The way governments raise resources and allocate them is at the heart of the social contract between citizens and the state. "But what is a social contract? I never signed any contract," the uninitiated ones might quickly retort.
It is true that no such contract has ever been signed in literal sense; it's a metaphor. Yet, it is not merely a hollow concept pulled out from thin air. In simple terms, one can say it's an implied agreement that societies have agreed upon; specifically, between the governors and the governed about what each can expect from the other.
Here the word 'governors' is used in the widest possible sense, and includes democratic regimes to autocratic rulers and from tribal leaders of the pre-modern world to medieval kings and queens. Whatever the type of government, the social contract is something of an inherited set of rights and obligations every person born in any political realm has to adhere to.
It so happened in the history of humanity, people started relinquishing their freedom to a certain sovereign (tribal chief or democratically elected leader) who then imposed certain limitations and defined the area of control in order to protect them. The idea being: to submit part of individual freedom and rights to the sovereign to preserve the overall freedom of an individual and collective good of society.
A life without a state, or a sovereign, in the words of Thomas Hobbes, one of the earliest thinkers of modern political philosophy, would be "solitary, poor, nasty, brutish, and short". The social contract theory, therefore, attempts to explain why and how people organise into political societies exchanging personal autonomy and independence for greater certainty and security.
And since taxation is typically the main means by which sovereigns support themselves and provide public services, 'the ability and need of the state to tax is easily conflated with the concept of sovereignty'. Tax policies create and reflect relationships between the market, the citizen, and the state, 'making them a product of domestic political battles and policy tradeoffs', according to Allison Christians of University of Wisconsin Law School.
In well-functioned modern democracies, the ways in which governments raise their financial resources, and the use they make of them, are considered matters of legitimate concern for citizens. Major issues are decided through the democratic process, since at the end of the day, the purpose of taxation is more to fund collective national projects and interests, than merely running of the state apparatus itself.
It is in this context, sociologists and economists in Pakistan have been raising red flags over the breakdown of the social contract in the country, while some also argue for a new social contract to be made.
Life has indeed become cheap, brutish and short; and not just because of militancy in the north-western belt and its aftermath elsewhere in the country, but also because of growing political strife in the country's biggest metropolis, Karachi.
According to Human Rights Commission Pakistan, some 1138 civilians died in Karachi in the six months ending June 2011 - nearly equal to the number of civilian deaths in the country caused by the war against terror, which according to South Asia Terrorism Portal, stood at 1190 in the same period. The government, as several interviewees in this publication noted, has lost its monopoly on violence, and has failed to protect its citizenry.
Into its seventh decade of existence, there continues to be a weak sense of identification within the members of the state or concern for a common, national good. Nor there is continuing resistance to the resolution of difficult national issues through the democratic process; and the apparent prevalence of narrow and particularistic concerns in the political process. In short, there is absence of what is oft-termed 'social solidarity'.
THAT SINKING FEELING
The breakdown of social contract is also visible in the country's economic system. There are large inequalities of wealth, income, and hence disparity in effective citizenship. There is widespread tax evasion, and not only on the part of the wealthy, who can take advantage of their global connections to shift income off-shore, but also on the part of the middle class sections of the society.
Numerous literature, studies and task forces, have confirmed that the processes of making and changing tax policy are not very transparent, and is dominated by interest groups, which frequently aim to create legislative and administrative loopholes that they can then exploit.
The tax base is unduly narrow, and taxes are ineffectively collected. Various polls and anecdotal evidence suggest that citizens perceive tax collection procedures as unfair; most tend to believe that the taxes they pay are not equitable.
The National Taxation Reforms Commission established in 1985 described the Pakistan tax system: "the three basic maladies from which Pakistan is suffering at present are tax evasion, smuggling and corruption. These are inter-related and one feeds on the other."
An IGC-study on "Why is it so difficult to implement a GST in Pakistan?" noted that the most vociferous opponents of VAT mode taxation were "in the textile and dairy sector (the latter including major multinationals)."
"Neither of these sectors ranks particularly high in terms of sectors that might be suggested for reduced taxation (and would not be singled out for special treatment on the grounds of efficiency or distributional considerations)," the report written by Dr Ehtisham Ahmad said.
It is useful to point out that "some of the countries perceived to be the least corrupt (eg, Sweden, Denmark, Canada) have some of the highest tax burdens. On the other hand, some of the countries with the highest indexes of corruption (eg, Nigeria, Pakistan, Bangladesh, Venezuela) have some of the lowest tax burdens," noted Vito Tanzi in his 1998 IMF staff paper titled 'Corruption around the world: Causes, Consequences, Scope, and Cures'.
In the latter group of countries, quasi-fiscal regulations substitute taxes and public expenditures. "Thus, to reduce corruption, these countries would need to eliminate these quasi-fiscal regulations and, if necessary, replace them with taxing and spending policies," Tanzi added.
TWO TO TANGO
Gary Becker, a Nobel Laureate in economics, pointed out in one of his Business Week columns, that if we abolish the state, we abolish corruption. To root out corruption; boot out the government, he said. But, of course, he was referring to big governments relying on big bureaucracies, for any modern state cannot function without a government. Besides, it's not as if Pakistan's private sector is an emblem of purity.
If the Federal Board of Revenue, land administration and customs departments are in the top ten list of corrupt departments, it's because the private citizenry who have placed them there. When it comes to corruption, it usually takes two to tango. Need one be reminded that corruption is also common between private-to-private socio-economic transactions.
If the people of Pakistan, individuals and businesses, were really so upright, they would not have avoided taxes, and they would not have paid bribes and quickness allowances and so forth. Instead, they would have demanded the government of the duties it needed to perform against the taxes it took; they would have rallied against corruption just as they rally against power and gas load-shedding, or against sacrilegious offenses in distant lands.
Resolving this dilemma may appear to be a chicken or the egg problem, involving a vicious cycle of mistrust. But then again, in a democracy, it's essentially the society that makes up the government; and so it's the private citizens who should take the confidence building measures and step forward to start paying taxes before demanding the privileges a citizen should demand of the government.
Those amongst the private citizenry, individuals and businesses, evading taxes in self interest ought to be told that self interest, when truly understood, can be better served by a life which is useful to the community than by one which is harmful.
That's because the implied social contract is not only between the governor and the governed, but also amongst fellow members of the society. In other words, if certain persons are not paying taxes, they are essentially living off the others who do.
While taxation and other fiscal reforms, including the reprioritising of government spending, has to be done by the government, the process, in the words of the State Bank of Pakistan, requires "support from across the political divide and from other state and civil society institutions to ensure their smooth implementation."
Within the civil society that the World Bank refers to as a 'wide array of non-governmental and not-for-profit organisations that have a presence in public life, expressing the interests and values of their members or others, based on ethical, cultural, political, scientific, religious or philanthropic considerations', the role of educationalists and religious power houses should not be undermined.
Efforts should be undertaken at the school and university level to make the pupils understand the basic of taxation and its importance for social-economic co-existence. They may be taught how the failure to pay direct taxes encourages the government to raise more debt or to opt for additional indirect taxes and how both come back to haunt the citizens.
In the same vein, religious powerhouses that incidentally have a huge following in the country should be encouraged to discuss the immorality of tax evasion and its consequences on the society at large. Those with fatalist mindsets should be made to understand that rogue elements, within the government or within private citizenry, ought to be rectified in the here and now and not in the hereafter.
Consent should also be mobilised through civil society forums to ensure advocacy for government transparency, and the demand of local governments. At the same time, the private sector also needs to be told that just as there shall be 'no taxation without representation' the government can rightly say the converse: no services without tax revenues.
TRICKLING CHANGE
Understandably, the re-fabrication of the social contract in Pakistan is not going to be a piece of cake, since the political realities of the country are substantially different from that of other economies.
For a country that faces a clash of religious and political ideologies, a fragmented society split into diverse, but often warring tribes with varying customs, and a chequered economic history in a land that has been abruptly pushed into a rapidly globalising world without actually being prepared for it. It is indeed going to be a long and winding road.
Yet, the notion that the understanding of role and responsibilities within the social contract might begin to shape politics and governance in the country may not be wishful thinking.
The once-heretical ideas have now entered the national discourse, thanks to the media, and to demographic change that is bulging with youth. Unlike the yesteryears when these ideas were exchanged amongst a select clique of learned, the discussions on defence budgets, role of army, taxation of feudals, etc are now seen and heard across the spectrum.
One idea still missing from barber shop conversations, however, is the taxation of the barber shop itself and other small and medium businesses like restaurants, consultancies, property businesses etc.
In what could turn out to be a politically hot decade for Pakistan, the good thing is that public clamoring has begun. Whether it will be channelled rightly to bring the social contract in order, depends on the hands of those creating it. The writer works as Research Editor at Business Recorder. He can be reached at [email protected]. Note: Aside from those already quoted, the article has used citations from several academic papers, the details of which would be too lengthy to mention here.
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