Tax the rich

EDITORIAL: One reason our ruling class always paints IMF’s conditions as “harsh” is their own inability, rather unwillingness, to do as the lender really says when it pushes the government to increase revenue and cut the fiscal deficit.

Caretaker PM Kakar was, in fact, only the latest head of government to be told, pretty bluntly, to tax the rich and protect the vulnerable as he met the IMF chief, Kristalina Georgieva, on the sidelines of the UN general assembly.

Just months ago, she delivered the same advice to the PDM government and its finance minister, Ishaq Dar, when time was running out to save the now discarded EFF (Extended Fund Facility).

But, typically, not only did the government not go after big tax evaders in the agriculture, real estate and retail sectors, the finance minister went on live television and categorically rejected any measure that would help revenue collection at the cost of alienating the powerful and connected lobbies that lubricate expensive election campaigns for politicians.

That is why, quite naturally, the burden of increased indirect taxes to meet the stiff revenue target fell once again on honest taxpayers who are unable to cheat their way out of paying their fair share.

The caretaker setup does not need to extend such favours to be cashed in later, because it does not comprise professional politicians, but it also does not have the mandate to present a budget or toggle with the revenue stream. So, the best it can do with the Fund’s advice is hope that it will finally find some resonance in power corridors.

That is very unlikely if the past is any guide because no political administration or military dictatorship has yet had the nerve to go after the big fish with high nuisance value that flout the tax regime with impunity.

Yet now that the economy is at the end of its rope, quite literally, whichever party forms government next might not have any other option but to finally do the right thing, regardless of the personal cost to its hierarchy.

Surely, they can all see that the idea of trying to meet tax targets by increasing indirect taxes, which affect lower segments of society far more than upper classes, was not a very smart one. And ordinary people, already overly burdened with historic inflation, unemployment and inflated bills, are not very far from considering outright revolt if the government keeps tightening the screws on them.

It’s not exactly rocket science to figure out what to do and the government doesn’t really need the IMF chief to tell it that failure to tax the rich will put the country’s survival itself into question. And the way to do it is to impose direct taxes on high income, with cascading effect so the highest earning slabs are incrementally taxed the most.

Everybody knows that the government, regardless of the party in power, has made a habit of leaving trillions or rupees in unfairly, and often illegally, untaxed income. And only bringing these sums into the tax net will give the government the chance to negotiate better terms with the IMF.

It’s a shame that our democratic leaders, voted into power by ordinary people, have never cared to implement a fair tax policy. Even now, with the noose of sovereign default casting its shadow and the lender of last resort calling for an efficient tax regime, there’s a slim chance of policymakers actually going down that road.

If the old trend still doesn’t change, and if the untaxed are not taxed through widening of the tax net and the vulnerable are not protected by the state, then at least the people will know very clearly who to blame as things reach a tipping point.

Copyright Business Recorder, 2023