The President finally did what he was avoiding - impose taxes via ordinances although the parliament exists with acclaims to representing the taxpayers; he did so because he sensed that the parliament would not approve of these measures. But, unless the parliament subsequently approves these ordinances, this action will violate democracy's cornerstone principle, ie "no taxation without representation."
Presenting and implementing a supplementary budget isn't unconstitutional (as claimed by the PML-N), but imposing taxes without taxpayers getting a chance (via the parliament) to voice their opinion on the taxes certainly is. What makes it worse is that these taxes were imposed under the IMF pressure; the electorate had no say in the affair.
Imposing taxes while the state allows their unhindered waste (in some cases being pocketed by the cronies of the regime), and defiance of all attempts at retrieving them, is shocking. The taxes imposed via the ordinances could, at best, collect Rs 53 billion - zilch compared to the squandered revenue that remains unretrieved.
The callous part of the taxation measures is that, while the surcharge on income tax may gather only Rs 20 billion, it will burden the captive taxpayers. Initially, this surcharge was imposed on a flat basis on all incomes, big or small, disregarding the "ability to pay" principle. As an afterthought, the government exempted taxpayers earning up to Rs 25,000 a month.
Being the first to be saddled with new taxes makes the captive taxpayers most vulnerable. This is tragic because squeezing this class for the benefit of the untaxed rich (many adorning the parliament) would steadily destroy the compulsion for remaining honest, which could be the biggest loss Pakistan's taxpaying culture could suffer.
Isn't it shocking that, until now, sales tax on sugar was being levied on the ex-factory price of Rs 28.88/kg. Our lawmakers ignored the huge benefit it afforded the vested interests, when the ex-factory price touched Rs 75/kg. Only now will this tax be levied at an ex-factory price of Rs 50 to Rs 60/kg, and muster a paltry Rs 2 billion.
The fiscal deficit that the regime has accumulated, courtesy corruption and resources waste, defies bridging by additional taxes; the remedy lies in retrieving the stolen national wealth. Besides, austerity and optimising value-generation from each rupee of tax revenues - ignored consistently - need prioritisation, and credibility.
Withdrawal of tax exemptions from many sectors may collect Rs 25 billion and, in effect, impose indirect taxes on the agriculture sector. But withdrawing this relief on the import of plant and equipment will limit balancing, modernisation and replacement in the industrial sector, which is crucial for reviving its competitiveness.
Another Rs 6 billion would flow in via a 1.5 per cent hike in special excise duty on imports. Here, too, the state could afford to be judicious in complying with the "ability to pay" principle by imposing higher levies on import of luxury items. Amazingly, gold and jewellery imports (not being luxury items?) remain tax-exempt.
The only saving grace is the promise to cut state exuberance by Rs 67 billion by cutting development programmes, banning fresh recruitment and purchase of durable goods, and cutting non-salary expenditure by half. But, by cutting development outlay, the state is compromising the country's future, as feared by the Planning Commission.
All this is in aid of bucking-up tax revenue. But "the taste of the pudding is in the eating." When these austerity measures will actually materialise is anybody's guess. And let us not forget that these cuts will provide the state an excuse for not doing what it must and this lethargy would now be blamed on a lack of resources - a shield the regime lacked to cover up its current lethargy.
Given the on-going recession, tax revenue may still not touch the downward revised target of Rs 1.58 trillion, which the IMF won't forgive. The big threat is the expected oil price after predictions that, following the nuclear disasters, Japan's oil imports - third highest in the world - may rise by 10 percent. This price hike may force increasing (not withdrawing) the subsidies on petroleum products.
In this backdrop, the state has warned three IPPs that, after June, they won't be supplied natural gas. In January, LSM had registered the first rise in its productivity in 2010-11. With the IMF-imposed 2 percent monthly hike in power tariff, and forthcoming cuts in power supply, will the LSM maintain its growth to pay higher taxes?
What confuses us all is that, while foreign exchange reserves are the "highest-ever", state borrowing too is the highest-ever and oil and energy sectors can collapse anytime courtesy the "circular debt". Are these reserves really benefiting Pakistan? Isn't the apparent stability of the rupee their only benefit? Should that be the case?
While playing this number game, the government and the IMF aren't worried about the fallout from fresh taxes - higher inflation, especially food inflation, which is the number one threat to regimes everywhere. Last week, a British economist forecast food riots even in Britain - a highly organised and law-abiding society compared to Pakistan's.
Our bureaucrats may not have read this prediction but, surely, IMF 'experts' didn't miss it. Hopefully, the IMF knows the core cause of the pervasive unrest in the Middle East - poverty driven by food inflation. Given these stark realities and the fact that the rupee has depreciated for too much (slashing its purchasing power), will making things more expensive, via additional tax levies, not hasten the pervasive chaos?
Is that what the government and the IMF want? Is there a secret agenda behind this strategy because the end we are heading for is visible? Why doesn't the state initiate corrective steps to cut its massive borrowing blocked in the circular debt, commodity operations, and continuing losses of the public sector enterprises?
While this borrowing is partly attributable to oil price rise and depreciation of the Rupee, a huge chunk thereof manifests resource theft. What about retrieving these resources and expanding the tax net, rather than levying more taxes? We hear about taxpayers that would be brought into the net, but no firm plans of netting them.
Finally, if the IMF can extend $120 billion to Greece, why can't it lend the remaining $3.2 billion of the SBA to Pakistan without imposition of fresh taxes that foretell the collapse of the state? Or is it that the regime, though backed by the West, is being helped to materialise that aim?
Comments
Comments are closed.