Budget 2024-25: From Bad To Worse

By seeking to expand the tax net through cunning ways, Pakistan's revenue authorities are not only risking intense backlash, but are creating incentives for the informal economy to keep growing.

Budget 2024-25: From Bad To Worse

"Where incompetence is prized, it is ever present.” — Masha Gessen 

There is a long list of various forms of government, but the Greek era of Aristotle and Socrates laid down democracy, monarchy, oligarchy and tyranny as the principal ones. As can be seen, countries around the world have one or another form of government. In Pakistan today, one can coin a new name for the type of governance that is here to stay—Maladroity (from the word ‘maladroit,’ meaning incompetence). In every sphere of public service, the level of incompetence has grown to such an extent that one wonders how this country is surviving. Actually, this is nothing short of a miracle in a world of reason and high scientific achievement. Fifty years from now, the case study of Pakistan will be looked upon with great interest by students of tomorrow.

They say that people learn from their mistakes, improve and evolve over time. Making blunders is part of human nature—to err is human—but to go on repeating the same error in the hope that in the end it would work out, cannot be termed as oversight but rather, height of incompetence. Successive governments have been engaged in the practice of presenting the yearly budget to a predominantly uninterested parliament. Stakeholders, especially who belong to the documented sector, attentively listen to every word the minister speaks in anticipation of hearing about positive proposals which would boost their incomes and provide some relief from back-breaking influx of taxes. Alas! Each time there is nothing but disappointment with increased apprehension of the black and informal economies expanding beyond control.

As the evening of 12 June 2024 approached, there was a flicker of hope that the new and well-versed banker-turned-senator and finance minister, Muhammad Aurangzeb, would show some rationality in budget proposals for the year. Of course this expectation was short-lived!

Charlie Chaplin’s silent movies of the yesteryears or today’s Mr. Bean usually show that in an attempt to cover up a small gaffe, these characters wind up in a mesh that ultimately leads to total collapse. Something of that sort is happening in our beloved country where a group of individuals who consider themselves as having ‘great’ brains have propounded strategies that not only sliced away an important arm of the country but has led the entire population of the remaining part over the precipice and directly into the dark abyss of helplessness from which no escape seems possible. 

Almost every department of the government and a good chunk of the private sector too has become dysfunctional on account of dearth of merit and abundance of ineptitude otherwise how is it that a region blessed with multitude of natural resources not only appears barren but is also gasping to stay alive. The menace of erratic and inconsistent policies, non-adherence to constitutional provisions and absolute neglect of the ever-exploding population has not only ripped apart the fabric of economy but has also poised the serious question of sustainability. 

As the evening of 12 June 2024 approached, there was a flicker of hope that the new and well-versed banker-turned-senator and finance minister, Muhammad Aurangzeb, would show some rationality in budget proposals for the year. Of course this expectation was short-lived! He too appears to be beguiled by the real exponents of this budget and fallen into their trap. In a bid to prove that the figure of Rs. 12,970 billion is achievable, the proposals made are blatantly in disregard for either the constitution or the aspirations of the people. A few are mentioned below.

Firstly, when in section 37 of the Income Tax Ordinance, 2001, sub-section (1A) was introduced in 2012, it was already in defiance of item 50 of the legislative list, appended to the constitution that empowers only the provincial governments with the right to levy taxes on immovable property. As this move met with no resistance from provincial governments, 2024 is witness to the complete usurpation of this privilege by the federal government with the proposal of deleting holding period on sale of immovable property. This reminds us of the The Arab and the Camel where the animal gradually managed to evict his master from the tent.  

Secondly, exporters too would be badly hit by lifting of special rate of income tax and zero-rated tax. After a lapse of 32 years, we are back to square one from where this journey began. With the present level of (in)competent and now confirmed corrupt officials in the revenue departments of this country, it would become impossible to eke out any tax if proper audits are actually conducted. 

If the government persists in making the lives of its citizens miserable by its maladroitness, then the time is not far when there would be a tax revolt in this country.

This was the reason that way back in 1991-1992, the concept of a minimum tax on importers was introduced in Income Tax Ordinance, 1979. With this proposal there will open a fresh Pandora’s Box of confrontation and litigation that will add to the woes of judiciary and hamper the smooth functioning of businesses. The only ones to benefit would be auditors and tax consultants.

The manner with which Income Tax Ordinance, 2001 is being subjected to constant shocks, its title would soon become meaningless, to be replaced with Transactional Tax Act. There is hardly anything left in it that has something to do with real income. Just like the country’s environment, this too has become presumptuous and unreliable overriding Adam Smith’s principles of fairness, certainty, convenience and efficiency in taxation matters. Perhaps the government’s principles have changed to injustice, uncertainty, nuisance and incompetence for executing their taxation policies.   

Time and again reference has been made to Article 4(2)(c) of the Constitution which in clear terms says: “no person shall be compelled to do that which the law does not require him to do.” Then what is the justification of penalizing millions for being non-filers if they are genuinely earning less than the legal threshold of income chargeable to tax? Besides, by continuously targeting non-filers with heavy taxation, the revenue authorities are constantly exposing their own maladroitness in expanding the tax net by using cunning tactics that, by the way, are causing more backlash than benefitting the country. The tremendous amounts of unpaid refunds piling up in their accounts are sitting time bombs ready to explode once the people get really irritated.

There is no paucity of sensible proposals that can attract revenue without causing an uproar in the country because in the words of Jean Babtiste Colbert: “The art of taxation consists in so plucking the goose (taxpayer) to obtain the largest amount of feathers with the least possible amount of hissing.” 

If the government persists in making the lives of its citizens miserable by its maladroitness, then the time is not far when there would be a tax revolt in this country.

The writer is a lawyer and author, and an Adjunct Faculty at the Lahore University of Management Sciences (LUMS), member Advisory Board and Senior Visiting Fellow of Pakistan Institute of Development Economics (PIDE)