June 2, 2003	Monday	Rabi-us-Sani 1, 1424

During the last three and a half years, the burden of indirect taxes on the common man in Pakistan has substantially increased. As laid down in the Economic Survey, 2001-02, the indirect taxes had gone up from 9.7 percent of the gross domestic product (GDP) in 1998-99 to 11.3 percent of the GDP in 2001-02.

A look at the break-up of the indirect taxes showed that while the share of custom duty in the indirect taxes had gone down from 33 to 18.9 per cent and the share of central excise had also declined from 30.7 to 17.6 per cent during this period (199l-99 to 2001-02), the share of sales tax (which was a tax on consumption) had increased from 36.3 to 63.5 per cent during the period. In absolute terms, the sales tax had gone up from Rs72 billion in 1998-99 to Rs170.1 billion in 2001-02 ( Tables 5.1 & 5.2, pages 61 & 63, Economic Survey, 2001-02).

In addition to the general sales tax (GST), which was now payable on almost every purchasable item (medicines had recently been exempted), there were other indirect taxes, also, which had made the life of the common man miserable.

Even the utility bills were not spared from the imposition of taxes. On an electricity bill in which the amount payable was Rs328, a sum of Rs49 was charged as GST. Similarly, on a gas bill (amount payable Rs380), Rs50.32 were charged as GST, while on a telephone bill (amount payable Rs. 780), a sum of Rs. 101 was charged as GST. The higher the amount of the bill, the higher was the GST charged on it.

A couple of years back, the annual property tax charged from a retired government servant living in his own house at islamabad, constructed on a plot measuring 355 sq yds, amounted to Rs702. The amount has now gone up more than threefold to Rs2,372. The higher amount was attributable, firstly, to the upward revision of the property tax and, secondly, to the fact that a retired government servant occupying his own house was now required to pay 40 per cent of the property tax instead of 25 per cent paid by him earlier.

In addition to the above, a 10 per cent withholding tax was now payable on the profits earned on nearly all savings/investments in all national saving schemes. Banks were already deducting a 10 per cent withholding tax on profits earned on the amounts deposited in their profit-and-loss-sharing (PLS) accounts. This was in addition to the deduction of zakat at the rate of 2.5 per cent made from these deposits, on an annual basis, by the banks.

It must be made clear here that the above-mentioned GST and withholding tax were paid not only by those having a taxable income and paying their income tax regularly, but also by all those who had no taxable income and depended for their livelihood either on their pensions or income from small investments in the national saving schemes, such as widows, pensioners and others belonging to the low income categories.

This is indeed a cruel method of tax collection, which refuses to distinguish between the rich and the poor, the haves and the have-nots and the privileged and the deprived. Besides, increasing resort to regressive taxation is also against the universally accepted principle of equity and justice in taxation. In the industrialized world, bulk of government revenue comes from direct taxes and, at the same time, a significant percentage of the budget is spent on the social sector.

For instance, about 90 percent of the government revenue in the United States came from direct taxes, while as much as 60 per cent of the budget is spent on social services. In Pakistan, it is just the opposite. While indirect taxation is still relied upon as an important tool for tax collection, government expenditure on health, education and other social services remains at a deplorably low level.

In the Economic Survey, 2001-02, government’s undue dependence on indirect taxes has been attributed to ‘a narrow and punctured tax base resulting from wide-ranging exemptions and concessions and rampant tax-evasions.’ The question arises as to whether the government had made any serious efforts so far to gradually phase out the aforesaid income tax exemptions and concessions and remove the rampant tax-evasions.

According to a recent Press report, the CBR was now considering the desirability of bringing the pensioners into the tax net. While all such pensioners had been paying their income tax regularly as long as they were in service and they were still prepared to make all possible sacrifices for their country, would it not be fair to bring the agricultural income and income earned by professionals and not taxed so far into tax net first?

Finally, the government should not be oblivious of the problems resulting from growing un-employment and poverty in the country. The fiscal policy should be aimed at alleviating the hardships and sufferings of the poor, rather than aggravating them further, by adding to the burden of indirect taxes.

Since the government has a fiscal space to-day which it never had before, it is hoped that it would try to alleviate the sufferings of the common man and provide meaningful relief in the next federal budget, by reducing indirect taxes and significantly increasing the budget allocations for health, education, micro-financing, employment generation, poverty alleviation etc...