The rich and influential in Pakistan are not taxed according to their 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 - these are not meant for the ordinary lot.
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 rich and mighty for their personal comforts and luxuries. 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 DMG officers and military high-ups have palatial bungalows, guest houses, luxury cars, domestic servants, cooks, gardens, 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 certainly not by the public. The security provided at the GORs shows that lives of the gora sahibs are more precious than ordinary mortals.
The government properties housing the governor's houses, golf clubs, guest houses, wedding halls - even bakeries and commercial markets in cantonments - are not meant for official business yet taxes are not levied on them on the pretext that these belong to the State. The poor are dying of starvation, their children are undernourished but our ruling elite, even after seeing all this, is not ready to mend its ways. These privileged classes are not only avoiding taxes but also enjoy luxuries created from money generated through taxes, most of them regressive, levied on the poor ruthlessly, sparing the rich from proper direct taxation.
Indirect taxes are pushing more and more people below the poverty line - out of a total population of 180 million the figure of such persons is now 76 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 President, Governors, Prime Minister, Ministers, judges and generals. The perquisites and benefits in kinds given by the State to its employees and officeholders should be monetized and taxed.
Over a period of time, our tax system has become rotten, oppressive, unjust and target-oriented. There is a dire need for discussing the philosophical framework, the principles of equity and justice, which should be the main concern of our tax policy; not mere achieving of revenue targets. Our tax managers are meeting budgetary targets through oppressive taxes, shifting the incidence on the poorer segments of society and exempting the rich. They are not tapping the real tax potential that is not less than Rs 8 trillion. The great divide between the poor and the rich is expanding. The FBR has proved to be an inefficient and corrupt organisation. 80% collection is through withholding taxes. It could be outsourced to any reputed firm that would bring more taxes through better management and IT tools.
On the one hand, we are not collecting taxes according to the constitutional principle of 'capacity to pay' and on the other, annual targets are fixed to further squeeze the already dried tax base - there is no political will to tax the rich and mighty absentee landlords, big property owners and those who are engaged in wasteful expenditure. Rich absentee landlords conveniently remain outside the tax net, while the poor are paying 16% GST on even a basic commodity like salt, sold under brand names. When a tax was imposed on salt in the colonial era, the visionary leaders of that time staged a revolt against such high-handedness. But in the post-independence period, our rulers are playing havoc with the economic life of the poorest by levying an exorbitant tax on salt and many other everyday eatable commodities, besides enhancing the prices of utilities and POL prices beyond the capacity of the income of a vast majority of the population.
It is well-established that our inept rulers and inefficient taxmen are the real culprits for our debt enslavement. For example, there was no justification to raise the GST rate to 16% in the Budget 2008-09 - the IMF was not even in the picture at that time. Mr Meekal rightly says that "If I had my way, I would cut the GST to a single rate of 10%. I would cut spending, current, defence and developments, each by a third, cut tax rates, eliminate all exemptions and concessions, and broaden the tax net".
He says that once he had done that, "I would put tax audits on a war footing and get all those who DO pay taxes but under file massively (including government servants), and tax them all on the true and fair market value of their undeclared, hidden assets, at home and abroad.
Then, I would seriously re-visit the documentation exercise with a view to catch those outside the tax net all together (this would also help quantify the extent of under-filing). And I would not back down, as Musharraf did when Shaukat Aziz told him that documentation was not "business-friendly" and the whole exercise was quietly dropped after having spent billions of rupees on it".
The real tax potential of tax collection of Pakistan - a cursory look at undeclared income/wealth would prove it - is not less than Rs 8 trillion, according to very conservative estimates. If we manage to collect annual tax revenue of even Rs 4 to 5 trillion in the coming three years, the government's reliance on domestic and foreign loans can decrease significantly.
This is, however, not possible unless the FBR is converted into an autonomous body run by competent, honest and efficient persons. Collection of taxes worth these levels can eliminate budget deficits. Resultantly, Pakistan can concentrate positively to retire costly debts in the shortest possible time and make huge savings on debt servicing - it is paying over Rs 2 trillion on this account alone.
In the fiscal year 2009-10, the FBR collected just Rs 1,328 billion while Pakistan's outflow on debt servicing alone was Rs 1,600 billion. The country facing double digit inflation for the last four years is spending more on debt servicing than what it collects as taxes. The only way out is to collect taxes at least to the tune of Rs 5 trillion, which is not possible unless the tax base is widened, collection leakages are plugged and the FBR is made an autonomous authority.
In the United States and elsewhere, the rich are pressing the government to tax them more. On August 12, 2011, billionaire investor Warren Buffett urged US lawmakers to raise taxes on wealthier Americans to cut Washington's huge budget deficit, saying that the move would not dampen investments or jobs. In a New York Times opinion article, the chief executive of Berkshire Hathaway proposed a tax increase on Americans who make at least $1 million per year and an additional increase on those making $10 million or more.
"Our leaders have asked for 'shared sacrifice.' But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched," Buffett wrote. "While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks."
The man known as the "Oracle of Omaha" said his federal tax rate was 17.4 percent last year, while some investment managers were taxed just 15 percent on income reaching into billions. He then noted that the middle class is taxed up to 25 percent in its income bracket, along with "heavy" payroll taxes. In contrast, Buffett recalled "far higher" taxes rates for the rich in the 1980s and 1990s, and yet nearly 40 million jobs were added from 1980 to 2000.
"You know what's happened since then: lower tax rates and far lower job creation," he said. "People invest to make money, and potential taxes have never scared them off." Americans are losing faith with Congress's ability to tackle the country's financial woes, Buffett warned, calling for "immediate, real and very substantial" action.
A protracted partisan battle between lawmakers culminated in a last-minute deal on August 2 to raise the $14.3 trillion US debt ceiling and narrowly avoid a US default. "My friends and I have been coddled long enough by a billionaire-friendly Congress," he added. "It's time for our government to get serious about shared sacrifice."
Our ruling elite and the government should read the article of Mr Warren Buffett and must take immediate steps to raise the tax rates for the rich and spare the poor from regressive taxes. The head of all the parties must make their tax declaration public and justify the accumulation of their assets in Pakistan and abroad.
The government should also spend taxes for the benefit of the masses and not for the personal luxuries of the rulers and officials. All the judges, politicians, high-ranking government officials and beneficiaries of loan write-offs must make their tax and asset declarations public so that nation knows how much tax is paid by these affluent segments of society.
Successive governments have utterly failed to convince the Pakistani people in paying the taxes actually due from them. The common argument against paying taxes is that the money so collected is spent for wasteful purposes and on unprecedented benefits enjoyed by the high-placed civil-military bureaucrats and corrupt politicians.
These classes would have to demonstrate by their actions that taxes collected are not meant for their luxuries. The State must earmark revenues for specific purposes and place the same in funds created for debt retirement, creation of employment zones and provisions for social services like education, health, housing etc. This would inspire the people to contribute generously towards the national exchequer. This is the only way that revenues can be generated through voluntary compliance and at the lowest possible cost.
The present policy of imposing irrational taxes, eg taxing even that portion of citizens' income that they spend on educational and medical needs, can never produce any positive results. These are bound to create more inequalities in the society leading to social unrest and lawlessness. The State is so indifferent towards the law and order situation and high charges of power and gas that no investor - domestic or foreign - is inclined to invest.
Today's Pakistan represents a State where a trio of corrupt civil-military bureaucrats, incompetent politicians and profit-hungry businessmen is very affluent, but the State is poor and relying more and more on borrowed funds - our total external debt has now touched the monstrous figure of US $58.8 billion and internal debt stands at a staggering Rs 6 trillion - the domestic debt is almost half of the country's GDP and four-fold of its annual tax revenue, which is simply unsustainable.
This state of affairs is the direct outcome of the policies of successive regimes - military and civilian alike - to allow a free hand to the forces of loot and corruption. Our ruling classes would never want Pakistan to come out of debt enslavement, as it would end their perpetual control over the State and means of production, which they are maintaining as gumashtas of the Neo-colonial forces.
(The writers, tax lawyers, are Adjunct Professors at Lahore University of Management Sciences.)