Our political elite and civil-military establishments have demonstrated extreme apathy towards the problems faced by the poor and economically disadvantaged sections of society. There is almost a consensus that Pakistan is meant only for the privileged classes and their cronies, that include the clergy. This apathy becomes criminal when the economic plight of millions continues to worsen with every passing day, but the privileged classes, instead of paying their taxes, are hellbent upon enjoying life at the taxpayers’ expense.
Not only have our economic managers failed miserably in bringing the country out of the prevailing economic crisis, they have even given up all efforts to make it a self-reliant state. The political and economic elites are also violating commitments made with international lenders at the time of making agreements, especially with the International Monetary Fund (IMF) as elaborated most recently in the previous columns.
Vast economic challenges, with monstrous external and domestic debts of almost US$ 125 billion and Rs. 59 trillion respectively, a rising fiscal deficit of Rs. 7.5 trillion, a dwindling tax-to-GDP ratio of 6.5%, unbearable inflation of around 30%, record unemployment at about 10%, just to mention a few—are still looming, but the outgoing government has not taken any concrete and urgent measures suggested by experts repeatedly.
On the contrary, the government, just a few weeks before completing its term, has resorted to many unwise policies in what can only be described as an attempt to push the country towards economic collapse. The imminent threat of default has been averted after the approval of a nine-month US$3 billion standby arrangement (SBA) by the executive board of the International Monetary Fund (IMF) on July 12, 2023. The deal between the Pakistan authorities and IMF staff, decided on June 29, 2023 was celebrated by the Premier Muhammad Shehbaz Sharif, though our four-time Finance Minster, Muhammad Ishaq Dar, remained in a rather dismal mood.
Our history of ‘chronic debt dependence,’ as well as a chronic habit of cheating the IMF and other lenders is well established and loathsome. It was revealed in a Press report on August 13, 2011 titled ‘IMF Programme: we tried, we failed, we give up’ that “having failed to honour yet another agreement with the International Monetary Fund (IMF), Pakistan has abandoned its efforts to seek a restoration of the $11.3 billion bailout programme, which had been suspended last year.” The report further claimed that Islamabad would no longer request the IMF to send a review mission, a preliminary step that could ultimately have led to the revival of the program, after recognizing “harsh ground realities.”
The said decision further tarnished the image of Pakistan—already considered an irresponsible state, with little respect for rule of law. In 2011, Pakistan was rated by Standard & Poor's (S&P) as B- (negative) as it was considered a higher risk country in the region in terms of its ability to meet financial commitments, both domestic and international, and was rated as not being viable for investment. Thus, nothing changed in 2023 when we faced the same situation.
At that point of time, this scribe wrote “If this image remains, in the future, it would become almost impossible for Pakistan to seek any bailout programme from the IMF.” It was mentioned that “on November 24, 2008, the IMF approved a US$7.6 billion 25-month Stand-By Arrangement (SBA) for Pakistan, which was later on enhanced to US$11.3 billion. On September 15, 2010, the IMF Board approved a further US$451 million disbursement under the Emergency Natural Disaster Assistance framework to help Pakistan manage the immediate effects of the massive and devastating floods, and protect the most vulnerable.”
In a Press Release (10/417) dated November 3, 2010, issued by the IMF after the visit of its Staff Mission to Islamabad, it was conveyed that the “Fund remains committed to the ongoing dialogue with the Pakistani authorities, and discussions will continue including around the Pakistan Development Forum to support Pakistan’s efforts to strengthen macroeconomic stability and growth and completing the fifth SBA review.”
Betraying the IMF over VAT
The IMF expressed positivity in November 2010, even after the government failed two agreed deadlines of introducing Value Added Tax (VAT): the first was 1 July 2010, which was later extended to October 2010. The government failed to impose VAT even in the 2011 Budget, which obviously annoyed IMF and it suspended all further tranches.
Pakistan also failed to meet many other obligations agreed with the IMF. After FBR’s figure fudging drama, brilliantly exposed by the media, our authorities could not face the IMF. This was perhaps the main reason behind the reported decision not to pursue the IMF program any further. It was simply tragic - a heavy price that the nation had to pay for the FBR’s follies.
We have always needed holistic economic reforms to weather perpetual crises on the external front, even if the IMF was not there. This remains true, even today in 2023. All said and done, economic discipline is necessary for achieving macroeconomic stability. In 2008, the IMF imposed a number of conditions for its generous lending to Pakistan. The foremost demand was to impose VAT with effect from July 2010. In 2008 while accepting the demand for VAT, IMF was not told that in Pakistan, at least 100 million mobile users were paying 10% income tax and 19% sales tax on gross amount spent on mobile telecommunications, but the rich and mighty enjoyed exemptions on their collosal wealth and agricultural income.
The government, after getting the VAT Bill approved from the Senate, abandoned the idea for reasons unbeknownst. Even in the Finance Bill 2011, there was no mention of introducing VAT though our then Finance Minister promised the IMF that VAT would be imposed from October 2010. This violation of the commitment with the Fund resulted in the blocking of a tranche of US$1.7 billion by the IMF and later the government reportedly decided not to pursue it any further. It may be mentioned that after October 2010, the then Finance Minister gave yet another deadline for imposing Reformed General Sales Tax (RGST)—another name for VAT—to get the deferred tranche. He failed to do so even in the 2011 budget and IMF refused to release the last tranche.
He sought time from IMF for enforcing VAT, and what happened afterwards is history. This is the way we have been making commitments and violating them at the highest level, without any remorse.
This scribe thus wrote in 2011: “We are incorrigible is the final message to IMF and others.” What a tragedy that even in 2023 we are compelled to say that we are unable to reform ourselves. This is simply insane!
Our rulers have been plundering money from all sources—collected through taxes or obtained as loans, but have never once showed any inclination towards structural reforms of the economy. This is not something new. In fact, all successive governments—civil and military alike— since 1958 have been agreeing to reform agendas with the IMF and then ignoring the same with impunity. In 2009, the government of the Pakistan People’s Party (PPP) set out the following reform agenda (it may be mentioned that IMF imposed only one condition to implement the VAT): a 30% reduction in defence budget (over 4 years), the downsizing of government and semi-government departments from 350,000 to 120,000, changes in tax structure to increase general sales tax by Rs 50 billion in 2009 and implementation of VAT from July 1, 2010.
Also agreed upon were an agriculture tax of 7% on wheat production and 3.5% on other crops. The IMF was to have official control on monitoring revenue collection and making changes in tax system whenever it wants. Six IMF directors and two World Bank directors were to monitor preparation of the federal budget of Pakistan. The Pakistani government was bound to report to the IMF all other loans negotiated with other countries, including China, 48 hours before signing the funding agreements.
The above were welcomed by many Pakistani experts, especially who had worked in the IMF and World Bank. They were of the view that even condition for VAT imposed by IMF could not be termed as “dictation”—usually invented by so-called independent analysts in Pakistan. This condition, in fact, was beneficial, aimed at creating required revenues. Our rulers are notorious for violating all established norms and regulations when the matter comes to paying taxes. “In our long association with the IMF, going back some 60 years, we have never completed a programme (except for once), thus the country has one of the poorest implementation records in the IMF”, said the late Meekal Ahmed.
Meekal Ahmad, with a long association with the IMF and Planning Commission of Pakistan, before his death in a meeting with me over a lunch in Washington DC, lamented that despite the fact that FBR had received more technical assistance and advice than any other government department, it accomplished nothing.
Almost every expert had pleaded in the past that for the crime of wasting borrowed money, the fault lied with Pakistan’s ruling classes and not with the IMF or World Bank. Had economic reforms been implemented and structural changes made, Pakistan could have improved its financial governance, but funds were ruthlessly squandered by the elite. On the one hand, this nation has become heavily indebted and on the other, all systems have been further destroyed with unabated corruption, inefficiency and incompetency.
During the Musharraf-Shaukat era, economic managers were constantly telling lies to the nation that the begging bowl had been broken and all ties with IMF and other foreign donors were severed, whereas in reality new loans for reforming tax, banking and justice systems—just to mention a few—were negotiated with unprecedented vigor. The democratically-elected government of PPP also decided to follow the same path. Their justification was that with the IMF loan, financial discipline and transparency would come. The result after their five-year rule was diametrically opposite. Since then, it is an immensely shameful attitude of our rulers that they are not ready to live within their means, and are dependent on IMF and World Bank, even for the purpose of bringing transparency and fiscal discipline.
A wasteful, decadent elite
The IMF and our local experts, pleading for more taxes, ignore the fact that real problems are: non-taxation of the rich and wasteful spending by political rulers. Under the existing inequitable system, the burden of taxes falls on the poor, and the rich make do with their numerous exemptions. Taxes, in the nature of full and final discharge of liability, are withheld even from those who have incomes below the taxable threshold. These taxes cannot be termed as income tax. These are transaction taxes or taxes on consumption. Being regressive in nature, such levies take a large portion of the income of poor people, and only a negligible part of the hefty income of a rich citizen. These taxes make the rich richer, and the poor poorer.
The rich and influential in Pakistan are not taxed according to their capacity to pay. Adding insult to injury, they enjoy many benefits and luxuries at the expense of taxpayers’ money. Just take a look at huge golf clubs in cantonment areas—these are not meant for the ordinary lot. The civil-military elite and “influential persons” of the city enjoy these superb facilities, and that too at subsidized rates. These facilities, funded from public money, are meant for the rich and mighty for their personal comforts and luxuries. If they want to avail such luxuries, they should pay from their own pockets and not burden the already depleted national exchequer.
Although these facilities are on public lands, they are meant exclusively for the elite. Top Pakistan Administrative Service (erstwhile DMG) officers and military high-ups have palatial bungalows, guest houses, luxury cars, domestic servants, cooks, gardens, watchmen and what not. All these are funded from taxpayers’ money.
The “official” guest houses are maintained with public money, but subsidized rates are enjoyed by the public servants, their families and friends, but certainly not by the public. The security provided at GORs shows that lives of gora sahibs are more precious than ordinary mortals.
The government properties housing governor houses, golf clubs, guest houses, wedding halls—even bakeries and commercial markets in cantonments —are not meant for official business, yet taxes are not levied on them on the pretext that these belong to the state. The poor are dying of starvation, their children are undernourished but our ruling elite, even after seeing all this, is not ready to mend its ways. These privileged classes are not only avoiding taxes, but also enjoy luxuries created from money generated through taxes, most of them regressive, levied on the poor ruthlessly, sparing the rich from proper direct taxation.
Over a period of time, our tax system has become rotten, oppressive, unjust and target-oriented. There is a dire need for discussing the philosophical framework, the principles of equity and justice, which should be the main concern of our tax policy; not mere achieving of revenue targets. Our tax managers are meeting budgetary targets through oppressive taxes, shifting the incidence of taxation on the poorer segments of society and exempting the rich. They are not tapping the real tax potential, not less than Rs. 16 trillion. The great divide between the poor and the rich is expanding. FBR has proved to be an inefficient and corrupt organisation. 95% of revenue collection is through withholding taxes or advance tax or taxes paid with returns. It could be outsourced to any reputed firm that would bring more taxes through better management and IT tools.
Taxation as a political puzzle
On the one hand, we are not collecting taxes according to the constitutional principle of 'capacity to pay' and on the other, annual targets are fixed to further squeeze the already dried tax base. There is no political will to tax the rich and mighty absentee landlords, big property owners and those who are engaged in wasteful expenditure. Rich absentee landlords conveniently remain outside the tax net, while the poor are paying 18% GST, even on basic commodities like salt sold under brand names.
When tax was imposed on salt in the colonial era, the visionary leaders of that time staged a revolt against such high-handedness. But in the post-independence period, our rulers are playing havoc with the economic life of the poorest by levying exorbitant tax on salt and many other everyday edible commodities, besides enhancing the prices of utilities and petroleum products beyond the capacity of the income of vast majority of the population.
It is well-established that our inept rulers and inefficient taxmen are the real culprits for our debt enslavement. For example, there was no justification to raise the GST rate to 16% in the budget 2008-09—the IMF was not even in the picture at that time. At that time, the late Meekal Ahmad rightly said that “If I had my way, I would cut the GST to a single rate of 10%. I would cut spending, current, defence and developments, each by a third, cut tax rates, eliminate all exemptions and concessions, and broaden the tax net.” This stands true, even as Ishaq Dar raised the sales tax rate from 17% to 18% through a mini budget in February 2023.
Successive governments have utterly failed to convince the Pakistani people in paying taxes actually due from them. The common argument against paying taxes is that money so collected is spent for wasteful purposes and on unprecedented benefits enjoyed by high-placed civil-military bureaucrats and corrupt politicians. These classes would have to demonstrate by their actions that taxes collected are not meant for their luxuries.
The state must earmark revenues for specific purposes and place the same in funds created for debt retirement, creation of employment zones and provisions for social services like education, health, housing etc. This would inspire the people to contribute generously towards the national exchequer. This is the only way that revenues can be generated through voluntary compliance and at the lowest possible cost. The present policy of imposing irrational taxes and taxing even that portion of citizens’ income that they spend on educational and medical needs, can never produce any positive results. These are bound to create more inequalities in society, leading to social unrest and lawlessness. The state is so indifferent towards the law and order situation and high charges of power and gas that no investor, domestic or foreign, is inclined to invest.
Today’s Pakistan represents a state where a trio of corrupt civil-military bureaucrats, incompetent politicians and profit-hungry businessmen is very affluent, but the state is poor and relies more and more on borrowed funds. Our total external debt has now touched a monstrous US$120 billion and internal debt stands at a staggering Rs. 59 trillion—the domestic debt is eightfold of total annual tax revenue, which is simply unsustainable.
This state of affairs is the direct outcome of the policies of successive regimes—military and civilian alike—to allow a free hand to the forces of loot and corruption. Our ruling classes would never want Pakistan to come out of debt enslavement, as it would end their perpetual control over the state and the means of production, which they are maintaining as gumashtas of neocolonial forces.
Not only have our economic managers failed miserably in bringing the country out of the prevailing economic crisis, they have even given up all efforts to make it a self-reliant state. The political and economic elites are also violating commitments made with international lenders at the time of making agreements, especially with the International Monetary Fund (IMF) as elaborated most recently in the previous columns.
Vast economic challenges, with monstrous external and domestic debts of almost US$ 125 billion and Rs. 59 trillion respectively, a rising fiscal deficit of Rs. 7.5 trillion, a dwindling tax-to-GDP ratio of 6.5%, unbearable inflation of around 30%, record unemployment at about 10%, just to mention a few—are still looming, but the outgoing government has not taken any concrete and urgent measures suggested by experts repeatedly.
On the contrary, the government, just a few weeks before completing its term, has resorted to many unwise policies in what can only be described as an attempt to push the country towards economic collapse. The imminent threat of default has been averted after the approval of a nine-month US$3 billion standby arrangement (SBA) by the executive board of the International Monetary Fund (IMF) on July 12, 2023. The deal between the Pakistan authorities and IMF staff, decided on June 29, 2023 was celebrated by the Premier Muhammad Shehbaz Sharif, though our four-time Finance Minster, Muhammad Ishaq Dar, remained in a rather dismal mood.
Our history of ‘chronic debt dependence,’ as well as a chronic habit of cheating the IMF and other lenders is well established and loathsome. It was revealed in a Press report on August 13, 2011 titled ‘IMF Programme: we tried, we failed, we give up’ that “having failed to honour yet another agreement with the International Monetary Fund (IMF), Pakistan has abandoned its efforts to seek a restoration of the $11.3 billion bailout programme, which had been suspended last year.” The report further claimed that Islamabad would no longer request the IMF to send a review mission, a preliminary step that could ultimately have led to the revival of the program, after recognizing “harsh ground realities.”
The said decision further tarnished the image of Pakistan—already considered an irresponsible state, with little respect for rule of law. In 2011, Pakistan was rated by Standard & Poor's (S&P) as B- (negative) as it was considered a higher risk country in the region in terms of its ability to meet financial commitments, both domestic and international, and was rated as not being viable for investment. Thus, nothing changed in 2023 when we faced the same situation.
Almost every expert had pleaded in the past that for the crime of wasting borrowed money, the fault lied with Pakistan’s ruling classes and not with the IMF or World Bank. Had economic reforms been implemented and structural changes made, Pakistan could have improved its financial governance, but funds were ruthlessly squandered by the elite.
At that point of time, this scribe wrote “If this image remains, in the future, it would become almost impossible for Pakistan to seek any bailout programme from the IMF.” It was mentioned that “on November 24, 2008, the IMF approved a US$7.6 billion 25-month Stand-By Arrangement (SBA) for Pakistan, which was later on enhanced to US$11.3 billion. On September 15, 2010, the IMF Board approved a further US$451 million disbursement under the Emergency Natural Disaster Assistance framework to help Pakistan manage the immediate effects of the massive and devastating floods, and protect the most vulnerable.”
In a Press Release (10/417) dated November 3, 2010, issued by the IMF after the visit of its Staff Mission to Islamabad, it was conveyed that the “Fund remains committed to the ongoing dialogue with the Pakistani authorities, and discussions will continue including around the Pakistan Development Forum to support Pakistan’s efforts to strengthen macroeconomic stability and growth and completing the fifth SBA review.”
Betraying the IMF over VAT
The IMF expressed positivity in November 2010, even after the government failed two agreed deadlines of introducing Value Added Tax (VAT): the first was 1 July 2010, which was later extended to October 2010. The government failed to impose VAT even in the 2011 Budget, which obviously annoyed IMF and it suspended all further tranches.
Pakistan also failed to meet many other obligations agreed with the IMF. After FBR’s figure fudging drama, brilliantly exposed by the media, our authorities could not face the IMF. This was perhaps the main reason behind the reported decision not to pursue the IMF program any further. It was simply tragic - a heavy price that the nation had to pay for the FBR’s follies.
We have always needed holistic economic reforms to weather perpetual crises on the external front, even if the IMF was not there. This remains true, even today in 2023. All said and done, economic discipline is necessary for achieving macroeconomic stability. In 2008, the IMF imposed a number of conditions for its generous lending to Pakistan. The foremost demand was to impose VAT with effect from July 2010. In 2008 while accepting the demand for VAT, IMF was not told that in Pakistan, at least 100 million mobile users were paying 10% income tax and 19% sales tax on gross amount spent on mobile telecommunications, but the rich and mighty enjoyed exemptions on their collosal wealth and agricultural income.
The government, after getting the VAT Bill approved from the Senate, abandoned the idea for reasons unbeknownst. Even in the Finance Bill 2011, there was no mention of introducing VAT though our then Finance Minister promised the IMF that VAT would be imposed from October 2010. This violation of the commitment with the Fund resulted in the blocking of a tranche of US$1.7 billion by the IMF and later the government reportedly decided not to pursue it any further. It may be mentioned that after October 2010, the then Finance Minister gave yet another deadline for imposing Reformed General Sales Tax (RGST)—another name for VAT—to get the deferred tranche. He failed to do so even in the 2011 budget and IMF refused to release the last tranche.
He sought time from IMF for enforcing VAT, and what happened afterwards is history. This is the way we have been making commitments and violating them at the highest level, without any remorse.
This scribe thus wrote in 2011: “We are incorrigible is the final message to IMF and others.” What a tragedy that even in 2023 we are compelled to say that we are unable to reform ourselves. This is simply insane!
Top Pakistan Administrative Service (erstwhile DMG) officers and military high-ups have palatial bungalows, guest houses, luxury cars, domestic servants, cooks, gardens, watchmen and what not. All these are funded from taxpayers’ money.
Our rulers have been plundering money from all sources—collected through taxes or obtained as loans, but have never once showed any inclination towards structural reforms of the economy. This is not something new. In fact, all successive governments—civil and military alike— since 1958 have been agreeing to reform agendas with the IMF and then ignoring the same with impunity. In 2009, the government of the Pakistan People’s Party (PPP) set out the following reform agenda (it may be mentioned that IMF imposed only one condition to implement the VAT): a 30% reduction in defence budget (over 4 years), the downsizing of government and semi-government departments from 350,000 to 120,000, changes in tax structure to increase general sales tax by Rs 50 billion in 2009 and implementation of VAT from July 1, 2010.
Also agreed upon were an agriculture tax of 7% on wheat production and 3.5% on other crops. The IMF was to have official control on monitoring revenue collection and making changes in tax system whenever it wants. Six IMF directors and two World Bank directors were to monitor preparation of the federal budget of Pakistan. The Pakistani government was bound to report to the IMF all other loans negotiated with other countries, including China, 48 hours before signing the funding agreements.
The above were welcomed by many Pakistani experts, especially who had worked in the IMF and World Bank. They were of the view that even condition for VAT imposed by IMF could not be termed as “dictation”—usually invented by so-called independent analysts in Pakistan. This condition, in fact, was beneficial, aimed at creating required revenues. Our rulers are notorious for violating all established norms and regulations when the matter comes to paying taxes. “In our long association with the IMF, going back some 60 years, we have never completed a programme (except for once), thus the country has one of the poorest implementation records in the IMF”, said the late Meekal Ahmed.
Meekal Ahmad, with a long association with the IMF and Planning Commission of Pakistan, before his death in a meeting with me over a lunch in Washington DC, lamented that despite the fact that FBR had received more technical assistance and advice than any other government department, it accomplished nothing.
Almost every expert had pleaded in the past that for the crime of wasting borrowed money, the fault lied with Pakistan’s ruling classes and not with the IMF or World Bank. Had economic reforms been implemented and structural changes made, Pakistan could have improved its financial governance, but funds were ruthlessly squandered by the elite. On the one hand, this nation has become heavily indebted and on the other, all systems have been further destroyed with unabated corruption, inefficiency and incompetency.
During the Musharraf-Shaukat era, economic managers were constantly telling lies to the nation that the begging bowl had been broken and all ties with IMF and other foreign donors were severed, whereas in reality new loans for reforming tax, banking and justice systems—just to mention a few—were negotiated with unprecedented vigor. The democratically-elected government of PPP also decided to follow the same path. Their justification was that with the IMF loan, financial discipline and transparency would come. The result after their five-year rule was diametrically opposite. Since then, it is an immensely shameful attitude of our rulers that they are not ready to live within their means, and are dependent on IMF and World Bank, even for the purpose of bringing transparency and fiscal discipline.
A wasteful, decadent elite
The IMF and our local experts, pleading for more taxes, ignore the fact that real problems are: non-taxation of the rich and wasteful spending by political rulers. Under the existing inequitable system, the burden of taxes falls on the poor, and the rich make do with their numerous exemptions. Taxes, in the nature of full and final discharge of liability, are withheld even from those who have incomes below the taxable threshold. These taxes cannot be termed as income tax. These are transaction taxes or taxes on consumption. Being regressive in nature, such levies take a large portion of the income of poor people, and only a negligible part of the hefty income of a rich citizen. These taxes make the rich richer, and the poor poorer.
The rich and influential in Pakistan are not taxed according to their capacity to pay. Adding insult to injury, they enjoy many benefits and luxuries at the expense of taxpayers’ money. Just take a look at huge golf clubs in cantonment areas—these are not meant for the ordinary lot. The civil-military elite and “influential persons” of the city enjoy these superb facilities, and that too at subsidized rates. These facilities, funded from public money, are meant for the rich and mighty for their personal comforts and luxuries. If they want to avail such luxuries, they should pay from their own pockets and not burden the already depleted national exchequer.
Over a period of time, our tax system has become rotten, oppressive, unjust and target-oriented. There is a dire need for discussing the philosophical framework, the principles of equity and justice, which should be the main concern of our tax policy; not mere achieving of revenue targets.
Although these facilities are on public lands, they are meant exclusively for the elite. Top Pakistan Administrative Service (erstwhile DMG) officers and military high-ups have palatial bungalows, guest houses, luxury cars, domestic servants, cooks, gardens, watchmen and what not. All these are funded from taxpayers’ money.
The “official” guest houses are maintained with public money, but subsidized rates are enjoyed by the public servants, their families and friends, but certainly not by the public. The security provided at GORs shows that lives of gora sahibs are more precious than ordinary mortals.
The government properties housing governor houses, golf clubs, guest houses, wedding halls—even bakeries and commercial markets in cantonments —are not meant for official business, yet taxes are not levied on them on the pretext that these belong to the state. The poor are dying of starvation, their children are undernourished but our ruling elite, even after seeing all this, is not ready to mend its ways. These privileged classes are not only avoiding taxes, but also enjoy luxuries created from money generated through taxes, most of them regressive, levied on the poor ruthlessly, sparing the rich from proper direct taxation.
Over a period of time, our tax system has become rotten, oppressive, unjust and target-oriented. There is a dire need for discussing the philosophical framework, the principles of equity and justice, which should be the main concern of our tax policy; not mere achieving of revenue targets. Our tax managers are meeting budgetary targets through oppressive taxes, shifting the incidence of taxation on the poorer segments of society and exempting the rich. They are not tapping the real tax potential, not less than Rs. 16 trillion. The great divide between the poor and the rich is expanding. FBR has proved to be an inefficient and corrupt organisation. 95% of revenue collection is through withholding taxes or advance tax or taxes paid with returns. It could be outsourced to any reputed firm that would bring more taxes through better management and IT tools.
There is no political will to tax the rich and mighty absentee landlords, big property owners and those who are engaged in wasteful expenditure. Rich absentee landlords conveniently remain outside the tax net, while the poor are paying 18% GST, even on basic commodities like salt sold under brand names.
Taxation as a political puzzle
On the one hand, we are not collecting taxes according to the constitutional principle of 'capacity to pay' and on the other, annual targets are fixed to further squeeze the already dried tax base. There is no political will to tax the rich and mighty absentee landlords, big property owners and those who are engaged in wasteful expenditure. Rich absentee landlords conveniently remain outside the tax net, while the poor are paying 18% GST, even on basic commodities like salt sold under brand names.
When tax was imposed on salt in the colonial era, the visionary leaders of that time staged a revolt against such high-handedness. But in the post-independence period, our rulers are playing havoc with the economic life of the poorest by levying exorbitant tax on salt and many other everyday edible commodities, besides enhancing the prices of utilities and petroleum products beyond the capacity of the income of vast majority of the population.
It is well-established that our inept rulers and inefficient taxmen are the real culprits for our debt enslavement. For example, there was no justification to raise the GST rate to 16% in the budget 2008-09—the IMF was not even in the picture at that time. At that time, the late Meekal Ahmad rightly said that “If I had my way, I would cut the GST to a single rate of 10%. I would cut spending, current, defence and developments, each by a third, cut tax rates, eliminate all exemptions and concessions, and broaden the tax net.” This stands true, even as Ishaq Dar raised the sales tax rate from 17% to 18% through a mini budget in February 2023.
Successive governments have utterly failed to convince the Pakistani people in paying taxes actually due from them. The common argument against paying taxes is that money so collected is spent for wasteful purposes and on unprecedented benefits enjoyed by high-placed civil-military bureaucrats and corrupt politicians. These classes would have to demonstrate by their actions that taxes collected are not meant for their luxuries.
The state must earmark revenues for specific purposes and place the same in funds created for debt retirement, creation of employment zones and provisions for social services like education, health, housing etc. This would inspire the people to contribute generously towards the national exchequer. This is the only way that revenues can be generated through voluntary compliance and at the lowest possible cost. The present policy of imposing irrational taxes and taxing even that portion of citizens’ income that they spend on educational and medical needs, can never produce any positive results. These are bound to create more inequalities in society, leading to social unrest and lawlessness. The state is so indifferent towards the law and order situation and high charges of power and gas that no investor, domestic or foreign, is inclined to invest.
Today’s Pakistan represents a state where a trio of corrupt civil-military bureaucrats, incompetent politicians and profit-hungry businessmen is very affluent, but the state is poor and relies more and more on borrowed funds. Our total external debt has now touched a monstrous US$120 billion and internal debt stands at a staggering Rs. 59 trillion—the domestic debt is eightfold of total annual tax revenue, which is simply unsustainable.
This state of affairs is the direct outcome of the policies of successive regimes—military and civilian alike—to allow a free hand to the forces of loot and corruption. Our ruling classes would never want Pakistan to come out of debt enslavement, as it would end their perpetual control over the state and the means of production, which they are maintaining as gumashtas of neocolonial forces.