Majority of the Pakistanis are going to be dejected after hearing the second budget of the outgoing alliance government of Pakistan Democratic Movement (PDM), to be presented by the four-time federal finance minister, Muhammad Ishaq Dar, today (June 9, 2023); not because it would be as usual by the rich and for the rich, but due to perpetuation of the oppressive tax system that is anti-growth and anti-people.
The burden of unjust taxes is continuously increasing on the less privileged whereas the rich and mighty are just paying meagre amounts while enjoying extraordinary benefits, especially when inflation in the country is at historic high—in fact there is worrisome hyperinflation in food items.
The present government has proved that it lacks the will to reform the prevailing outdated and oppressive tax system.
The brunt of indirect taxes, even under the garb of direct taxes, has retarded economic growth besides inflicting more miseries on the poor, salaried, lower and middle classes. The government has failed to accelerate economic growth and boost exports.
Since assuming power in April 2022, the PDM government has been following the failed donor-imposed prescription of austerity. As reports in Press suggest, major taxation proposals will be of regressive nature.
These will bring results that are more disastrous for the poor and overall economic growth. Members of National Assembly shamelessly increased their pays many times in the past, while over 60 million are living below poverty line and millions are malnourished.
The gigantic bureaucratic apparatus—epitome of bad governance and corruption—will also get juicy raises and more facilities. The government is not inclined to curtail its monstrous wasteful expenditure and monetize all perquisites and benefits of civil servants.
Like five-years rule (2013-18) of Pakistan Muslim League (Nawaz)—PML-N—and more than three years [August 2018 to April 2022] of Pakistan Tehreek-e-Insaf (PTI), which is withering away fast in the wake of the events of May 9, 2023, the present government has proved that it is no different from its predecessors.
Major tax proposals contained in the Finance Bill 2023 will be regressive as in the past, especially when millions of malnourished children are out of school in utter violation of Article 25A of the Constitution of Islamic Republic of Pakistan [“the Constitution”].
What should be a pro-people budget? Neither the government nor those sitting in the opposition (sic) discuss this question. They are going to complete yet another tenure of five years (2018-2023) by hurling accusations, using abusive language and mudslinging each other.
Pakistani political parties have yet not learnt that they need to have think tanks within their ranks, effective house select committees, working on various matters so that they can devise and implement well-debated and well-researched policies.
The opposition parties, as governments-in-waiting, under the democratic dispensation, are duty bound to chalk out their own policies so that alternatives are readily available.
However, after the ouster on April 10, 2022 by virtue of first-ever successful vote of no- confidence in our history, the head and top leadership of PTI displayed extreme irresponsibility pushing the country into chaos and anarchy.
It is also shocking that the leading constituent of PDM, the PML-N, even enjoying rule for the fourth time in the Centre, has prepared the budget for fiscal year 2023-24 in the same old mould—bureaucratic-controlled and donor-desired. Premier Shehbaz Sharif and his economic team, while preparing the second budget of PDM government, did not bother to go for fundamental reforms for achieving rapid economic growth, class stability through employment generation to avoid chaos, civic strife, lawlessness and religious obscurantism.
It has made no effort whatsoever for restructuring the existing unjust taxation system. The burgeoning debt servicing, wasteful expenses, declining exports, industrial slow-down, recession, inefficiency and bad governance, pose serious challenges to our economic survival, but in the budget 2023-24, no serious attempt is made to meet these challenges.
Today’s budget, like the previous ones, will contain no concrete steps to harness the real tax potential of Pakistan, which at the federal level alone is Rs 14 trillion [‘Paradigm shift in tax policy’, Business Recorder, May 26, 2023]. A model for achieving this target without hurting economic growth is suggested in ‘Towards Flat, Low-rate, Broad & Predictable Taxes’ [PRIME, November 2020] but no heed has ever been paid to it.
The Federal Board of Revenue (FBR) keeps on creating huge and arbitrary demands against existing filers, especially those in the formal sector. This is the reason why people do not file returns as they say once you do so then you are under constant threat of being harassed and blackmailed by FBR officials/staff and in case you do not oblige, you get arbitrary orders.
The self-styled tax experts (sic) sitting in FBR think that only those who file returns are taxpayers. As per Active Taxpayers List (ATL) on FBR’s website [data updated every Monday] 3,824,942 filed income tax returns up to May 29, 2023, but this figure shows only return filers and not taxpayers.
In the income tax realm, every account holder of a bank, who receives any amount of interest, is subjected to withholding tax and is therefore a “taxpayer” as defined in section 2(66) of the Income Tax Ordinance, 2001 which says: “taxpayer” means any person who derives an amount chargeable to tax under this Ordinance, and includes……”
It is worthwhile to note that in the case of individuals and associations of persons, tax deducted at source by the banks is full and final discharge up to a certain limit, under section 169 of the Income Tax Ordinance, 2001.
Also at the moment, about 120 million unique mobile users, out of total subscribers of 193 million (as on April 20, 2023), are paying 15% advance and adjustable income tax under section 236 of Income Tax Ordinance, 2001, though overwhelming majority has income below taxable limit.
Real failure of the tax system is non-taxation of ultra-rich and rich who owe billions to the national exchequer but are either not filing tax returns or under-reporting their actual incomes. What has prevented FBR to move against them? After receiving data from National Database & Registration Authority (NADRA), other agencies and details about UAE properties, information through Panama/Paradise Papers, the governments of PMLN and PTI in 2018 and 2019 instead of taking legal actions extended unconstitutional amnesty schemes to them [Retrieving untaxed/ill-gotten assets—I, Business Recorder, February21, 2020 and Retrieving untaxed/ill-gotten assets—II, Business Recorder, February26, 2020].
Our tragedy is that on the one hand, we have too many taxes and on the other, revenue collection is much below the true potential. The biggest failure of successive governments has been not to spend taxes for public good.
The militro-judicial-civil complex and politicians in power are the real beneficiaries of tax collection. They get increase in pays and receive unprecedented benefits and perquisites. Since the government is not ready to check wasteful expenditure, resort to austerity and end policies of appeasement towards the rich and mighty, fiscal gap is increasing every year bringing more miseries for the common people of Pakistan.
The so-called wizards (sic) sitting in FBR and Ministry of Finance have utterly failed to reform the obsolete tax system. The twin malady of complexity of tax codes and weak tax administration has not been addressed or even studied by anybody.
Tax reforms undertaken to date, have mainly been patchwork, and proven to be exercises in futility. Tax reform commissions and their implementation committees, consultative committees, constituted for reforming the system, have proven to be unsuccessful as they have been suggesting remedies for curing the incurable or otherwise curing symptoms rather than addressing the root causes of illness.
Budget as a tool of rational and equitable economic policy must be resentful towards rich families holding the reins of political control through money power. Fiscal policy must aim at collecting taxes at lower rate from broadest possible base along with spending the same for public welfare programmes, especially empowering people through education and facilitating free markets for employment generation. This is the only way to ensure socio-economic mobility in the society.
On the contrary, all our national and provincial budgets in the past, including the latest ones for the fiscal year 2023-24, to be approved by federal and provincial parliaments, except in the Punjab and Khyber Pakhtunkhwa where caretakers are functioning beyond their constitutional mandate, have been designed for benefitting the affluent classes. In other words, in an elitist economy, these are the “budgets of the rich, by the rich, for the rich”.
(Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE) and Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’)
Copyright Business Recorder, 2023