Buyers beware

Pakistanis won't pay taxes so the govt will tap consumers 

Buyers beware
Last Friday, when Finance Minister Ishaq Dar started his speech amid a ruckus in the National Assembly most followers wanted to believe that the government would step back from its tight-fisted, penny-pinching and predatory take on spending and collecting taxes. The hope sprung from the anticipation of the very likely situation that Dar was presenting what could be his last budget speech.

In a way, as with most optimists, people believed that their cost of living may just go down—that the government, after burdening the masses for so long, would finally ease up on the fiscal front with elections around the corner. What transpired was that in over two hours of talking, praising, and boasting, Dar had us believe that the dream was coming true.

How could it though? Fundamentals dictate that to make someone better off you have to make someone else worse off. The government doesn’t ‘create’ wealth through the budget. It decides where it will get the money from—through higher rates of taxes—and where it has decided to spend it on.

This is all the budget is: allocating and prioritising.

With little breaks but no tax break, Dar continued his speech. He chose to speak on populist measures and how the government was looking to help the people. When you listened to him as long as some people did, you almost believed him. Add to this fact that this was all the media had to go on since the ministry did not think it was necessary to upload the entire Federal Budget 2017-18 on its website; we all fell for it.

We believed that the government has done well and that the economy has grown. We believed that the government will only tax the businesses who get away with paying less and we almost believed that Pakistan was becoming more self-sufficient. The numbers do suggest this, so why the scepticism?

The truth started to become clearer as the numbers were eventually dissected.
This budget was no different than all the others we have seen. There was no talk of innovation. There was a mention of farmers' subsidy. We all know why farmers are handed out loans near election time

As with every year, a chunk went to development, defence, and the most important, debt servicing. The last is the cost every Pakistani pays as the government increases the pile of domestic and foreign debt. To service it, in other words to keep it going, the government incurs a cost, which is almost a third of the total expenditure in the entire country. Loosely translated, for every penny of tax you pay, a third of it goes to servicing debt.

Why do we take on debt, when the government has also decided to increase tax rates? That is because, as a country, we have one of the lowest tax-to-GDP ratios in the region. As a people, we do not pay the taxes we are supposed to. It may not be true for salaried individuals or consumers, but a huge chunk of our population chooses to stay outside the formal economy. Resultantly, our GDP is understated, and tax collection is insufficient. When that portion doesn’t pay the tax it is supposed to, the government has to take on debt to finance projects, meet operating expenses and increase tax rates for those who do pay.

Is it fair? No. Do the people have a choice? Not really. Can the government do something differently? Yes.

Most people argue that the taxes they pay go to feeding the government’s misplaced priority areas. Hence, they choose not to pay and stay outside the net. But is it fair that because of them the government decides to increase indirect taxation, something everyone has to pay? The share of indirect taxation has grown in Pakistan and is now a little over 60% of the total revenue of the Federal Board of Revenue. By definition, indirect taxes are paid by the consumer, not on income or profits, but on consumption. So, in a way, consumers are paying a price for helping the economy grow.

Despite the growth in the economy, which the government stated was 5.28% this year, poverty hasn’t reduced. In 2016, Pakistan’s first ever official report on multidimensional poverty was launched by the Ministry of Planning, Development and Reform. According to the report, nearly 39 percent of Pakistanis live in multidimensional poverty, with the highest rates of poverty in FATA and Balochistan. That is 4 out of 10 Pakistanis and the numbers (as previously gathered by other government bodies) have not really changed much in five years. Poverty hasn’t gone down because focus on education, health, and job creation hasn’t grown. After the 18th Amendment, education and health have become provincial subjects, which means that each province is supposed to allocate an amount for them, but they have all shied away from taking innovative measures.

With budget numbers, one also saw how the government will keep on helping state-owned enterprises, but reforms and efforts to bring about efficiency will remain on the backburner. Pakistan Railways, for example, has the potential to transform the country’s transportation network. An efficient railway network could have made inter-city travel faster and cheaper while giving business to all the stations along the way. It could have transformed the courier industry and made it cheaper for businesses to transport goods. Did any of this happen? Instead, what we got was an ailing entity and a budget that goes to helping and bailing it out each year. It could have been an earner for the government. Similar is the case with Pakistan Post that will get Rs17.5 billion in the coming year. It could have started an e-commerce revolution and resolved the e-payments system with its extensive network, while creating jobs. But instead we see a worn-out building and burnt-out staff waiting for retirement.

No, Mr Dar. This budget was no different than all the others we have seen. There was no talk of innovation. There was a mention of farmers’ subsidy. We all know why farmers are handed out loans near election time. You taxed sectors that have been performing well because you fear a backlash if you go after anyone else. What you don’t care about is that when you tax businesses it is the consumer who ends up paying the price. The fact that you praised the stock market and ended up taxing it more should tell you why most people want to remain undocumented and not ‘show’ you their performance.

The writer is a Karachi-based journalist