EDITORIAL: It seems everybody but the government understands that this fiscal year’s tax regime is not only lopsided and unnecessarily cruel to the salaried class, but also not practical or even implementable.
The Policy Research Institute of Market Economy (PRIME), for example, is the latest independent outfit to point out the obvious fact that “the proposed increase in income tax rates announced in the federal budget will incentivise non-compliance and undermine the government’s ability to raise its revenue and broaden its tax collection base”.
That is only to be expected. Because, as a recent report in a local daily pointed out, “Pakistan’s voiceless salaried class was forced to cough up a record Rs368 billion in income tax in the just-ended fiscal year, which is now 232 percent more than the combined taxes paid by exporters and retailers”.
And since even government officials admit that tax deductions in salary slips starting August will make people’s jaws drop like never before, it’s not really impossible to put two and two together and understand that this burden is simply unsustainable. Yet there’s no convincing the government.
It’s very important to remember, as so often lamented in this space, that the salaried class is in such a squeeze only because the government still does not tax the big sectors whose political connections or simple nuisance value has kept them out of the net since forever.
And then it makes things worse by not only not trimming its own ridiculously high expenditures, but adding to them even as society’s most vulnerable segments are forced to line up for the axe. No wonder, then, that another report in another daily (Business Recorder) pointed out that the incidence of tax on Pakistan’s salaried class is three times higher than in India.
Pakistan’s economy has faced considerable turbulence over the last two decades. But unless the government adds a dose of sanity to its fiscal policy and immediately turns course, this year’s budget could well go down in history as the one that finally broke the camel’s back. It’s no longer just that high taxes will bite into disposable incomes and cut consumption, the life and blood of the economy, rather it is that this year’s tax burden will inflate bills to levels that exceed monthly incomes of millions of households, and it will incrementally get worse; a point that has never been reached in Pakistan.
Not to forget, once again, that this weight could and should have been shared across the board. Instead, we’re a country where those in power, regardless of the political party, always save the rich from their share of taxes at the expense of the poor, and now the country’s survival itself.
Meanwhile, unaffordable energy will push industry farther into a dark corner, triggering cutdowns, shutdowns and layoffs and leave people even more miserable. Such a situation, when inflation and unemployment return and the economy cannot grow, can easily lead to mass uprisings, even outright revolt, if those in power are not very careful.
It’s shocking and inconceivable that the government really thinks it can push this tax policy through the whole fiscal year. The IMF only cares about numbers, so if we can show that we can meet its targets, it will have no problem that with the fact that the salaried class is the only reliable source of taxes in Pakistan; even if it’s only because it does not have the muscle or the connections that bigger, richer players do.
It is best if the government accepts that it is dead wrong now, while there might still be some time, and come up with a more realistic tax policy. It, like everybody, knows very well what needs to be done to expand the tax net, raise tax revenue, and reduce the unbearable burden on the middle- and lower-income groups.
Copyright Business Recorder, 2024
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