IT is an article of faith for all patriotic Pakistanis, that undivided loyalty is as important as belief in one religion. Taxpayers, whose revenues fund the system, are an essential pillar of the state. Eminent economists associated with the World Bank Group have stated that “an important tipping point to make a state viable and put it on a path of growth” is “the need to increase revenue collection, in countries that currently collect less than 15% of GDP in taxes”. Pakistan, unfortunately has a Tax/GDP ratio of 9%, and relies on foreign and domestic loans to pay salaries and exorbitant perks and pensions of its paid civil and uniformed employees.
Uniform and fair taxation, along with benefits for tax payers, especially senior citizens above 70 years, who have regularly paid taxes and filed their returns, deserve tax exemptions, or rebates in Property Tax on one self-occupied residence, similar to those given to government servants. It should be the sole jurisdiction of the Federal Government to collect Income Tax, Sales/Custom Tax etc., to pay salaries of civil and uniformed government servants, subsidize education, health and maintain an equipped security force to guard against external aggression and secure our borders. Similarly, the Provincial Government must have jurisdiction to collect property tax, excise duty etc., from citizens residing in their jurisdiction to provide services, maintain law and order and other obligations. Any dilution of taxes collected by federal and provincial governments, leads to a collapse and a debt trap. Private housing societies or those created by various state institutions, or semi-autonomous SOEs, which collect property tax etc., from residents, dilute national exchequer of revenues and aggravates Tax/GDP ratio. This violates the letter and spirit of the Constitution and Trichotomy of Powers.
Similarly, tax evasion was institutionalized, by creating a unique cadre of “Non-Filers” in 2015. There was a change of government in 2018, but non-filers increased and so did tax evasion. No effort was made to widen tax-net. This concocted system facilitated sectors where black money is parked, such as real estate, hoarders, smuggling, illicit trade practices etc. The Conflicts of Interest of the ruling elite have created a burden of debt, which has driven Pakistan to the brink of insolvency. One blatant example of this abuse is poorly negotiated PPA with over 90 IPPs, who are beneficiaries of trillions of rupees in guaranteed capacity payments. The least that was expected of successive governments, which have been at helm since 1994, is a transparent and authentic audit, to verify technical capabilities of IPP units. Despite the hue and cry over exorbitant rise in electricity and an escalating circular debt, depriving the oxygen, vital for the economy to resurrect, there is absence of political will, by every political party, including PTI, PML-N, PPP etc., to regulate the IPPs. In 2019-20 four such PPA contracts were extended on maturity of their PPA agreement by PTI and the PDM followed suit.
The salaried class contributed Rs367.8 billion to direct income tax collected by FBR in FY24, showing a rise of 39.42% from Rs263.8 billion collected in FY-23. The total direct tax collected from salaried class exceeds by Rs165.34 billion, from that collected from wealthy exporters, with exports of $16.655 billion in FY24 and Textile sector, which collectively paid Rs202.46 billion. The Retail/Wholesale traders have enjoyed patronization of every government for tax evasion. Although tax collection is a key development priority, yet the political will is lacking. There exists NADRA with a digital database, having record of all transactions, bank accounts, travel data, assets bought etc., because NIC is an essential prerequisite. All these irregularities occur with connivance of paid civil servants and regulatory agencies. Yet, the biggest beneficiary of state funded welfare schemes is the paid elite, instead of registered taxpayers, or the most deprived sections of society. They enjoy subsidized allotments of multiple expensive urban real estate plots, agriculture land, tax exemptions and benefits from “cradle to the grave”, which are not offered even in Scandinavian countries, whose Tax to GDP ratio is in the range of 46.9% to 42.2%, as compared to Pakistan’s Tax/GDP ratio of 9%.
These affluent few have been beneficiaries of numerous tax amnesty schemes, with negligible benefits for taxpayers. As compared to them, retired civil and uniformed government servants living in cities and cantonments, including DHA are exempted from property tax on self-occupied houses. Within DHA Lahore, there exists an anomaly where property tax levied by WCB on a 25-year old, one Kanal house, in Phase 1 to 5, ranges between Rs61,000 to Rs85,000, while similar houses built in parts of Phase 5, Phase 7, 8 etc., pay PT ranging from Rs12,000 to Rs16,000 to LDA or Lahore Cantonment. Houses in Lahore’s Model Town, Gulberg etc., pay about Rs20,000 for 1 Kanal house. It is taxpayer’s revenues which fund salaries of government servants and also the state infrastructure.
Pakistan was created to be a modern democratic welfare state, with equal rights and opportunities. It has been reduced to a welfare nation for the paid/elected elite. MAJ set an example by never accepting any tax-free benefits during the brief period he served as Governor General of Pakistan. After his death, the Raj legacy of allotment of state lands to paid government servants was revived in 1958, along with tax-free benefits. We, as a nation, have been embarrassed by the shameful manner in which our ruling elite have handled gifts received from foreign dignitaries, which should have been deposited in Toshakhana, instead of being retained at nominal cost and sold for profit. There seems to be no realization to curtail this. It has the potential of creating ill-will, especially in the light of vicious campaign by social media associated with an irresponsible political party.
A fair and just system of tax collection must include proportional taxation of the poor and rich; corporate and individual taxpayers; cities and rural areas; formal and informal sectors, labour, and investment income; and the older and younger generation. This creates an environment for political stability and rise in literacy rate, which reduces violence and extremism.
—The writer is contributing columnist, based in Lahore.
