by Dr Ikramul Haq
Pakistan is controlled and ruled by ashrafiya (elites)—comprising indomitable military complex, civil bureaucracy, higher judiciary, landed aristocracy and its cronies, industrialist-turned politicians, religious and spiritual leaders (sic), media tycoons and some of their powerful employees, and unscrupulous businessmen.
Flouting the rule of law with shameless impunity is the hallmark of present day’s Pakistani ashrafiya.
The spoiled brats of ashrafiya join different nefarious circles for all kinds of unlawful and undesirable activities—for them vulgar ostentation of money and power is essential to prove that they are closely associated with the most powerful of the State. In good old days, ashrafiya was respected as a class of nobles and highly revered. In post-colonial Pakistan, the term represents the money-power-hungry classes posing as if the country is their personal jagir (property) and all their acts are above law.
The economy of ashrafiya-controlled-Pakistan, thus, serves the interests of the privileged classes.
The ruling classes, representing only 2% of entire population, own 95% of national resources.
They exploit labour of landless tillers, poor urban workers and white-coloured to amass more and more wealth.
Additionally, they create artificial hike in prices of essential items to snatch back whatever little is earned or saved by 98% ordinary people.
The evolution of this kind of State (land of the Pure) is elaborated in detail by former Governor of State Bank, Dr. Ishrat Hussain, in his book Pakistan: Economy of an Elitist State.
In his book, Dr. Ishrat has observed that in sharp contrast to the East Asian model of ‘shared growth’, based on rapid economic development coupled with a rapid reduction in poverty and more equitable distribution of the benefits of development in Pakistan, the elitist model confers political and economic powers to a small coterie of elite (parasites). While commenting upon Dr. Ishrat’s work, Dr. Khalil Ahmad of Alternate Solutions Institute, in his recent book, Pakistan Main Riasti Ashrafiya ka Urooj (Rise of State Elitism in Pakistan), published in February 2012, has also concluded that Pakistan is presently owned and exploited by ‘state elites’ whereas it should belong to all.
There are no two opinions that the ruling trio—mighty military complex and its civilian cronies, corrupt politicians and unscrupulous businessmen—imposes its will on members of parliament in all matters. The entire budget making process is an epitome of apathy of parliamentarians towards the masses of this country, who vote them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services—housing, transport, education and health, to say the least.
Democracy is not electioneering per se. Establishment of a responsible government caring for the needs of its people is a prerequisite for true democratic dispensation which is only possible if the Parliament performs its Constitutional role, implements flawless process of accountability and ensures good governance. Theoretically, the Cabinet is answerable to the Parliament! But the stark reality is that MNAs merely run after ministers for personal favours and gains.
Reliance on indirect taxes that constitute 75% of total collection proves beyond any doubt that the tax system is emphatically contributing to rising poverty as people who earn enormous income and possess immense wealth are not being subjected to income taxation in Pakistan. Thus the very purpose of redistribution of wealth as the main object of taxation is being defeated and nullified. Not only that Pakistan has one of the lowest tax-to-GDP ratios in the world, the burden of taxes is overwhelming borne by the poor rather than by the rich. Income inequalities are one of the worst aspect of the entire problem. In South Asia, except Afghanistan, all other countries have better tax-to-GDP ratio than Pakistan: India 17%, Sri Lanka 16%, and Nepal 11%. It is pertinent to mention that in 2011, the government of Sweden collected taxes at 53% 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 present tax policies of the 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 and emphasized upon 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 complete monopoly over economic resources. There is no political will to tax the privileged classes. Pakistan has been facing a variety of crises specifically in areas of: resources for its developmental policies, meeting trade deficits, fiscal deficits and balance of payments, in addition to numerous others. One of the factors responsible for the present situation is the accelerating speed with which black money is being generated.
FBR is directly responsible for this phenomenon as its mafia-like operations has helped the people to avoid tax on incomes by paying it “due share”. Through the infamous system of SROs [Statutory Regulator Orders], FBR’s top officials provide “legal” ways and means to mighty sections of the society (ashrafiya) to amass huge wealth that is now threatening the State’s very survival. It is worth mentioning that even before presenting the Finance Bill, 2012, FBR issued notification 569(I)/2012 on 26 May 2012 saying that government officials in Grade 20-22 will pay just 5% tax on monetized transport allowance. This benefit of reduced rate taxation, blatantly bypassing the Parliament, portrays how bureaucrats hoodwink the nation and cause exchequer loss of revenue through SROs. Needless to say it is discriminatory and violative of Article 25 of the Constitution as private sectors employees for the same allowance are subjected to normal rate of taxation.
Reduction of duties for cartels possessing enormous money has been extended by using executive authority in the form of SROs. Pakistan is a unique country where the executive authority can conveniently undo laws made by the Parliament under so-called delegated powers which gross violation of Article 162 of the Constitution of Pakistan, which reads as under:
“162. Prior sanction of President required to Bills affecting taxation in which Provinces are interested: – No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”
Article 162 debars even the National Assembly to grant exemptions without the prior approval of the President but interestingly, this power has been delegated unconstitutionally to an executive authority by the Parliament. How can Parliament delegate a power which it cannot exercise itself without the prior sanction of the President?
By delegating powers under tax codes, the Legislature has violated Article 162 of the Constitution.
The common man is subjected to exorbitant sales tax and federal excise duty of 16% (tax incidence is 35% on finished imported goods after applicable customs duty, sales tax, federal excise, mandatory value addition and income tax) on essential commodities [even salt sold under brand names is subjected to 16% sales tax] but the mighty sections of society such as generals, high-raking bureaucrats, judges getting plots from the State are not paying any wealth tax/income tax on their colossal assets/incomes. The same is the case with big industrialists and landed classes that get concessions and exemption through SROs.
It is tragic that in a country where billions of rupees are being made in speculative transactions at stock exchanges and in the real estate sector, tax-to-GDP ratio is one of the lowest in the world [consistently below 10% for the last 10 years] and the government is least bothered to tax undocumented economy and benami (name-lender) transactions rather, generously give amnesties to tax evaders and looters of national wealth. The mighty sections of society are widely engaged in these transactions while rulers of the day, getting due share from them, are not at all inclined to tax them. The present tax policies of government are violative of Constitutional provisions that require the State to provide social justice to all.
The existing tax system protects the ashrafiya and exploitative elements that have monopoly over economic resources—those who own 95% of national resources are paying less than 2% of overall tax collection. This shows why there is no political will to tax the privileged classes. Unfair taxation and inequitable distribution of resources is the root cause of our multiple socio-economic ills. State policies induce massive tax evasion (section 111(4) of the Income Tax Ordinance, 2001 is a permanent tool for whitening of untaxed money).
Determination of a tax base capable of measuring an individual’s ability-to-pay is a major problem of our tax system. This rule is incorporated in the form of progressive rate schedule for personal income tax, estate duty, and property tax worldwide. In Pakistan we have moved from this positive policy to unequal sacrificial rule where the mighty civil and military bureaucrats (now an integral part of our landed aristocracy by earning State lands as meritorious awards and rewards), rich industrialists and greedy businessmen are paying meagre personal taxes whereas the poor people are compelled to pay sales tax and federal excise duty of 16%. The incidence of regressive taxes on the poor is making their lives a misery beyond imagination.
Pakistan has about 118.5 million mobile users who pay both income tax and sales tax but even then only 1.3 million taxpayers file income tax returns—if statements filed for presumptive taxes are excluded, the actual number is below 750,000. Majority of mobile users may not have taxable income (Rs 350,000, raised to 400,000 from tax year 2013) yet they are burdened with undue liability. On the contrary, many rich people just pay a fraction of income tax (withheld at source) on their actual taxable incomes without bothering to file their income tax returns—in Pakistan less than 250,000 non-salaried return filers admitted that their annual income was more than Rs. one million!
If out of total population of 180 million, we have 10 million individuals having taxable income of Rs 1.5 million (a very conservative estimate), total income tax collection from them at the current rate for tax year 2012 should have been Rs 3750 billion. If we add income tax collected from corporate bodies, other non-individual taxpayers and individuals having income between Rs 400,000 to Rs 100,000, the gross figure would be nearly Rs 5000 billion. FBR collected only Rs 560 billion as income tax plus Rs. 20 billion as other direct taxes during fiscal year 2010-11 and figure for this year would be around Rs 665 billion. This shows a whopping tax gap of over 600 percent. Similarly, in sales tax, federal excise and custom duties, due to rampant corruption, the total collection is only 20% of actual potential. In fiscal year 2010-11, FBR collected Rs 633.4 billion under the head sales tax, Rs 137.4 billion under federal excise duty and Rs. 180.8 billion under custom duties. Total indirect collection of Rs 951.6 billion was pathetically low. It should have been at least Rs 3500 billion.
If tax gap is bridged, the total revenue collection of Pakistan would be Rs 8500 billion (Rs 5000 billion direct taxes and Rs 3500 billion indirect taxes) which would change the entire fiscal scene.
We would have enough money for current expenditure, development and public welfare outlays— government would retire debts in just a few years and we can easily become a self-reliant nation free from political subjugation.
However, this dream for Pakistan can never be realized unless the mighty sections of society (ashrafiya) are taxed according to their ability to pay.
Tax policy must be used as tool for rapid industrialization and creation of job opportunities.
It is imperative to tax the unproductive sectors to divert money to productive sectors and ensure redistributive charter of tax system—taxing the rich for the benefit of the poor.
At present, we are taxing the poor for the benefit of the rich. This trend must be reversed before it is too late.
The Government is not leaving any opportunity to screw the masses. Bizarrely, while the price of crude oil is falling in the international market, petroleum prices are on a constant rigmarole in Pakistan which is leaving the common man stripped of his earnings, increasing inflation to a non-receding position, and rendering the lives of the poor vulnerable. It goes without saying that this whole exercise is bringing in huge profits to the petroleum companies and revenues in trillions for the government (per Rana Bhagwandas Commission Report on Petroleum Prices dated July 9, 2009 submitted to Supreme Court of Pakistan).
It is incontrovertible fact that the main beneficiaries of price rises are a few oil companies and the FBR which in its latest report, has admitted that “the petroleum is the leading contributor of sales tax domestic collection. The overall collection of sales tax domestic depends on the collection of petroleum products as it contributes around 43pc of the sales tax domestic. The growth is mainly attributable to increased taxable sales of petroleum products by 37.6pc”.
This is the story of “exceptional growth” in revenue collection of FBR, about which Premier Gilani and his American national economic adviser Abdul Hafeez Shaikh are proud of. They seem to be least concerned if this move pushes millions of Pakistanis below the poverty line, destroys the economy and creates unrest in the society. The share of government taxes and levies in petroleum prices is more than 50pc from the stage of importation to final ex-refinery supply point.
Taxes constitute a major part of the price of every petroleum product — consumed by the public for personal and business purposes.
During the fiscal year 2010-2011, FBR collected total sales tax of Rs633 billion out of which share of POL products alone was Rs263.821 billion (on import Rs110.54 billion and on domestic supply Rs153.28 billion). The figure for July 2011 to December 2011 of the current fiscal year is Rs148.9 billion.
In the report submitted to Supreme Court by Rana Bhagwandas Commission dated July 10, 2009, it was revealed that from 2002 to 2009, the government made Rs10.23 trillion in taxes on petroleum products.
It is regrettable that we have failed to provide mass transit facility for at least 2 large cities — Karachi and Lahore — and bus service for every city and town despite burdening citizens with all kinds of taxes. On the contrary, consumer loans were vastly disbursed under Musharraf-Shaukat era, inducing purchase of vehicles resulting in enormous profits both for the petroleum companies and car manufacturers.
The real sufferer is the common man who cannot afford personal transport. More and more cars on the roads cause pollution, traffic mayhem and are the main source of increase in our oil import bill.
From July 2011 to February 2012, our crude oil imports surged to US$ 3.85 billion, compared with US$ 2.49 billion in the corresponding period of the preceding year.
In order to cut the import bill, we need improve public transport system that can solve all the prevalent problems. The challenge before us is to build good public transport system and a clean energy economy.
Today, we export billions of dollars each year to import the energy we need to power our country with. Our dependence on foreign oil threatens our national security, our environment and our economy. We must make investments in clean energy sources that will create millions of new jobs and lay the foundation for long-term economic security.
Our rulers follow United States in most of the matters, where their personal interests are involved, but not in areas where public welfare can be achieved. In recent months, the US made great strides toward changing energy future. The US Recovery Act constituted an unprecedented and historic investment in the clean energy economy. Our government must realise that investments in the development of renewable energy and clean technologies can lead to energy sources of the future.
We have destroyed our rail system — depriving the poor and business houses of cheap and efficient transportation mode — while other countries are making huge investments in high speed rail and advanced car batteries, considered as transportation systems of the future.
It is sad that the government is using higher taxes on petroleum products as means to reduce its fiscal deficit, without realising that price hikes in these items affect economy as a whole, retard growth in all sectors besides accelerating inflation.
Our tax system benefits the wealthy at the expense of the overwhelming majority of poor Pakistanis. The government, instead of restoring equity in the tax system — reducing corporate tax rates and increase taxes on the rich — is using price-hike in petroleum products as a means to collect more taxes, thus extending extraordinary benefits to a few powerful oil companies and making life of 95 percent of the people miserable. By plugging loopholes that prevent wealthy companies and individuals from paying a fair share of taxes, the government can generate enough revenues through levy of excess profit tax to build public transport system that would save billions that we mercilessly spend on import of crude oil.
Filed under: Democracy Not Working, Economy | Tagged: Economy, Human Rights, Indirect Taxation in Pakistan, Pakistan, Pakistani Politics, Poverty in Pakistan, Taxation in Pakistan | 2 Comments »