Whither taxpayers' money

In Pakistan, taxpayers' money is not spent for the purpose it is collected. It is wasted and/or abused mercilessly. A big chunk of it goes for debt servicing and for giving free or concessional plots, extraordinary perks and perquisites and extending unthinkable luxuries to the privileged classes. In democratic countries, people enjoy many benefits in lieu of taxes paid by them. They get good facilities of health, education, justice, transport, housing and pension benefits, just to mention a few. In Pakistan, taxpayers are condemned and citizens are denied fundamental needs (universal entitlements). Therefore they find it worthless, rather irritating, to pay to the government-though Pakistanis are among the leading philanthropists of the world.
The donors and lenders (the IMF, ADB, World Bank and DFID etc) hardly mention the oppressive side of our tax system and non-availability of public services. They are very fond of discussing "low-tax-to-GDP ratio" in isolation. Initiatives like Research and Advocacy for the Advancement of Allied Reforms (Raftaar), funded by Britain's Department for International Development (DFID), keep on emphasising need for more revenues, without pointing out where the taxpayers' money goes to. They never criticise the ruling elites-the real beneficiaries of tax money-for thriving on foreign funding and taxpayers' money. On the contrary, they support them and give them more money for further burdening the poor Pakistanis with oppressive taxes.
When the IMF, ADB, World Bank, DFID ask Pakistanis to pay more taxes, they conveniently ignore that over 50 millions are paying 14% income tax and 19.5% sales tax on mobile use alone! Majority of these have below taxable income! Taxpayers and people of Pakistan are justified to pose a question: Can you please first identify the real beneficiary of taxpayers' money and cost to national exchequer in providing free perks to militro-judicial-civil-complex and public office holders in the form of palatial residences, army of servants, expensive cars, golf courses, rest houses, foreign tours, banquets, etc? They rightly argue that the government should first stop this colossal wastage of funds and then debate the issue of tax-to-GDP ratio-Incorrigible elites, Business Recorder, September 12, 2014.
Billions were collected as super tax, imposed under section 4B of the Income Tax Ordinance, 2001, during fiscal year 2015-16, for rehabilitation of Internally-displaced Persons (IDPs) in the wake of the Zarb-e-Azb. Where has this money gone? Can the Ministry of Finance explain the reasons for perpetual plight of IDPs despite super tax imposed for tax year 2015 (as one-time levy but extended for another year!) on the income of Rs 500 million or above of individuals, association of persons and companies, and on banking companies, irrespective of the quantum of income. Super tax was levied at the rate of 4 percent for banking companies and at a rate of 3 percent for persons other than banking companies. In budget documents for 2015-16, there is no mention where the collection under section 4B was kept (in a separate account?) and whether it was expended exclusively for the purpose for which it was collected. It is a test case for Raftaar, Human Rights Commission of Pakistan (HRCP) and other like bodies to probe how public money has been squandered and people entitled to it are suffering untold miseries.
The representatives of Raftaar and HRCP should visit camps of IDPs in North Waziristan and elsewhere to find out their plight and investigate the reasons for abuse of tax, exclusively collected in their name. The FATA Research Centre in The Plight of NW IDPs: No Identity-No Relief has observed:
"Facing utmost despondency, the IDPs have been forced into a life of suffering and despair, while trying to survive under the most dismal of conditions deemed possible. Even more distressing is the fact that these poor people are almost ignored in the media, given very little coverage and acknowledgement, and where outsiders are failing to realise just how deeply harrowing their - the IDPs - situation is. These are people who have been forced to leave their homes - their comfortable dwellings - in order to make a living in sordid camps, just to survive a war that has unjustly swept the region, and taken over their lives, causing nothing but misery and chaos."
The plight of IDPs, levy of super tax and abuse of funds collected under this head should be a test case for DFID's funded Raftaar and others. These agencies happily give money to Federal Board of Revenue (FBR) for reforms (sic) and ignore the vital question of abuse of taxes. They never talk about unbearable burden of oppressive taxes borne by the poor and their miseries, and in contrast to that the life of luxury enjoyed by politicians and bureaucrats funded by taxpayers' money and loans!
The assertion by Raftaar that "because of low tax collection, Pakistan's debt burden has reached crisis levels" needs reconsideration which is mainly because of imprudent tax policies, appeasement of tax evaders and the corrupt. Raftaar should search for answers to the vital question: Why have donors and lenders been giving money to rulers when they persistently failed to collect taxes from the rich and mighty? The IMF, ADB, World Bank and DFID know that a fair tax system can easily fetch Rs 8500 billion at federal level alone. But this requires fundamental reforms as suggested in Towards Flat, Low-rate, Broad and Predictable Taxes, Islamabad: PRIME Institute (April 2016). The government, donors and lenders will not support any such reforms, knowing that it will make Pakistan a self-reliant country ending their control.
The so-called reforms agenda of donors and lenders will never include reforms such as monetization of all perks and benefits available to militro-judicial-civil complex and selling of expensive properties occupied by them through public auction-though this can bring enormous funds to the government as well as future savings of billions.
Raftaar has rightly pointed out that "more than 53% of federal government's expenditure is incurred on interest payments, defence, and the wage bills". But then why does it still want to support incorrigible FBR, the dismal performance of which is brilliantly exposed by Shahbaz Rana in a newspaper op-ed. Paying taxes, people say, is meaningless and unjustified when the State is indifferent towards public welfare and elites blatantly show apathy towards their fundamental needs. Our rulers live lavishly while Pakistan ranks at 146 out of 187 countries in the latest Human Development Index (HDI). Not less than 25 million children out of school in Pakistan in gross violation of Article 25A of the Constitution-see detailed judgement of Supreme Court 2014 SCMR 396 re Petition regarding miserable conditions of schools.
The World Bank report, World Development Indicators (WDI) 2016, shows that "one-third of Pakistan's population continues to live in poverty, corresponding to some 50 million poor individuals. Women and children (out-of-school/working), disabled, and potentially the elderly, are the most vulnerable groups of poor." Out of these, not less than 15% live below $1.90 per day, which is categorised as extreme poverty. Millions suffering from hunger, malnutrition and diseases, are deprived of basic facilities of life. In the face of these grim realities, daily expenses of the Prime Minister Secretariat are Rs 2.2 million. In fiscal year 2008-09, these were only Rs 600,000 per day-an increase of over 250% in five years! What makes the situation more painful is the fact that overwhelming majority of members of national and provincial assemblies and senators pay laughable amounts as income tax when compared with their lavish style of living (Tax Directories of Parliamentarians for 2013,2014 and 2015 testify to it).
Raftaar and other initiatives like, Make Tax Fair, Pakistan Tax Justice Network, Tax Justice Coalition etc, must campaign for a just tax system for all-everybody having taxable income must pay 10% flat income tax. Harmonised Sales Tax (HST) should be imposed at 8% across the board. There should be single agency to collect all taxes and national tax court, having registries in all major cities to decide tax disputes within six months. If these measures, as elaborated in Towards Flat, Low-rate, Broad and Predictable Taxes, are implemented, there will be collection of over Rs 12 trillion at federal and provincial levels, making Pakistan prosperous and self-reliant.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)