Capture of state resources

Prime Minister Imran Khan in a recent tweet maintained that to uplift the poor out of poverty would require breaking the monopoly of the "elite capture of our state and of our nation's resources and redistribute these resources more equitably" - a quote from former Finance Minister Hafeez Pasha's recent book. The capture of resources by the elite is not limited to corruption and/or nepotism by members of the executive, the usual two suspects for the appalling state of the economy as repeatedly stated by the Prime Minister, nor refers to the cartels that have gained notoriety after the recent inquiry reports on sugar, flour and Independent Power Producers (IPPs) were made public; but instead consist of nine major 'elite' groups that do not pay their dues to the country that continues to provide them with privileged treatment through special tax concessions/exemptions.

The feudals, Pasha maintains, enjoy the maximum benefits from the state including the baffling insertion in the constitution that agriculture income tax is a provincial subject with no provincial government to date having the gumption to bring this tax at par with taxes levied on other sources of income - a condition that is premised on the large number of feudals sitting in the country's national and provincial assemblies and the influence that continue to exercise during the times when we have had extra constitutional dispensations at the helm in the country. It is precisely for this reason that a salaried individual may be paying a tax that is higher than that being paid by a very wealthy feudal/landlord. Business Recorder has been repeatedly urging successive governments to tax farm income at the same rate as the tax payable on other sources of income but to no avail. In this context, it is relevant to note that even when a provincial administration was committed to levying a provincial farm tax at the same rate as payable by other income groups and had the full support of the federal government the influential feudals successfully negated any such attempt. Today Imran Khan's party is in power not only at the centre but also in Punjab and KPK one wonders why he has not taken any decision in this regard. Additionally, feudals also enjoy very low rates of abiana, disproportionate allocation of water to the rich farmers, a subsidy on imported fertilizer, a government-dictated minimum procurement price for wheat and sugarcane, low tax on tractors, low stamp duty on transactions and low electricity charges on tube wells.

The second elite group is the establishment with perhaps the single most disturbing 'capture' of the nation's resources through setting up Cantonment Boards where contribution to the public exchequer in the form of taxes is virtually non-existent. The decision of previous administrations to allocate land to senior officials (civilian and military) at a price well below the market rate is a practice that must end and be replaced by strengthening the salary structure as well as developing a housing mortgage finance system to enable the public sector workers to purchase land rather than to encourage them to turn to the real estate market to make windfall profits.

The trading community was cited by Pasha as the third elite group with high evasion and low collections being the norm rather than the exception. Exporters also enjoy benefits, for example, low rate of IT on turnover that is considered final discharge of tax liability and therefore tax audits do not apply to them. Fifth, the power sector and the IPPs report noted above amply bears testimony to the windfall profits contractually allowed by the then government with the objective of attracting foreign investment to the deficient energy sector.

Banks enjoy tax rate reduction despite large spreads, tax deductibility for provision against bad debt, under capitalization and access to risk-free government bonds. Eighth and ninth groups being urban property developers and VIPs/parliamentarians, foreign income of rich residents, capital/stock market, public sector enterprises also enjoy tax concessions, perks and privileges.

The Prime Minister's tweet indicates that he is fully aware of these nine elite groups who do not legally contribute to the national exchequer as their due and who, if they are made to pay taxes commensurate to others, would end the need to incur expensive foreign and domestic loans for not only meeting the expenses of the state but also for the uplift of the poor. It would, therefore, be appropriate to expect that the PTI government would undo this state capture of national resources by the elite.