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Accountability through tax law only solution

Corruption and accountability have been the main subjects of our social discourse for over 70 years. However, not a single case has ever been finalized. We had numerous plea bargains, however not a single case ever reached its finality on this matter. This issue attained special significance after the Panama Leaks episode. The Broadsheet scandal opened the eyes of many Pakistanis about the manner in which accountability was compromised for political expediencies on this matter. This has substantially diluted the public trust in the accountability process. In the following paragraph I will explain that our basic approach and system to accountability is flawed. The only way of catching a culprit of corruption is through the tax law. I have been in the business of finance and taxation for over 40 years with varied and multi-dimensional experience. On that basis it is my concerted opinion that ‘income based taxation’ prevalent in every civilized society is the only mode for identifying corruption in this world. The second ingredient is identification of assets. It is almost a joke in our system where we know that over 50 percent of the current accounts banks are not declared in the asset records of individuals or companies. The present financial system is paralyzed as far as ownership identification of assets is concerned and we repeatedly boast that banking system has flourished in our country. Let us get out of this complacency syndrome. Other than tax and assets identification if we try any other measure then that will be a complete waste of time and the process will remain discriminatory and discretionary in nature.

When we read the history of corrupt politicians or mafia chiefs engaged in crimes, we clearly establish that the only measure through which such criminals were prosecuted was the relevant tax laws. Al Capone, a notorious gangster in the United States, was released on all counts of criminal activity however he was not able to dodge the simple tax law. Spiro Agnew, a Vice President of United States of America, was deposed from his elected post due to tax default. The moral of the story is that tax is the ‘link between assets held and the income earned’. When there are assets held that are disproportionate to income and the tax paid then either tax has been evaded or the income is through corruption. This is not rocket science. It is very simple and straight. If ‘A’ has earned assets worth Rs 1000 million then his or her income should be equal to that. That equality becomes apparent from his income tax records. Suppose in this case the tax rate is 10 percent then total taxes paid ‘A’ over the years should be Rs 100 million. If it is less than Rs 100 million then either ‘A’ has evaded taxes or some of the assets have been accumulated out of corruption. This reconciliation is the only manner to frame the charge-sheet. There is no other method in the world to catch and convict a white collar criminal other than what has been stated above. This is the first step towards creating a civilised society. It is my view that there cannot be any form of ‘accountability’ even by angels in FBR and NAB if this basic value is not inculcated in our society. I can assure you that Western societies have ‘justice’ in their system because their tax system and administration are largely fair. Fairness is not related to rate of low or high taxes; it relates to ‘completeness’. Everybody and every transaction and asset fall in the tax system. It is very unfortunate that the so-called intelligentsia in Pakistan is ready to test even ‘Taliban regime’ but they do not advocate this basic ingredient of a civilized society. A society without equitable taxation can never be a just society. It is extremely important to remember that the society that existed in Madinah from 1St to 40th Hijra was not a nation state and the state was not responsible for food, health, shelter and security. It was an extension of tribal system not based on the role of state which is now necessary for the affairs of a nation. It is therefore essential to understand that there is no possibility of replicating that system. If we try to do so then we will be using pigeons in 2021 for communication instead of cell phones. When some learned English Judge said “Tax is the Cost of Civilization” he was not talking about tax laws. He was talking about philosophy of tax.

Pakistan is faced with a very high degree of white collar financial corruption in every field for the reason that tax evaders and earners of corrupt funds have been provided perpetual legal means whereby state is not able to reconcile their assets with their income and taxes paid. I will never forget the words of a former Prime Minister when he said in the National Assembly in 2017 “These are the sources”. Whether or not the sources identified by that person were reconcilable or not is a question of fact. History will decide his fate; however the person who will ultimately decide the reconcilability aspect will be a 17th or 18th grade taxation officer and not an Honourable Judge of the Supreme Court. We should not comment on the veracity unless that specific order is there for which proceedings are in process. The purpose of reproducing this statement was that what the former Prime Minister said was entirely correct as assets held are not relevant. The question under consideration is the source from where such assets have been acquired. The very unfortunate temperament and psyche that has developed over time is that people have started despising wealth creation, ownership of high value assets and expenditures. This is wrong. We should despise the person who has made out of untaxed and corruption money. Assets made out of taxed money should be admired and such people should be publicly recognized. I wonder how many houses in posh localities of Karachi, Lahore and Islamabad can be reconciled with the taxes paid by the owners. Muhammad Ali Jinnah, the First Governor General of Pakistan, had three big houses – one each in Bombay, Delhi and Karachi in 1946. We admire that wealth because it was out of taxed money of a self-made man. I have been informed that he was under negotiation to buy another house in Srinagar in 1946 for his post retirement abode. Is this wealth of Jinnah comparable with wealth of a famous man who has died recently? We do not know the personal details of that man’s wealth statement however it is a perception that tax liability is not commensurate with the wealth. If we consider both as equal then this society will be destroyed. We can only think about ‘accountability’ of any kind when we decide that all wealth held by a person is reconcilable with taxed income. Let me reiterate that there is no other system. There is no magic wand with NAB or FIA. Their corruption or lack of competence is not the main handicap. The primary issue is impossibility of wealth reconciliation of asset holders. The famous charge which used to levelled against the corrupt, ‘Living Beyond Means’ had a logic and rationale. Through a deliberate attempt this term has been removed from our vocabulary. If we identify the laws and persons responsible for bringing the nation to such a pass, the people who destroyed Pakistan will become obvious.

Whatever has been stated above, in principle, means that income should be taxed. If we do not want to receive cash from that income then it can be taxed ‘zero rate’. This means that there will be a determination of income and there will be a record for that. However for economic reasons such income will attract zero rate of tax and therefore in essence will not be taxed. Such income in the present circumstances may be ‘Exports’, ‘Income from Special Economic Zones’ etc. The same principle should be applied on ‘Agricultural Income’. In Pakistan, since 1990, we did exactly the opposite. We made sure that there should be no asset record and no income based taxation. Subsequently, we even deleted the concept of ‘imputed tax’. Any person who knows a little about accounting and tax will agree that this is an intellectual crime punishable in court of intellectual integrity. I reiterate that presumptive taxation is a philosophy completely against any system where there is desire to catch corrupt people. If there is any court for intellectual corruption then those who designed and introduced presumptive taxation should seek apology from the people of Pakistan.

This was history. The solution is very simple. The steps are:

* All incomes to be taxed;

* Zero rate of tax on incomes which are not to be taxed such as exports;

* All assets, especially houses, bank accounts and others should be brought on the books;

* Every person having assets above say Rs 25 million be required to file wealth statement;

* Public office holders to combine or club wealth statement of the family;

* An asset survey as attempted but not completed during the Musharraf era to be conducted jointly by FBR and the Military. All survey forms to be linked with NADRA family records.

There is no need to talk about reforms, tax collection, documentation, and accountability unless the aforesaid steps are undertaken. Let me suggest that this should be done voluntarily otherwise the same will be done under a different kind of regime

Syed Shabbar Zaidi, "Accountability through tax law only solution," Business Recorder. 2021-02-11.
Keywords: Economics , Economic growth , Panama leaks , Banking system , tax system , Taliban regime , National Assembly , Supreme court , Muhammad Ali Jinnah , NAB , FIA

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