Politics of plots and perks

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 eg 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 magnetising 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.

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