In the Budget Strategy Paper 2010-2013 - just approved by federal cabinet - challenges of increasing the tax-to-GDP ratio and fixing of economic priorities for the next three budgetary years have been poorly handled. The tax revenues are to be increased from Rs 1.39 trillion in 2009-10 or 9.3 percent of the GDP to Rs 1.77 trillion in 2010-11 or 10.3 percent of the GDP.
It is proposed to be Rs 2.07 trillion by end 2011-12 or 11.2 percent of the GDP and Rs 2.47 trillion by 2012-13 or 12.1 percent. The paper concedes that defence expenditures would increase by Rs 122 billion in three years from Rs 378 billion in 2009-10 to Rs 442 billion in 2010-11, Rs 477 billion in 2011-12 and Rs 500 billion in 2012-13.
According to the paper, the Public Sector Development Programme (PSDP), which is Rs 250 billion in 2009-10, would be Rs 490 billion in 2010-11, Rs 580 billion in 2011-12 and Rs 694 billion in 2012-13. However, subsidies would be reduced from Rs 185 billion in 2009-10 to Rs 100 billion by 2012-13.
It is tragic that in a country where billions of rupees are being made through corruption, speculative transactions in real estate and shares, the tax-to-GDP ratio is pathetically low [below 9% in fiscal year 2008-09] and the Government is least bothered to tax the undocumented economy and benami transactions. The mighty sections of society are engaged in these transactions and corrupt practices.
The Federal Board of Revenue (FBR), being their handmaiden, has neither the will nor ability to tax them. It proves the failure of the FBR as an institution to tap the real tax potential of the country. It should be given full autonomy, as is available to the State Bank of Pakistan and only then the cherished goal of taxing the mighty and the ruling elites can be achieved.
There should also be a public campaign that the absentee landlords and mighty military rulers and their civilian (sic), handpicked members of parliaments should also be divested of all the privileges and exemption enjoyed under the various tax codes.
The definition of 'business', given in the Income Tax Ordinance, 2001, covers "adventure in the nature of trade" and yet our tax machinery is sitting idle, causing a colossal loss to the national exchequer, by not bringing adventures in the nature of trade in real estate into the tax ambit and giving undue tax exemptions on gains arising on speculative transactions in shares and stocks.
Our tax-to-GDP ratio can rise to 20% in one year if we tax speculative dealings in real estate (this will also help in promoting the construction industry as the prices of land will come down) and bring the black economy into the tax net. Instead of performing its prime duty, that is levy of tax where it is due, the FBR is busy pondering over many issues relating to the tax policy and administrative reforms, which are, in fact, the job of the Parliament.
It appears that the FBR is more eager to do the job of legislators, rather than performing its primary function of levy and collection of taxes - drafting of VAT law is a case in point. The real tax potential of Pakistan, by a very conservative estimation, is not less than Rs 4 trillion. However, the target for the current fiscal year, at the time of budget announcement, was fixed at Rs 1.38 trillion - the FBR, a corrupt and inefficient arm of the government, is facing difficulties even to achieve the Rs one trillion target.
What a tragedy that the rich and the mighty, not only refuse to pay the due taxes, but are also living a shahhana zindagi (emperor-like life) at the taxpayers' expense. They are the de facto beneficiaries of State's resources - generated mainly by the landless tillers and industrial workers.
Pakistan is not a poor country - the State's kitty is empty because of the unwillingness of the rich to pay taxes, the colossal wastage of the taxpayers' money on unproductive expenses and the non-exploitation of the vital natural resources.
The absentee landlords (which include mighty generals, who have been allotted State land under one pretext or the other during the last many decades), acting as proxy rulers of the establishment and foreign Late Neo-Colonial masters, have been resisting proper personal taxation on their enormous income and wealth. An unholy anti-people alliance of a trio of indomitable civil-military bureaucrats, corrupt and inefficient politicians and greedy businessmen - controlling and enjoying at least 90% the state resources - contribute below than 5% in national revenue collection.
The gigantic and useless government apparatus - doing nothing for public welfare - is also busy wasting whatever taxes are collected. The army of ministers, state ministers, advisers, consultants, high-ranking government servants (sic) is not willing to cut down their perquisites and privileges.
They are not ready to live like the common man by surrendering unprecedented perks and privileges that they are enjoying at the cost of the taxpayers' money. For their shahhana zindagi, they are burdening the poor, the propertyless masses, with more and more taxes.
TAXING THE POOR FOR THE RISH!The people of Pakistan are the most heavily taxed nation in Asia. The privileged classes - ruling the country for the last six decades - are the culprits who do not pay due personal taxes on their collossal wealth and incomes and are beneficiaries of huge loans write offs. They are guilty of plundering and wasting the public money.
The State has become so callous that the people living under the poverty line are also subjected to tax on the purchase of salt, being sold under brand names. People are dying of hunger in camps and elsewhere and abandoning their children at Edhi Welfare Centre, but 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 aboard).
The existing exploitative, rotten, regressive, ill-directed and unfair tax system is widening the existing divide between the rich and the poor. The sole stress on regressive indirect taxes [even under the garb of income taxation through presumptive tax regime on goods and services], without evaluating its impact on the economy and the life of the poor masses and lack of political will to tax the rich and the mighty is our dilemma - not the scarcity of resources or the narrow tax base.
Equity demands higher taxes from those who have higher income and wealth, but in Pakistan since 1991 all the policies have decreased the tax burden on the rich and increased its incidence on the poor. We have declining trends in the tax-to-GDP ratio and now we will have to wait for many years more to come up to the level of many developing countries [see Table below]. This is indeed a sorry state of affairs.
TAX-TO-GDP RATIO OF SELECTED COUNTRIES
====================
Country %
====================
Sweden 49.7
Belgium 43.3
Netherlands 42.9
Germany 26.6
United Kingdom 34.2
United States 19.1
Malaysia 19.2
Thailand 16.1
Sri Lanka 16.0
====================
Source: IMF - Government Finance Statistics.
Note: The higher ratio for the industrialised countries is primarily due to the higher level of revenue from social security, payroll taxes, corporate taxes and taxes on domestic consumption while the taxes from international trade and non-tax revenue are lower.
In contrast, in the developing countries, the major portion of revenue comes from the indirect taxes, particularly the taxes on international trade and domestic consumption, while the direct taxes have a lower share. Pakistan GDP-tax -ratio is even below than Sri Lanka and Thailand, which proves beyond any doubt the failure of fiscal managers and tax collectors.
The elected members of Parliament should take note of the misdeeds of the bureaucrats sitting in the FBR. Legislation is the exclusive domain of the Parliament and the FBR is only required to implement laws and policies made by public representatives.
On the directions of foreign masters - IMF and the World Bank that are giving us huge loans of millions of dollars - the FBR has assumed the role of a legislator and policymaker, which is highly lamentable. FBR should be reprimanded for this. At the same time, it should be made an autonomous body like the State Bank of Pakistan, insulated from outside political, financial and administrative pressures.
In no way it should assume the role of policymaker, which under the Constitution is the sole prerogative of the people of Pakistan, through their democratically-elected representatives. It should collect the taxes where due and refrain from shifting the tax incidence on the poorer segments of society.
(The writers, tax lawyers and authors of many books on tax laws of Pakistan, are Adjunct Professors at Lahore University of Management Sciences (LUMS)
Comments
Comments are closed.