Beneficiaries of riba

The rich and influential in Pakistan, thriving on riba (this Quranic term is wider terms covers all modes leading to earning and enjoying wealth through exploitative means) are not taxed according to their actual capacity to pay. Adding insult to injury, they enjoy many benefits and luxuries at the expense of the taxpayers’ money. Just take a look at the huge golf clubs in the cantonment areas – not meant for the ordinary lot of course. The civil-military elite and “influential persons” of the city enjoy these superb facilities and that too at subsidised rates. These facilities, funded from public money, are meant for the personal comforts and luxuries of the rich and mighty. If they want to avail such luxuries, they should pay from their own pockets and not burden the already depleted national exchequer. Although these facilities are on public lands, they are meant exclusively for the elite – top civil and military officials.

Members of militro-judicial-civil-political complex have palatial bungalows with swimming pools that contain enough water to quench the thirst of many villages, guest houses, manicured lawns, luxury cars, domestic servants, cooks, watchmen and what not. All these are funded from taxpayers’ money. The “official” guest houses are maintained with public money but subsidised rates are enjoyed by public servants, their families and friends but definitely not by any member of the public. The security provided at the GORs shows that lives of the “sahibs” [officers] are more precious than ordinary mortals. Government properties comprising governor houses, golf clubs, guest houses, wedding halls, even bakeries and commercial markets in cantonments – are not meant for official business yet no taxes are levied on them on the pretext that these belong to the State. The poor are dying of starvation, their children are sick and undernourished but our ruling elite, despite having cognisance, is not ready to mend its ways. These privileged classes are not only avoiding taxes but also enjoying luxuries created from money generated through taxes, much of which is regressive in nature and ruthlessly levied on the poor but sparing the rich from proper direct taxation.

Indirect taxes are pushing more and more people below the poverty line – out of total population of 185 million their number is now 70 million. In the face of this stark reality, pleading for more regressive taxation is criminal. The need of the hour is to make taxes equitable – a levy of income tax with progressive rates on all sources of income, including agricultural, if total income exceeds Rs 500,000. There should be no exemption, not even to the sitting President, Governors, Prime Minister, Ministers, judges and generals. The perquisites and benefits in kind given by the State to its employees and officeholders should be monetized and taxed.

We must stop extending tax exemptions and benefits to the privileged classes and powerful businessmen through concessionary Statutory Regulatory Orders (SROs). Tax exemptions and concessions for the rich are the main sources of loss to national exchequer – if we add leakages due to corruption and inefficiency the total figure will not be less than Rs 600 billion. Unless these concessions are withdrawn, tax gap is bridged and wasteful expenditure is drastically checked, we will never be able to overcome fiscal deficit but will continue to sink in the quicksand of heavy debts.

“The horrible concentration of wealth (which we will shortly elaborate) brought about in the society owing to the system of usury bifurcates the society into two parts. On one side of the fence there are found some individuals who are the eaters of usury. They control 95 percent of the whole society’s resources. Through this monopoly they dictate their whims to the society. On the other side of the fence are found millions of multitudes languishing and crying for a morsel of bread to keep their bodies and souls together. This brings a serious social divide between the two classes. This divide is further cemented by the economic frontiers that are permanently established between them minimising the prospects of the social nobility for the poor and deprived ones. This state of affairs breeds mutual distrust and hatred often leading to rancour feuds and fights. In this way the society presents such abominable specimens of class struggle that have constituted a classical chapter of history in the communist philosophy” – excerpt from judgement of Supreme Court Appellate Shariat Bench in the matter of riba reported as PLD 2000 SC 225.

Presently, about 70 percent collection by FBR is from imports and exports, contracts and “extraordinary” profits by petroleum companies and banks. Importers, contractors, retailers and even service providers are, in fact, passing on their tax burden to consumers and clients, courtesy presumptive tax regime introduced in income tax law in 1991-92 and widened manifold since then. This erratic taxation, at the expense of equity and poor people, is nothing but fiscal high-handedness. Despite resorting to all kinds of negative tactics, illogical policies and unjust withholding taxes, FBR has failed to improve the tax-GDP ratio, which fell to 8.5 percent in fiscal year 2012-13 from 9.1 percent in the preceding year. The burden of a number of presumptive taxes levied under the guise of income tax law (which are nothing but crude forms of indirect taxes) has been shifted from income earners to consumers and clients. These presumptive taxes have not only distorted the whole tax system, destroyed economic growth and made the consumer/client the ultimate sufferer but these despotic, short-term, myopic and figure-oriented measures have miserably failed to bridge the fiscal deficit, which is estimated to soar up to Rs 1800 billion this year.

Successive governments – military and civilian alike – have been announcing unprecedented concessions for the privileged classes. Even the politicians have admitted massive tax evasion and their criminal culpability in the existing scenario. There exists an unholy alliance between corrupt politicians and tax bureaucrats. Through legal loopholes – for example section 111(4) of the Income Tax Ordinance, 2001 – tax bureaucrats serve their political masters and plunderers of national wealth. In order to ensure effective tax compliance, the Parliament should pass asset-seizure legislation and confiscate all ill-gotten and untaxed assets. Once such a law is passed and implemented, resource mobilisation and tax compliance will no longer be a problem.

(The writers, tax lawyers and partners in HUZAIMA & IKRAM (Taxand Pakistan), are Adjunct Professors at Lahore University of Management Sciences (LUMS)