Pakistanis are often reminded by corrupt and inefficient rulers and tax officials that taxes are the price they have to pay to live in civilisation. People pose the question: whether they were really living in a civilised society?
The counter narrative is that taxes cannot be demanded by a government that cannot provide protection of life and property and basic facilities to its citizens. The citizens complain that even after paying heavy indirect and direct taxes they get nothing in return. The majority lives below poverty line and are deprived of fundamental rights: health, education, transport, housing and clean drinking water, etc.
It is an established fact that despite resorting to all kinds of oppressive taxes, data manipulation, blocking of bona fide refunds, high-pitch assessment and collection through highhandedness, and unjust withholding taxes, the Federal Board of Revenue (FBR) has miserably failed to tap the real tax potential, which is not less than Rs8 trillion. The FBR has failed to take appropriate action against the rich and mighty.
The burden of ever-increasing withholding and presumptive taxes (which are nothing but a form of indirect taxes), shamelessly levied under the Income Tax Ordinance, 2001, is further enriching the rich traders. They shift the burden to consumers and clients. The presumptive/minimum taxes have distorted the entire income taxation system. Moreover, these despotic, short-term, myopic and figure-oriented measures have failed to bridge the burgeoning fiscal deficit.
When presumptive taxes were imposed in 1991, the fiscal deficit was only Rs80 billion. In fiscal year 2015-2016, our fiscal deficit has soared to over Rs2 trillion, proving beyond any doubt that irrational taxes have blatantly failed to improve the fiscal scene. Irrational taxation always plays a decisive role in destroying growth paving the way for social unrest. This is exactly what successive governments have been perpetually doing in Pakistan since 1991 — see details in Huzaima Bukhari & Dr. Ikramul Haq, Towards Flat, Low-rate, Broad & Predictable Taxes, Islamabad: PRIME Institute (April (2016).
The FBR has failed to bridge tax gap during the last many years — Country Report 16/2 (January 2016), prepared by Ms. Serhan Cevik (FAD) of International Monetary Fund (IMF)). For over 90 per cent collection, it relied on withholding provisions, advance tax and voluntary payments. Every year bona fide refunds of billions are held back and billions are taken as advance to meet budgetary targets.
The FBR has made negligible efforts to force the rich and mighty to file returns, which proves beyond any doubt its inefficiency and unproductiveness. Shahid Javed Burki in “Provincial Rights and Responsibilities” [Journal of Economics, September 2010] opines that “about 40 million out of 170 million people in Pakistan have now succeeded in keeping their living standards from falling. Of these, about 15 million have improved their economic situation in spite of the sluggish economy.” The FBR is not properly taxing these rich 15 million.
In the face of these realities, the FBR stalwarts get bonuses and kudos from the finance minister to make the lives of ordinary people more miserable and costly. The tax administration is using all kinds of negative tactics to achieve revenue targets without taxing the people according to their capacity. The mighty ruling classes are not paying the taxes due from them and the poor are subjected to exorbitant sales tax on items of daily use. Adding insult to the injury, the FBR becomes toothless when it comes to taking action against the powerful segments of society.
A report, Taxation by Misrepresentation, released jointly by the Center for Investigative Reporting in Pakistan (CIRP) and Sustainable Development Policy Institute (SDPI) in 2013 revealed that “out of 1,070 lawmakers voted to the national and provincial assemblies in the 2013 elections, 47 per cent did not pay income tax and 12 per cent of these members do not have a National Tax Number (NTN).” The PML-N has the lion’s share with 54 such MNAs. The PTI follows with 19 non-taxpaying MNAs.
In Representation Without Taxation: CIRP’s Report Unmasked Tax Evasion In Parliament (2012), the CIRP exposed that “in both Houses of the Parliament, the Senate and National Assembly, there are 446 lawmakers and 300 of them have turned out to be tax-dodgers.” Sadly, it did not move Election Commission of Pakistan (ECP) to disqualify them under the law. The FBR also showed total indifference and even condoned the default of defaulters. Resultantly, in tax year 2013 as many as 60 per cent members of the Parliament again failed to file returns within time. Tax Directory 2013, available on the website of FBR, reveals that none of 1,072 legislators — members of Senate, national and provincial assemblies — was among top taxpayers. They cumulatively paid to national exchequer Rs251 million — just 0.03 per cent of total direct tax collection whereas their average net worth is $900,000!
Unfortunately, no action has been taken till today by the FBR against the rich legislators who do not declare correct income. Many others whose names have appeared in Panama Papers have also not been questioned. Thus people are further disillusioned that despite concrete evidence, tax evaders and plunderers of national wealth are being protected by agencies that are established to counter these menaces.
Laws do exist to ensure that people seeking public offices should have integrity and character, but there is complete apathy to implementing these laws. Discharging of tax obligations is a requirement of law of the land and its violation by any individual attracts Article 62(f) of the Constitution of Pakistan. The question is who will punish the offenders of tax laws when the FBR, NAB, FIA or ECP have become dysfunctional. The hope is now with higher courts — though many express skepticism as in the past public interest petitions filed were dismissed by courts as not maintainable!
For strengthening democracy and institutions, the process of accountability in Pakistan must start with scrutinising declarations of assets/liabilities/expenses filed by politicians, high-ranking civil and military officials and judges by an independent commission comprising retired judges and experts.
The civil society and media should come forward to force the Parliament to abolish all laws relating to secrecy/immunity and enact a comprehensive legislation for obtaining information by any citizen under Freedom of Information Law in terms of Article 19A of Constitution. This step will not only expose the rich and mighty who have amassed wealth but have failed to pay taxes under the law, but will also help promote the much-needed tax culture.
A meaningful change in governance is required for which as a first step, all political leaders should make public their assets at home and abroad, including those held benami. It would force all others to honestly discharge their tax obligations.
The process of filtration within the political parties is also a necessary step towards a transparent and democratic setup. Election Commission of Pakistan should ensure its implementation as directed by Supreme Court in Workers’ Party Pakistan v Federation of Pakistan & Others [PLD 2012 Supreme Court 681]. Once political leaders present themselves for accountability, judges, generals and senior civil servants will have to follow suit.
It is high time that these powerful segments must end seeking refuge behind special laws relating to “secrecy” and “privileges”. They should present themselves as role models for society rather than protecting self-interest and avoid accountability using the cover of special laws.