Broken back

The World Bank and IMF lureThird World countries into debt traps – extending loans for projects they don’t need. Since these countries lack capacity to pay back, lenders demand sale of national assets to international loan sharks at throwaway prices. Musharraf’s handpicked Prime Minister Shaukat Aziz sold many such assets – now Nawaz-Dar duo is following the same path. They have already shortlisted 30 State-Owned Entities (SOEs) for sale as part of deal with IMF under $6.67 billion Extended Fund Facility.

Since the policy of appeasement towards tax evaders, money launderers and plunderers of national wealth continues unabated, the country is fast approaching complete disaster. The shameless indulgence of rulers in wasteful expenditure – when half of the population of the country is facing malnutrition – is criminal. These rulers are religiously following the agenda of foreign lenders to make the life of the downtrodden more and more miserable.

While the rich and mighty are thriving on taxes collected from the famished and foreign loans, the people are suffering more and more with every passing day – the government with effect from 1st October 2013 enhanced electricity tariffs and prices of POL products beyond the paying capacity of an overwhelming majority of the population. On 2nd October 2013, the Chief Justice of Pakistan (CJP), while taking strong exception to the government’s move, observed that “instead of evolving an effective strategy for recovering the outstanding amount of Rs 441 billion, the government increased the electricity tariff despite the fact that fuel prices in the international market were decreasing”. CJP observed that what option was left with the people other than dying”? CJP asked why this burden was being passed down to consumers who paid their bills. “Our problem is that you are increasing the power tariff day by day and poor people are being targeted,” the CJ said. Justice Jawwad S Khawaja remarked that even the circular debt was paid off by burdening the common man.

According to notification, tariff for domestic consumers using 200-300 units to face 72.6% increase from Rs 8.11 to Rs 14 per unit, those consuming 301-700 units would have to pay 30% more from Rs 12.33 per unit to Rs 16 per unit and consumers who use more than 700 units of electricity per month are to pay Rs 18 per unit instead of Rs 15.07 per unit. These rates are part of “structural reforms” (sic) agreed with the IMF.

Lack of will of the government to collect taxes from the rich and mighty and resorting to indirect taxes is worsening the plight of the poor. We can easily collect taxes of Rs 8 trillion to eliminate fiscal deficit. If out of total population of 180 million, there are 5 million individuals having taxable income of Rs 1.5 million, total income tax from them should be around Rs 1600 billion. If we add income tax collected from corporate bodies, other non-individual taxpayers and individuals having income between Rs 500,000 to Rs 1,000,000, the gross figure would be nearly Rs 3000 billion. FBR collected only Rs 715 billion as income tax in 2012-13 (total direct tax collection is shown at Rs 739.7 billion which included income tax and other direct taxes ie capital gain tax, workers welfare fund and workers profit participatory fund. The contribution of income tax in total direct taxes is around 97%).

About 35% of direct taxes are indirect taxes collected under the garb of presumptive taxes. Thus not only is there a whopping gap of Rs 2284 billion in income tax alone, but the actual contribution of direct taxes is much lower than what is claimed by the FBR. Due to rampant corruption in sales tax, federal excise and custom duties, the total collection is only 25-35% of actual potential. In fiscal year 2012-13, FBR collected Rs 841 billion under the head sales tax, Rs 119 billion under federal excise duty and only Rs 239 billion under custom duties. Total indirect collection of Rs 1939 billion is pathetically low. It should have been at least Rs 5000 billion.

If existing tax gap is bridged, our revenue collection can reach Rs 8000 billion (Rs 3000 billion direct taxes and Rs 5000 billion indirect taxes) which could change the entire fiscal scene and fate of the nation. By collecting this amount, we can easily meet current expenditure, development and public welfare outlays – government requiring no internal or external borrowing would be able to retire debts in a few years.

The reluctance to collect taxes from the rich and mighty, rather giving them free benefits and perquisites at State’s expense, is worsening the miseries of the poor. There is no scarcity of resources as propagated by the rulers to shift blame on others, but the root cause is the outlandish living of the elites off taxpayers’ money-‘Politics of plots and perks’, Business Recorder, July 12, 2013 . Look at residences of judges, generals and high-ranking civil officials with an army of servants and fleets of cars. Wasteful spending on Ashrafiya and disinclination to tax the rich is playing havoc with the economy. Behind the present chaotic socio-economic and political situation in Pakistan, amongst other factors, is an ever widening gulf between the rich and the poor. With every passing day, more and more people are being pushed below the poverty line – their total number is now not less than 60 million in a country where rulers unashamedly waste billions on their comforts and personal security – ‘Finance Bill 2013: Apathy of Parliament’, Business Recorder, July 5, 2013.

The present crisis testifies to the failure of power-hungry, money-greedy politicians and incompetent, inefficient and corrupt bureaucrats. Even the so-called technocrats always take the first flight to Washington after creating a mess – where are Shaukat Aziz and Hafeez Sheikh now? In this bleak scenario, Riasti Ashrafiya (State oligarchy) is not ready to surrender extraordinary perks and privileges enjoyed by them at the cost of taxpayers’ money. How can rulers and bureaucrats living in fortified containments, completely oblivious of the ordinary people’s plight, feel the pinch of life’s hardships?

We cannot come out of debt-enslavement unless we restructure our State on the principle enshrined in Article 3 of the Constitution – from each according to his ability, to each according to his work. For this, everyone should be given work and fair reward for that. There should be a complete change in the style of governance – the President, Governors, Prime Minister, Chief Ministers, ministers, parliamentarians, and high-ranking government officials should get ‘consolidated pay package’ liable to tax just like the income of an ordinary citizen. Palatial residences occupied by them should be sold or converted into income-yielding assets, and all perquisites of civil servants and public office-holders should be monetized to remove the burden off our country’s broken financial back.

(The writers, tax lawyers and partners in HUZAIMA & IKRAM (Taxand Pakistan), are Adjunct Faculty at Lahore University of Management Sciences. The views expressed in this article are not necessarily those of the newspaper.)