By Huzaima Bukhari & DR Ikramul Haq
The ruling elites of Pakistan – military-judiciary-civil complex, businessmen-turned-politicians and absentee land owners – are responsible for the present economic mess, that has pushed the country into a deadly debt quagmire – they beg for IMF bailouts and ironically talk about self-reliance! They make tall claims about reforming the tax system but shamelessly use the Federal Board of Revenue (FBR) as their handmaid in getting tax-free benefits of billions of rupees. Through concessionary Statutory Regulatory Orders (SROs), non-collection of agricultural income tax, meagre or non-taxation of luxury and commercial properties e.g. clubs and golf courses, unprecedented exemptions given to generals, judges and high-ranking civil officials, the national kitty suffers collossal loss – if these are recouped our tax-to-GDP ratio should be between 12 percent to 14 percent.
The narrative that Pakistanis do not pay taxes – popular with analysts, TV anchors, academicians, policymakers and foreign donors – is nothing but a farce. The ground reality is that the poorer Pakistanis are the most over-taxed people, whereas the ruling elites not only enjoy tax breaks but also tend to thrive on labour and taxes of the down-trodden (a scenario parallel to the 1780s France).
The ruling elites, suffering from multiple maladies like self-righteousness, self-praise, fear of losing power and money and despair arising out of affluence, are the root causes of all our problems – they neither have the will nor moral courage to fight extremists. After failing to protect the life and property of the people, they are imposing more and more indirect taxes – making life miserable for the poor and enriching the traders and businessmen. While the government in power perseveres to appease the mighty generals, forever-sullen judges and greedy bureaucrats, there is nothing left for the general public – their living conditions keep deteriorating with every passing day.
There is a dire need to expose the role of these elites in our socio-politico-economic decay, but the media, also beneficiaries of the system, cunningly divert the attention of the masses towards trivial issues. All these classes are captives of self-interest and victims of self-aggrandisement. The concentration of power and wealth in their hands, coupled with lust for control, has given rise to perpetual institutional confrontations, civil commotion and economic collapse – putting to risk the very survival of the State.
It is an undeniable fact that millions of mobile users – prepaid or post paid – with effect from July 1, 2013 are paying exorbitant tax of over 40 percent. Majority of them have income below the taxable limit. There is no way they can get refund of the adjustable 10 percent income tax withheld at source, as cost of filing of return would be a great deal more, the procedure being cumbersome (every refund application to be filed online) and even if all the requirements stand fulfilled, the tax officials would ask for their “due share” in the end. Ishaq Dar et al sitting at the top are either not aware of these mundane realities or they are least bothered.
The most unforgivable crime of the ruling elite is grabbing of State property and non-payment of taxes on unprecedented perquisites and perks enjoyed by them – they get State lands as rewards and awards (free or at throwaway prices) and a host of free benefits but do not pay taxes due on them even where the law so requires. Adding insult to injury, the taxes collected from the masses are shamelessly wasted on their luxuries – palatial bungalows, fleets of cars, army of servants, foreign tours and what not. The only solution lies in monetization all their benefits and perquisites as suggested by the Planning Commission under Nadeem Ul Haque. Proposals like ‘Monetization of Housing Facility for Federal Civil Servants’, prepared by him suggesting savings of billions and fair deal for government servants, were strongly resisted by the vested-interest confirming the predatory role of our ruling elites in squeezing and looting the national resources.
The corrupt and inefficient government servants faithfully serve the political elite and in the process also make a “fortune” – all at the expense of the general public. Take the example of FBR where billions are lost annually due to incompetence and corruption – this is despite the six-year long foreign-funded reform (sic) programme. Since the rich and mighty do not pay income tax, regressive taxes are imposed and even then FBR miserably fails to meet the fixed revenue targets. For the just ended fiscal year, shortfall recorded was the worst ever in our history, nearly Rs 465 billion. In fiscal year 2011-12, against the assigned target of Rs 1952 billion, FBR collected Rs 1883 billion – Rs 738.8 billion as income tax, Rs 804.8 billion as sales tax, Rs 122.5 billion as federal excise duty and only Rs 216.9 billion as custom duties. Low tax collection in Pakistan is because of the reason that various vested-interests enjoy exemptions and concessions to the tune of Rs 500 billion and almost the same amount is lost due to inefficiency and corruption. At provincial level, there is no will to collect agricultural income tax from the rich absentee landlords – share of this tax is even less than one percent of GDP!
Tragically, the poor whose income falls below taxable limits under the income tax law are criminally taxed – funds extorted from their hard earned money are plundered and wasted by the ruling elite. The civil-military-bureaucracy complex, ministers, state ministers, advisers, MNAs and MPAs together squandered Rs 1800 billion in the fiscal year 2012-13 on perks and perquisites alone. Not only this, the powerful military-judiciary-civil complex – the real rulers of Pakistan – did not pay a single penny as tax on plots and benefits in utter violation of section 13(11) of the Income Tax Ordinance, 2001 ["the Ordinance"], which says:
“Where, in a tax year, property is transferred or services are provided by an employer to an employee, the amount chargeable to tax to the employee under the head “Salary” for that year shall include the fair market value of the property or services determined at the time the property is transferred or the services are provided, as reduced by any payment made by the employee for the property or services”.
Section 14(b) of the Ordinance defines “services” to include the provision of any facility” and the concept of “fair market” is defined in section 68 as under:
”68. Fair market value.- (1) For the purposes of this Ordinance, the fair market value of any property or rent, asset, service, benefit or perquisite at a particular time shall be the price which the property or rent, asset, service, benefit or perquisite would ordinarily fetch on sale or supply in the open market at that time.
(2) The fair market value of any property or rent, asset, service, benefit or perquisite shall be determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash.
(3) Where the price referred to in sub-section (1) is not ordinarily ascertainable, such price may be determined by the Commissioner”.
Section 39(1)(j) of the Ordinance is also attracted, which declares the following as income chargeable to tax:
”The fair market value of any benefit, whether convertible to money or not, received in connection with the provision, use or exploitation of property”.
It is sad to note that militro-judicial-civil complex blatantly violates tax provisions and does not pay any tax on getting State land, free accommodations and other benefits – all covered in section 13(11) and 39(1)(j) of the Income Tax Ordinance, 2001. FBR is not at all interested to tax them – their top notches are also beneficiaries of these benefits.
Ruling elites are unwilling to pay taxes on their unprecedented and exorbitant perquisites and benefits, shifting burden of taxes on the weaker sections of society. This is the real dilemma of Pakistan. During the last regime, an ex-Member FBR wrote a letter to the then Finance Minister, Abdul Hafeez Shaikh, that massive tax evasion/loss of revenue had occurred due to non-taxation of government property given to the high-ranking officials at concessional rates – the minister took no action and same is expected from Ishaq Dar.
Tariq Bajwa, the new Chairman FBR, former Secretary Finance Punjab, will face an uphill task in taxing the ruling elite – he showed no interest in collecting agricultural income tax while in Punjab. His predecessors made no effort to tax about 3.8 million tax evaders despite receipt of data from NADRA. Action should be taken against them and all other tax cheat, but first of all recovery should be made from delinquent elected members, mighty civil and military officers and other beneficiaries for receiving State lands and free benefits. Recouping of lost revenue of billions of rupees from them will certainly convey a loud message to all that FBR means business and nobody is above law. As the mighty sections of society are not paying taxes due from them, the common people rightly argue against discharging their tax obligations, especially when the State has failed to protect their lives and properties, what to talk of providing basic facilities of education, health, housing and transportation.
Our Money, Their Banks
Senate’s Standing Committee on Finance, in its non-binding recommendations sent to the National Assembly on June 21, 2013, specifically suggested exchange of information with Swiss government to unearth untaxed accounts of Pakistanis. It is common knowledge that no tax is paid by Pakistani residents on such accounts — though, under the law, they are bound to declare both Pakistan and foreign source income (total world income) and then claim exemption or credit on the doubly taxed income, if available.
The FBR has been seeking permission of the finance minister to negotiate new agreement with Switzerland for this purpose, but has failed to obtain it till today — a summary sent to Dr Abdul Hafeez Shaikh, former minister for finance, never got a response and now a fresh one is moved to Ishaq Dar but there is no urgency on his part to deal with it (reasons are obvious)! His involvement in a money laundering case known as Hudaybia Papers Mills was alleged in a reference filed by Musharraf against Nawaz Sharif and his family—see detail at http://archives.dawn.com/archives/35094
A news published in The Times of India of June 21, 2013, says that “when it comes to money in Swiss banks, Pakistan has a slight edge over India with total funds amounting to 1,441 million Swiss francs [Rs1.52 trillion] held there by Pakistani individuals and entities. However, this was the lowest level for such funds ever since Switzerland’s Central Bank began compiling this data in 2002 and was less than half of the record high amount of over 3 billion Swiss francs [Rs4.18 trillion] recorded in 2005. The previous record low of 1.95 billion Swiss francs [Rs2.06 trillion] was seen in the year 2010. In their local currency, the total funds held by individuals and entities from Pakistan in Swiss banks stood at over Rs1.5 trillion as on December 31, 2012”.
It was further revealed in the report that this marked a decline of nearly 32 per cent from 2,119 million Swiss francs (Rs2.32 trillion) at the end of 2011. The issue of alleged stashing of black money in Swiss banks has been a matter of intense debate in Pakistan, as there have been reports of some top former government leaders having kept their money in banks in the European country due to their hugely popular ‘safe-haven’ status. However, a higher amount than Indian entities, assumes significance because Pakistan is a much smaller country in terms of population and area. Still, the quantum of money held by Swiss banks for their Pakistani clients was about 1.5 per cent higher than the equivalent figure for Indians at 1,421 million Swiss francs at the end of 2012, the latest data compiled by Swiss National Bank (SNB) shows.
The report is shocking — confirming that our tax evaders have larger funds than Indians in Switzerland alone. If we add Dubai and other such centres where the rich and mighty have been shifting billions, the figure would be horrendously large — many times what is lying in Switzerland. It is not a matter of a few billions — the amount is at least ten times the collection of FBR. On the one hand, the government is begging before the IMF for further loan and imposing regressive taxes on the poor and on the other, there is no political will to tax the accounts held in Switzerland and elsewhere by our tax cheats [Of assets disclosures and transparency, The News, December 12, 2011].
While the government has rejected the recommendation of Senate to seek assistance of foreign governments in taxing accounts of Pakistanis with them as done by India and other countries, the Finance Act 2013 passed by the National Assembly on June 27, 2013 has given powers to the FBR to access all bank accounts within Pakistan. Such powers have been held by the Senate Finance Committee as “too intrusive, against privacy of individuals and is prone to abuse and misuse.”
The Senate committee is of the view that “since the FBR is itself susceptible to corruption, as stated by Chief Justice of Pakistan, it will likely lead to loss of confidence of Pakistani people in their own banks, almost similar loss of confidence is suffered due to seizure of foreign currency accounts after the 1998 nuclear tests.”
Finance Minister Ishaq Dar did not accept the recommendation of Senate to withdraw changes in the Income Tax Law giving powers to the FBR to access information of account holders held with local banks. He says the information will be confined to Chairman and members of the FBR and not to be shared with staff. If it will not be shared with the field staff, then what could be the purpose of having such powers? Apparently, the only purpose then would be to blackmail political opponents or big fish. It will certainly lead to more flight of capital.
It is strange that the government wants complete access over local account holders but is not ready to get similar information for accounts lying outside which are depriving the national exchequer of billions of rupees in taxes. All responsible governments in the world have, in recent years, shown commitment to retrieve looted money or funds kept by their citizens in tax havens. But in Pakistan, the PPP-led government, during its five-year tenure (2008-2013), acted as the main stumbling block to any such move. Now the PML-N government has also shown unwillingness to tax trillions kept by Pakistanis abroad — these were not offered for tax and their sources are obviously dubious.
The issue of tax avoidance by keeping accounts in tax havens has become a highly charged political issue in the world. Across much of Europe, rich northern countries are increasingly fed up with demands for bailout money from heavily indebted countries like Greece. A key demand of a recent bailout deal announced for Cyprus was that the nation drastically shrinks its role as a financial center and, many in Germany suspect, a haven for money laundering. In Pakistan’s case, we are begging for bailout from the IMF while billions of untaxed dollars are lying abroad. We should bring them back by taking tough measures after giving option of whitening them at the rate of 15-25 per cent voluntarily. If it works we would need no further loans from the IMF or local banks.
People in Pakistan ask why they should file tax returns when their president, prime minister, ministers, governors and elected representatives pay no or meagre taxes. President Zardari, before his election on September 6, 2008, got $60 million unfrozen in Switzerland, and now his case is barred by time. He did not bother to tell the nation how much tax was paid on this collossal money and why it was lying abroad. Before taking the oath of president’s office, he did not declare his assets and liabilities with evidence of payment of taxes where due. The same stands true for all the leading politicians, including Mian Nawaz Sharif and Shahbaz Sharif.
We have written time and again in these columns that tax culture in Pakistan will never take roots unless tax and asset declarations of all the mighty segments of society — politicians, high-ranking military and civilian officials, judges and all public office holders — are made public. There should be a public campaign that absentee landlords, most of whom are members of the parliament, should reveal their tax declarations.
All the judges, high-ranking public servants, including serving and retired generals, should also be required, under the law, to make public their assets and tax declarations on annual basis. Any person who is a tax delinquent should be debarred from contesting elections. All kinds of exemptions and concessions provided under various tax codes should be withdrawn.
Judges of higher judiciary, military and civil hierarchy and parliamentarians feel that they are underpaid, thus, economically deprived! Frequently, the parliamentarians pass laws for their own benefits extending more emoluments and fringe benefits! President keeps on enhancing benefits of judges. No doubt, economic deprivation prevails for the majority of low-paid employees, but the top-notches give them only peanuts — in retaliation they resort to corrupt practices in the name of “necessity”. This is in a nutshell our nizam-e-hakumat (system of governance). It is a strange form of polity where the privilege classes want more and more share in taxpayers’ money in the form of free plots and perquisites.
The total amount spent on military establishment — not for defence needs but for the luxuries of the generals and other high-ranking officers — is not less than Rs125 billion.
The cost of running the offices of president, governors, PM, ministers, advisers (supported by huge staff) in a year is between Rs130-145 billion — 60 per cent of it is extending a host of fringe benefits.
The entertainment budget alone of the PM’s House and the President’s House is Rs170 million and Rs195 million respectively.
One minister costs around Rs60 million per year; whereas we spend Rs144 per Pakistani per year for health; and Rs145 per Pakistani per year for education!
Former PM, Yousaf Raza Gillani, while speaking to a grand gathering of senior bureaucrats in Lahore, asked the Pay and Pension Commission, notified on April 2009, to come up with concrete suggestions for “a reasonable pay and pension package for the government employees”. The so-called party of the people, established by Zulfikar Ali Bhutto, in its 5-year rule did not bother to establish any commission to assess the unbearable incidence of taxes and cost of basic services to the ordinary citizens and how to give them relief.
The high-ranking officials have dual nationalities and enormous hidden assets — kept mostly outside but also within the country in the names of others (benami). No doubt all the public servants have legitimate right to get reasonable pay and security of job — the State must fulfill its duty of good pay master. But in turn, they should be the public servants in real sense of the word and not the Gora sahibs.
We beg money from all and sundry and then provide luxuries to elites. It is shameful and deplorable. No growth has been achieved even after borrowing billion of dollars.
People are dying of hunger — majority is living in miserable conditions — and our privileged public servants (sic), public office holders, generals and judges are not ready to give away their perks and benefits. In a democratic setup they should get ‘Consolidated Pay Package’ and pay tax on it like others do.
Way back in 1964, a book titled ‘Your most Disobedient Servant’ was published by a civil servant in a transport service of the UK. It revealed the losses and irregularities in the use or misuse of official transports — it eventually paved the way for ‘Consolidated Pay Package’ that monetized pay, perks, privileges of those serving in state organisations. It reduced the corruption a great deal. Civil society and social media in Pakistan must take up this issue forcefully.
According to a press report, “in the locality sprawling over an area of 1,514 kanals of Mozang, Lahore, the largest house in the area, over 52 kanals, is the designated house for the Lahore High Court Chief Justice.
The Commissioner’s House is the second largest house covering 26 kanals.
The Chief Secretary’s House covers 12 kanals and the Chief Minister’s House covers 5 kanals. These are painful facts.
The beneficiaries of these huge residences, constructed from taxpayers’ money or borrowed funds, claim to be public servants or the custodian of law. They give public sermons about rule of law and great democratic movement launched by the ordinary citizens that restored them, but feel no compulsion for living like them.
Repeatedly they quote from Islamic “golden age” of administration. But seldom have they mentioned that in pre-monarchical Islamic period, the rulers used to take minimum possible amounts — only for their essential needs — from Baitul Maal (national exchequer).
Millions are spent every year for the renovation, alteration and landscaping of Lahore’s GORs to facilitate the civil, police and judiciary high-ups living there.
The renovation of Punjab House in Islamabad, Karachi, Murree and Rawalpindi has been part of five successive budgets of Khadim-i-Aala’s. This is the story of good governance in the Punjab where the Chief Minister prefers to be called Khadim-i-Aala (Chief Servant)!
The situation in other provinces and the federal government is no different — rather it is worse. Huge sums are spent (rather wasted) for providing privileges to the high-ranking government officials and politicians. The same situation prevails in the military establishment. The style of living of our generals is unmatched in the world. In the post-colonial period they became not only political masters but also the main beneficiaries of country’s major resources.
While the government servants blame politicians for plundering and wasting the money, they allege that bureaucracy is the root cause of all the ills. They claim that a secretary of government costs at least Rs500,000 per month to national exchequer with lot of facilities and perquisites in kind. If rent-free accommodation given to him in Islamabad alone is evaluated on market basis, the benefit is not less worth Rs250,000 per month. In addition, he exercises unfettered powers and defy the orders of elected members of parliament and even sometime of ministers. These facts call for immediate right-sizing — closing down of all the unnecessary departments, divisions, sub-divisions and allied paraphernalia [see list in ‘Capital Suggestions’, The News, January 04, 2009]. The list is long and astonishing.
At Constitution Avenue, Islamabad, one can count 30 useless government establishments that are doing nothing but have imposing buildings and huge staff. The same is true everywhere — in all parts of the country one finds government offices, overstaffed, wasting money and time and making the lives of the citizens difficult.
Living in sprawling bungalows with army of servants, the rulers, mighty bureaucrats, judges and generals are least pushed to bother how the common man is living (or dying) — even totally indifferent towards their own fellow low-paid employees. The civil-military structure in Pakistan is class-oriented and against the basic precepts of democracy. They make policies while sitting in the air-conditioned rooms for poverty alleviation and what not.
Since independence, State of Pakistan is either directly run or controlled by a strong civil-military complex. It has proved to be crueler than colonial masters — in terms of oppression, denying the people their fundamental rights and being highly inefficient and corrupt. Political elite, playing in the hands of civil-military complex, has also shown strong indignation towards pro-people decentralised governance.
Our governance model — under civil or military rules alike — has proved to be even worse than many developing countries where decentralisation has brought benefits for the people at gross root level. Our rulers have failed to empower the masses by implementing the command of Constitution — Article 140A says: “Each Province shall, by law, establish a local government system and devolve political, administrative and financial responsibility and authority to the elected representatives of the local governments.”
The immediate actions should include right-sizing of huge government machinery and monetising of all the fringe benefits and perquisites in kind given to the employees [see detailed recommendations by Dr Ishrat Hussain, Shahid Kardar, Nadeem ul Haque and many others]. Democratisation and decentralisation necessarily requires complete reform of our civil service and military establishment as well as accountability of public office holders.
The State must withdraw from all its employees and public office holders all facilities like houses, cars, servants, telephones etc. All perquisites given in kind should be monetised. Let the government servants — especially the senior bureaucrats — live with the ordinary citizens of Pakistan and not in GORs or other posh (isolated) colonies. It will give them real insight how the policies should be made and what are the real problems of the ordinary folk.
The government must give ‘Consolidated Pay Package’ to its employees — there should be no free plots, free club memberships, fringe benefits and perquisites in kind. This will be the starting point of change in society — beginning of the democratisation of governance.
It is the Constitutional duty of the State to treat all the citizens equally and provide them the facilities of education, health and transportation. Since all the money is spent on the luxuries of the elites, the State has persistently failed to fulfill its main responsibility. If we want to survive and progress, we will have to dismantle elitist structures