therefore, the lives of peasants were most miserable during the colonial period. The FBR – by taxing the poor and sparing the rich – has resurrected the days of the East India Company that destroyed the indigenous industry of the Subcontinent to promote products of the Queen’s land. In the same manner, rulers today are destroying local industries by shortages of electricity and gas, and by blocking genuine refunds worth billions of rupees. This regime in the very first budget has sent a clear message to all and sundry that it is not interested in collecting taxes from the rich. The rich landlords of Punjab will not pay agricultural income tax and unscrupulous traders are not going to come within the ambit of the retail sales tax. Pakistan’s debt will continue to increase – it may reach the Rs15 trillion mark soon, as against revenue collection of Rs2 trillion, our non-productive expenditure alone is over Rs3 trillion: debt servicing of Rs1 trillion; general administration expenses of Rs450 billion; subsidies on power and food of Rs600 billion; funding of Rs400 billion for loss-making public sector enterprises; and Rs627 for defence. Due to corruption and inefficiency, the FBR is facing revenue shortfall of billions of rupees. It was supposed to collect Rs2381 billion as per original target fixed in the budget for 2012-2013. Later, the target was reduced to Rs2050 billion, yet the FBR is lagging behind by at least Rs35-55 billion pushing the fiscal deficit to 8.8 percent. The real revenue potential of the country is not less than Rs8000 billion. Since the rich and mighty are not paying income tax on their colossal incomes and are guilty of illegally remitting money abroad, Pakistan has become indebted to the extent of 65 percent of GDP – the figure is now nearly Rs13.5 trillion. More than 75 percent revenues are going towards debt servicing alone! The sovereignty of a state is measured by the power it enjoys in imposing taxes on its people and spending the same for the benefits of the less privileged and for the welfare of its citizens. On the contrary, our rulers have been utilising the same for their own luxuries. They are destroying local industries and opening markets for foreign goods – look at the free and abundant availability of smuggled goods everywhere. This has paralysed our local industry. Not a single measure has been announced to counter this menace in the budget. The Pakistani ruling elite represents a mafia of tax dodgers and plunderers of national wealth. We are subjected to drone attacks because our ruling elite opted not to pay taxes at the expense of national sovereignty. We have no right to accuse the US or others for this self-destructive path. We have long been moving towards self-annihilation. Budget 2013-14 is sure to promise more miseries for the poor segments of society and further debt enslavement for the state. Instead of imposing tax on the rich, the government has increased the rate of sales tax from 16 to 17 percent. This reveals an extremely callous attitude. This kind of increase in indirect tax is bound to hurt the poor. The businessmen will pass the burden on to the end users. The modus operandi of the regime is thus explicit: do not collect direct tax from the rich and go for easy collection through increase in the rate of sales tax. Traders will be happy, since they – after collecting sales tax from the buyers – will pay only the ‘desired’ amount to the state with the connivance of tax officials, as full payment will expose their real income. Their wealth will increase through this ‘illegal enrichment’ but the people will become poorer, as they will be paying more and in return not getting anything from the government. They will even have to pay for essential services like education and health from their hard-earned money. Emails: huzaima@huzaimaikram & ikram@huzaimaikram
Posted on: Fri, 14 Jun 2013 08:47:02 +0000
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