A Budget By And For The Elites

Pakistan's economy is dominated by the country's predatory elites, who enjoy a life of ostentatious luxury at the ordinary taxpayers' expense. Part of the problem is that the budget making process is dominated by unelected bureaucrats.

A Budget By And For The Elites

All annual budgets of federal and provincial governments—civil or military alike—for the last five decades, especially tax proposals through Finance Bills, have strengthened elitist structures. For decades, Pakistan has remained captive in the hands of the indomitable militro-judicial-civil complex, the landed aristocracy, industrialist-turned politicians, wealthy traders, influential ulema, pirs (the so-called spiritual leaders sitting in the Senate and assemblies) and business tycoons. Flouting the rule of law with impunity is their hallmark. They openly indulge in ostentatious displays of money and power to prove that the rule of law is for the weak, that they are in full control of the country’s resources. Since they pay negligible income tax, the redistributive function of personal income taxation is almost absent—in fiscal year (FY) 2022-23, it was less than three percent of GDP.    

All political parties in their manifestos and public meetings claim as if the only purpose of their existence is serving the less-privileged and to help them to escape poverty, but when in power, they act otherwise. Our elitist economy serves the rich and offers little for social mobility for the deprived classes.

Contrary to what is commonly understood, elitist structures are not represented merely by a handful of individuals controlling state institutions and enjoying tax-free extraordinary perks, perquisites and benefits. These elitist structures reflect in all sorts of discriminations—in taxation, extorting money from the poor for the benefit of the rich, in academics, non-availability of quality education and health facilities for all, crony capitalism creating monopolies, denying finance to brilliant young entrepreneurs for starting and competing with established businesses, rent-seeking opportunities created through state policies for politicians in power and non-providence of social services to the masses etc.

On an average, a rich non-salaried individual having annual agricultural income of Rs. 6 million is paying 15% tax as compared to high-paid salaried professionals paying 35% on the same income.

The Constitution of Islamic Republic of Pakistan, in its essence, is egalitarian, but the exploitation of all kinds continues unabated. Article 3 of the Constitution says: “The State shall ensure the elimination of all forms of exploitation and the gradual fulfillment of the fundamental principle, from each according to his ability to each according to his work.” 

Pakistan’s economy serves only the privileged classes. The militro-judicial-civil-complex, politicians and absentee landowners represent less than 1% of the entire population of over 244 million, but enjoy unprecedented perks and benefits at the expense of taxpayers’ money. In the federal and provincial collections for FY 2023, their contribution in income tax on agriculture and non-agriculture tax was reduced to a ridiculous level of 2.7 percent.

On an average, a rich non-salaried individual having annual agricultural income of Rs. 6 million is paying 15% tax as compared to high-paid salaried professionals paying 35% on the same income. While, those providing employments to millions pay corporate tax of 29% plus surcharge and many other levies and double taxation on dividends. How can we achieve sustainable growth without new investments and rapid industrialization?

Muhammad Aurangzeb, yet another banker Finance Minister, wants higher and sustainable growth which is not possible in the presence of tax codes discouraging savings and investments. These are enriching already wealthy individuals. The elitist business groups are not ready for competition and want “protection” through high tariffs to deny buyers the right to buy quality goods at cheaper rates.

The rich-poor divide through erratic taxes to be imposed in the forthcoming Finance Bill 2024 on the dictates of International Monetary Fund will further increase. There will be more concentration of wealth in fewer hands, while the poor will be forced to pay federal excise tax on mobile calls more than five minutes long.

Growing inequalities in income and wealth is a serious issue in Pakistan and regressive taxation is further aggravating it. In the existing oppressive tax system, the rich get subsidies. The average worth of Pakistani members of Parliament is $900,000, but their income tax contribution is less than 1% of total tax collection. 

The State is obliged under the Constitution to provide free education and arrange healthcare for all. All the governments, federal and provincial, are not fulfilling their constitutional obligations and have given a free hand to private parties to fleece people in the name of providing health and education. There is no will to tax these commercial ventures and spend money for improving public schools and hospitals. The meagre funds allocated for these sectors are squandered by officials—students and patients get raw treatment in government-run schools and hospitals. On the other hand, clubs, golf courses and rest houses serving upper echelons receive grants from public funds. 

The problem in Pakistan is not a scarcity of resources, but its unjust distribution, as well as incompetence in exploring and managing them, the lack of an effective judiciary and socioeconomic injustice. 

How public servants thrive on the taxpayers’ money and exploit foreign funding is an open secret. Most of them get scholarships of foreign agencies to attend elite universities in the United States. They openly express their elitist views and a right to such entitlements. Their children born during their stay abroad automatically get US citizenship. When they return with their families to lord over poor Pakistan, their children go to the finest schools and live in public estates that nobody in the West can even imagine. After high school, these US-born children apply to the finest universities like Harvard, Columbia etc and not only get admissions, but also financial assistance as they fill out financial aid applications and only provide information about their parents’ nominal salaries in rupees and not the full monetized value of other perks, privileges, and plots their parents have. 

Without fail, they are given free rides in American universities because of the apparently extremely low-income households they come from. After graduation, they stay there and easily get jobs because they are Americans, thus providing a comfortable beach head for their ‘poor’ parents. These are the real fruits of elitist structures that are not available to the country’s common citizens’ children. 

The suffering of the Pakistani poor and less-privileged classes will not end unless elitist structures are dismantled and society is restructured on the principles of equity, fairness and justice—the fundamental elements of constitutional democracy. The problem in Pakistan is not a scarcity of resources, but its unjust distribution, as well as incompetence in exploring and managing them, the lack of an effective judiciary and socioeconomic injustice. 

High and sustainable growth is not possible with the present oppressive tax system. The first step should be taxes for public welfare and monetization of all perks and perquisites of judges, generals and civil bureaucrats who must pay tax on fairly-determined ‘Consolidated Pay Packages’ as others are doing. Consolidated Pay Packages for them according to market wages would reduce corruption, remove sense of elitism and improve governance.

Without these reforms and fiscal decentralisation, we cannot hope to achieve rapid growth that ensures equal opportunities and jobs for millions of young people, whose frustration is on the rise with each passing day, as elites show apathy towards them and enjoy luxuries at the taxpayers’ expense. This can push Pakistan to complete chaos and collapse. This is a wake-up call for elites lest it is too late to follow plans that provide a sustainable path out of this quagmire.

The economy of ashrafiya-controlled-Pakistan serves the interests of the privileged classes. The ruling classes, representing only 2% of entire population, own 95% of national resources.

In the first week of June 2024, the PML-N government will present and get the Finance Bill 2024 passed, without any difficulty—as has always happened in the past.  The majority of the members from the Treasury Bench in private will admit that Finance Bill places too much reliance on indirect taxation. However, they say, “We are bound to toe the party line”! It is an undisputed fact that the present, and earlier governments, have perpetually demonstrated, that they have no desire or concern for making Pakistan an egalitarian State through fair and just taxation. The prerequisite of such taxation is improving contribution of direct taxes as a tool of redistribution of wealth.

The majority of writers, experts and TV anchors do no highlight the above and follow the line of donors and their crony elites that “more taxes” are needed. Nobody raises the question, taxes for what? Why 60% of the population lives below the poverty line is not their concern. The non-fulfilment of fundamental rights “for lack of funds” and reliance on “borrowed funds” has a clear nexus.

The elites want to waste resources on their luxuries. This colossal wastage of resources, coupled with non-taxation of the rich and mighty, has created a variety of crises for Pakistan, abject poverty for majority of population, unemployment, slow economic growth, debt trap, poor infrastructure, monstrous fiscal and trade deficits, shortage of forex reserves and huge current account deficit.

The economy of ashrafiya-controlled-Pakistan serves the interests of the privileged classes. The ruling classes, representing only 2% of entire population, own 95% of national resources. They exploit the labor of landless tillers, poor urban workers and white-collar workers to amass more and more wealth. Additionally, they create artificial hikes in the prices of essential items to snatch back whatever little is earned or saved by ordinary people.

It is tragic that in a country where billions of rupees are made daily in speculative transactions at stock exchanges and in the real estate sector, the rich own palatial houses, even in posh and expensive zip codes in foreign countries, maintain imported luxury cars and have army of servants and personal guards, investments abroad,  and tax-to-GDP ratio is one of the lowest in the world, at around 8% to 10% for the last 20 years. The government is least bothered to tax the undocumented economy and benami (name-lender) transactions rather, generously gives amnesties to tax evaders and looters of national wealth.

The finance ministers of successive regimes and stalwarts of the revenuecracy keep on blaming the people for “not paying taxes” and that our “tax base is narrow.” These are blatant lies. The fact is that Pakistanis are the most heavily taxed nation in whole of South Asia. According to data available at the website of Pakistan Telecommunication Authority, there were 192 million mobile cellular subscribers as on March 31, 2024. A huge population, approximately 125 million has been paying 15% adjustable income tax and 19.5% sales tax, but only 2,650,169 individuals filed income tax returns up to May 6, 2024.

The worthy members of Parliament never bother to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor.

The majority of mobile users may not have taxable income, yet they are burdened with undue liability. On the contrary, majority of rich just pay a fraction of income tax (withheld at source) on actual taxable incomes without even bothering to file income tax returns—those filed, only a few over 100,000 admitted a tax liability of more than Rs 500,000. The Federal Board of Revenue (FBR) has not uttered even a single word about it which confirms beyond any doubt that the rich and mighty in Pakistan are evading taxes with impunity. In order to hide this fact and their incompetence, FBR keeps on blaming the public at large.

There are no two opinions on the fact that the entire budget making process in Pakistan represents the epitome of the apathy of parliamentarians towards the masses of this country, who vote them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services—housing, transport, education and health, to say the least. The worthy members of Parliament never bother to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor.

In every civilized and democratic society, it is the sole prerogative of elected members to initiate the process of law-making and devising of national policies after taking public input into account. It is the prime rule of a democratic process that no law or policy should be made unless a thorough debate is held in parliament. In Pakistan, the rulers, military and civilian alike, always bypass parliamentary processes and then complain about lack of “democratic behavior and culture.”

Every year, the budget-making exercise is entrusted to bureaucrats sitting in the Ministry of Finance and FBR, while the Parliament conveniently restricts its role to a silent approver. Due to non-participation of public representatives in budget-making, the financial managers and tax collectors have persistently failed to overcome the ever-increasing monstrous fiscal deficit and remove fiscal imbalances, as their tax policies are narrowly based on collecting taxes at source, without bringing powerful and wealthy sections of society within the tax net, or collecting what is actually due from them. They will never recommend a reduction in wasteful expenses as being part of the state oligarchy, they enjoy a life of luxury at taxpayers’ expense. Our budgets and our economy is only for them!

The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE)