The adoption of Finance Bill 2006-07 by the Parliament on June 21, 2006, in utter haste without assessing its impact on the economy and devastating burden of regressive taxes on the poor, once again proved that the so-called elected representatives are not allowed to perform their constitutional duty.
The government was adamant to pass the budget without any meaningful debate, disregarding all norms of parliamentary process and transparency.
The treasury members, with the exception of 56 who wrote a letter to the Prime Minister for lack of proper procedures in budget-making and its debate in the House, were not interested in fulfilling their obligation towards the State and masses that is to levy taxes for the betterment of society, but to please the military ruler.
Despite tall claims by the prime Minister-cum-Finance Minister, it is common knowledge that the fiscal proposals were approved by the men matter in the land and were prepared on dictates of foreign donors under tight bureaucratic controls without any public debate or dialogue.
According to Press reports, 56 disgruntled MNAs, mostly from Punjab, were very annoyed with the Shaukat Aziz government for not allowing them to take part in the debate on the budget and for ignoring their suggestions for the budget. Reports said among the prominent MNAs who signed the letter are Riaz Fatiyana, Asghar Shah, Akhtar Khan Kanju, Sanaullah Masti Khel and Sardar Bahadur Khan Sihar.
The members complained that the parliament was being treated like a "rubber stamp and robot" and nobody from the treasury benches was allowed to take part in the budget debate in line with democratic principles.
The MNAs also complained that a parliamentary party meeting was not called to consult the MNAs on the budget, nor were they given separate briefings before the finalisation of the budget. The MNAs also complained that the budget was not presented to NA standing committees.
They said to expect treasury MNAs to approve the budget after only 15 days of debate - and most of that time was taken up by the opposition - was "totally undemocratic".
The NA body on the Planning and Development Division had called the top bosses of the Planning Division to brief members of the parliament about the Public Sector Development Programme and get some guidelines from the elected members, but PDD Deputy Chairman Dr Akram Sheikh had refused to give a briefing because he was "too busy".
The Parliament was not even engaged in the process of budget-making as there was no input from any Select Committee of either House of the Majlis-e-Shoora regarding preparation of financial proposals for the 2006-07 budget. The Parliament has once again proved to be a rubber stamp as far as the formulation of tax policy of the government is concerned. As usual it is the handiwork of the Finance Ministry wizards and bureaucrats sitting in the Central Board of Revenue (CBR).
Fortunately this year some dissident voices from the ruling party were raised about the undemocratic and unconstitutional manner in which budget is prepared and tax proposals were adopted in the parliament.
Kashmala Tariq, ruling party MNA, deserves kudos for raising her vigorous voice in the National Assembly Standing Committee on Finance against the attempts to protect the real culprits behind a host of scams eg crash of Karachi Stock Exchange last year, out of books entries in Crescent Bank and NFC awards etc.
Her courageous and lone voice disturbed the "loyal to King" MNAs, particularly the Chairman of the Committee, Anwar Ali Cheema, who advised her "to leave the PML and join the opposition if she was interested in discussing the scams in certain institutions of the present government".
This shows the apathy and disgusting attitude of our so-called representatives of people (sic) sitting in treasury benches who always try to be more loyal than the King.
Press reports reveal that after finding no other option, Ms Kashmala walked out of the committee meeting along with another ruling party member, Malik Muhammad Saifullah Khan Tiwana, who supported her in boycotting the meeting against. Anwar Cheema's attitude to show solidarity with the lady MNA.
They all deserved appreciation and public support for their responsible and respectable action. In the meeting of Committee on May 28, 2006, the State Minister for Finance, Omar Ayub, was taken to task by the opposition members who grilled him for his refusal to share information with them regarding the upcoming budget.
Omar was criticised by the opposition, which wondered as to why the meeting had been called if it were not being taken into confidence by the government with regard to preparation of the budget. However, Mr Omar refused to take opposition members into confidence about the budget proposals being finalised in his ministry.
The meeting was called to discuss the proposal ahead of the budget but the members were surprised over the timing of the budget, saying how could the government accommodate their proposals when they had already finalised the budget? The committee members were annoyed with Mr Omar and other government officials for ignoring public representatives at the time of budget proposals formulation.
They were of the view that there was no need to seek their proposals if the budget has already been finalised. They termed Omar's request to give their suggestion simply a drama by saying that it was quite late and useless exercise. Ghulam Murtaza Satti, PPP MNA, openly protested saying that the parliament was reduced to the level of a rubber stamp and that budget was finalised earlier and members were not given enough importance by the Minister and others in seeking proposals.
He then left the committee room in protest and was followed by opposition MNAs, Dr Farid Ahmed Piracha, Khalid Memon, Ayaz Sadiq, and others. As usual and expected, the worthy Parliamentary Affairs Minister, Dr Sher Afghan opposed tabling of budget in committee on the grounds that it was a "serious and sensitive document" and its disclosure at this stage might affect it.
It is a highly lamentable attitude that must be condemned at the public level. In every civilized and democratic society, it is the sole prerogative of elected members to initiate the process of law-making and devising of national policies after taking public input. It is the prime rule of a democratic process that no law or policy should be made unless a thorough debate is held in the parliament.
In Pakistan the rulers, military and civilian alike, always try to bypass parliamentary processes and then complaint about lack of "democratic behaviour and culture" on the part of Opposition. Every year budget-making exercise is entrusted to bureaucrats sitting in Ministry of Finance and Central Board of Revenue (CBR) and the role of Parliament is adopting Finance Bill is that of a rubber stamp.
Due to non-participation of public representatives in budget-making, the financial managers and tax collectors have persistently failed to overcome fiscal deficit and remove fiscal imbalances. They are interested in number game and are bent upon to collect taxes where the are not due: there is a direct link between growing poverty in Pakistan and distortion in tax base since 1991, when major tax burden was shifted on consumers by introducing presumptive taxes in income tax law.
The lack of judicious balance between direct and indirect taxes and levy of regressive taxes in the garb of income tax, petroleum surcharge etc has pushed an overwhelming majority of Pakistanis towards the poverty line. Since the fiscal policy has not been devised by the parliament but by IMF-World Bank-imposed financial wizards, the priority has never been given to tax the rich and give relief to the poor.
The sole stress on indirect taxation [even under the garb of income taxation through presumptive tax regime on goods and services] without evaluating its impact on the economy and the life of poor masses is a serious cause for concern. The contribution of direct taxes as percentage of GDP was merely 3.01% in 2003-2004, whereas in 2002-2003 it was 3.15% [Page 23, CBR YEAR BOOK 2003-04].
The total amount of income tax collected for financial year 2003-04, according to CBR, was Rs 157,448 million. If we subtract tax collected at source on goods (Rs 22,829 million) and services/contracts/supplies (Rs 24,959 million) which being full and final discharge is in substance indirect levy, the collection comes to Rs 109,703 million.
In fact the collection of direct taxes as percentage of total revenue is only 21.06% and not 31.73% as claimed at page 15 of CBR YEAR BOOK 2003-04. Resultantly after the above adjustment, direct tax-to-GDP ratio for 2003-04 is dismally low at 2.1% and not 3.02% as claimed by the CBR. It proves beyond any doubt that the tax system is directly contributing to rising poverty as people who possess enormous income and wealth are not been subjected to income taxation in Pakistan (wealth tax was abolished as a condition for joining a person as our finance minister!).
Thus the very purpose of redistribution of wealth as the main object of taxation is being defeated. It is pertinent to mention that in 2004 the government of Sweden collected taxes at 50% of GDP, almost twice as high as the total tax revenue of America and Japan, with both collecting around 25% of GDP. In the Euro area, tax revenue, on average, reaches 40% of GDP.
The CBR has collected taxes of over Rs 700 billion in the financial year 2006-07 out of which regressive taxation is to the tune of Rs 600 billion. It has distorted the economy, raised the cost of doing business, widened the gulf between rich and the poor and made the national industry non-competitive. The revenue deficit, despite this collection of over Rs 700 billion, is monstrously high at Rs 175 billion and fiscal deficit at Rs 373 billion.
The present tax policies of government are detrimental for economy, social justice, business and industry. Those who possess more economic power (income and wealth) should contribute more to the public exchequer and vice versa. The ability-to-pay principle is regarded as the most equitable and just method of taxation.
It is emphasised primarily for its redistributive role. In Pakistan our rulers have completely deviated from this principle, which is, in fact, a constitutional obligation of the government.
The existing tax system protects the establishment and exploitative elements that have monopoly over economic resources.
There is no political will to tax the privileged classes. The common man is subjected to sales tax of 15% (tax incidence is 42% on finished imported goods after applicable customs duty, 15% sales tax and mandatory value addition of 10% and 6% income tax) on essential commodities [even salt sold under brand names is subjected to 15% sales tax] but the mighty sections of society such as big industrialists, landed classes, generals and bureaucrats are paying no wealth tax/income tax on their colossal assets/incomes.
It is tragic that in a country where billions of rupees are being made in speculative transactions in real estate and shares, tax-to-GDP ratio is pathetically low [just 9% in fiscal year 2004-05] and the Government is least bothered to tax undocumented economy and benami {name-lender) transactions. The mighty sections of society are engaged in these transactions and rulers of the day, being dependent on them, lack the will to tax them.
Pakistan is quite capable of substantially reducing or even eliminating its fiscal deficit and improving tax-to-GDP ratio to 25% within two year's time provided a comprehensive programme, well designed work plan, scientific approach and multi-dimensional strategy is adopted for tax reforms and resource mobilisation.
We need a fair and equitable tax system, which should be devised and supervised by a bi-partisan committee of parliament and not by handpicked IMF-World Bank experts (sic) and their cronies sitting in Ministry of Finance and CBR.
The tax-to-GDP ratio for 2006-07 is just 9.2 per cent [8.9% for financial year 2004-2005 and 9.2 for financial year 2003-2004] confirming that policy-makers and tax administrators have failed to tap the real revenue potential of the country despite the fact that Rs 700 billion record collection was made first time in the history of Pakistan.
Collection of over Rs 700 billion shows that the CBR, in the past, was not utilised properly and certain classes are yet not willing let it work as an independent institution. If CBR becomes a sovereign tax authority, insulated from political and business interests, there is every possibility to collect revenue to the tune of Rs 1100-1250 billion in the next three years' time making Pakistan a truly self-reliant country.
The Government has once again failed to demonstrate strong political will to eliminate large-scale tax evasion and existence of a mammoth black economy that have resulted in colossal loss of revenue to the State.
The government has not done anything to rectify the situation which is reducing the built-in elasticity of a fiscal system to the extent that the tax evaded income is being spent on goods and services that help generate inflationary pressures and raise prices of real property [our unprecedented remittances from abroad are largely being absorbed in this unproductive sector].
In the presence of a grave challenge to combat terrorism, coupled with money laundering crises, and the problem of ever-growing black money, (which according to official and independent experts is around Rs 1.8 trillion), there is an urgent need to launch a well-thought for anti-money laundering-asset seizure law to prevent this huge amount from becoming a lethal weapon in the hands of mafias who are now in control of economy as well as the government.
(To be concluded)