When challenges offer opportunities - II

The PTI government, compelled to borrow more at high interest rate, does not know that billions are lying unpaid with industrial undertakings/employers. Thus the issue is not that of funds but getting due taxes/levies from the wealthy and tax evaders and using the same for welfare of the needy and revival of economy. This must have been part of stimulus and relief package during these testing times as these tax evaders otherwise claim to donate money as responsible and pious citizens. The perspective of PM and his team in preparing relief and stimulus package lacked this perspective. Thus, it is not based on understanding the true challenges faced by Pakistan-the long-delayed and much-needed structural reforms and collecting dues from the rich and mighty rather than making them richer through incentives. It is high time that we must reduce income/wealth inequalities. As a nation we can fight the corona crisis or any other challenge through this approach, ensuring reforms for growth with equality. However, it can be successful only if a comprehensive analysis is made of the whole system that is administrative structure, state of economy, taxpayers' attitude, proper utilisation of public funds for welfare of all, revenue needs of the country with prudent spending and ending VIP culture, tax-free perks to affluent classes, ending wasteful expenditure, improving social service for all citizens, and other allied matters.
Unfortunately, however, successive governments have been ignoring or sidetracking fundamental institutional reforms to achieve a higher rate of investment and growth and make the tax system simple, predictable, fair and equitable. It was a golden opportunity for the Government of PTI in 2018 and 2019 to undertake institutional reforms but it also ignored the same like its predecessors. All the governments have failed to tackle the most essential issues of ensuring ease of doing business, reducing cost of doing business, accelerate growth, induce and boost investment, concentrate on human skills, tap resources, reduce inequalities, concentrate on educational and vocational skills that generate employment, and deconstruct the unproductive tax system which imposes high taxes, but yields low revenues. A system that is operationally inefficient, anti-business, complex, time-consuming and costly. Even after imposing all kinds of oppressive taxes and tall claims of "extraordinary" performance, revenues are still below Rs 10 trillion at federal and provincial levels that is our minimum need to survive without borrowing just to meet fiscal/trade deficits. We should have low-rate and long-term project loans for improving physical infrastructure and human capital. Borrowing for meeting budget deficits shows we are not living within our means and pushing the nation into further debt trap, increasing poverty and raising wealth/income inequalities.
Our economy, even before Coronavirus pandemic was moving from stagflation towards recession. The main reason is not the policies of the present coalition Government of PTI alone, but fiscal (mis)management for decades on the part of successive governments, military and civilian alike (see details in our various columns, the latest one, Dealing with debtocracy, Business Recorder, February 14, 2020).
In Pakistan without any exception, all the governments, on the dictates of lenders/donors, especially the IMF and World Bank (WB), have stressed on "more and more taxes" with no concern for providing universal pension, income support, skills and funding for arranging earning apparatus for the unemployed; and other economic/social benefits, like free health and education, decent living and transport as quid pro quo-the principle of tax reciprocity recognised universally but not by our thoughtless, insensitive, incompetent rulers. This aspect has been highlighted by us in many articles in this newspaper, for example in Taxes, prosperity & welfare, Business Recorder, August 9, 2019 and Taxes for welfare, Business Recorder, August 10, 2018. Unfortunately, the PTI coalition Governments in the Centre and provinces have failed to undertake long-delayed and much-needed structural reforms to frame policies that protect the deprived sections of society as well as induce inclusive growth.
In democratic dispensations, tax laws recognise the cost of living either alone or with family-expenses to nurture children are always taken into account. The laws, thus, allow deductions/allowances according to size of family. In Pakistan, successive governments not only deny any such allowance or deduction, but extort advance income tax even from the lower-income earners and their family members having no income on facilities like mobile phones. They even get advance income tax from fee paid to schools beyond certain limit, rather than providing free education to all as fundamental duty under Article 25A of the Constitution. They collect advance income tax from all mobile users even if they have below taxable income or no income. Adding insult to injury, FBR expects them to file tax returns to obtain refund of their withheld money, whereas the cost to expedite it is much more than the amount due and chances of harassment after filing returns are obnoxiously high. This is the right time to not only give refunds to exporters but to all those who paid advance income tax on their below taxable incomes. This perspective is totally missing in the relief and stimulus package announced by Prime Minister.
The real issue of Pakistan is appeasing the rich and mighty through exemptions and amnesties, lavish spending on comforts of elites but no social protection for the millions living below the poverty line. No expert hired by WB or IMF has ever highlighted this aspect of our oppressive economic and tax structures/systems. The main incidence of taxes in Pakistan is on the middle-low-income groups, while the beneficiaries of taxpayers' money are rich members of the militro-judicial-civil complex and public office holders who get enormous tax-free perquisites and benefits. The State, captive in the hands of a few, is facing tremendous challenges on the fiscal front as parasitic elites have failed to deliver even universal entitlements to the have-nots.
In our fiscal woes, there has also been criminal culpability of IMF/WB as well that they did not restrain people like Ishaq Dar, now a fugitive, from raising sales tax rate to the extent of 50% on high speed diesel oil, 30% on kerosene, 29.5% on light diesel oil, 26% on motor spirit excluding HOBC and 24% on HOBC through statutory regulatory orders (SROs)-detailed comments in Constitutional violations in taxation, Business Recorder, October 9, 2015. They knew that such actions not only burden the poor but also constituted open violation of Articles 77 and 162 of the Constitution of Pakistan. In their countries, they talk about "rule of law" and in Pakistan they overlook our rulers' blatant violations of the supreme law of land with impunity. The Supreme Court in the Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and Others (2013) 108 TAX 1 (S.C.Pak.) held that:
"Parliament/Legislature alone and not the Government/Executive is empowered to levy tax. As far as delegation of such powers to the Government/Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby."
The IMF in its parleys with our negotiation teams had never raised the issue of violation of constitutional provisions and burdening the poor with unprecedented taxes on petroleum products. Why should they? They are mainly concerned with getting their own money back, no matter if it means sucking the poor dry. The fault, of course, mainly lies with our shameless ruling elites, who beg before them, thrive on borrowed funds (mainly through kickbacks in projects) and taxes paid by the masses and live lavishly at home and abroad.
We should set our house in order and stop blaming lenders/donors. An undeniable reality is that the Pakistani nation is the most heavily taxed in the entire region and the citizens get neither education nor health facilities from the State, what to speak of social protections like pension for all, out of taxes paid over the period of time. There is overwhelming reliance on indirect taxation [even under the garb of direct income taxation through presumptive/minimum tax regime on a number of transactions] without evaluating its impact on the economy and life of the less privileged sections of society. The present crisis gives an opportunity to the PTI Government to dismantle elitist structures and follow what is elaborated in detail Need for all-out reforms, Business Recorder, March 20 & 26, 2020 to protect the less-privileged. It is hoped that the Prime Ministers will initiate all these measures in consultation with all provincial governments to make Pakistan a prosperous nation, having socio-economic justice and capacity to counter all negative impacts of pandemics like the corona virus.
(Concluded)
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)