The adoption of the Finance Bill 2007 by the lower house on June 22 in utter haste, without assessing its impact on the economy and the burden of regressive taxes on the poor, once again proves that the elected representatives are not allowed to perform their constitutional duty.

The government ignored suggestions and amendments by the opposition and the Senate, disregarding all the norms of parliamentary process and transparency. The ministry of finance even managed to get a number of laws, not falling in the ambit of Money Bill, approved under the garb of the Finance Bill, 2007.

And the outcome is that the financial managers and tax collectors have persistently failed to overcome fiscal deficit as their tax policies are based on collecting taxes at source and without adequately taxing the renter class.

There is a direct link between the growing poverty and distortion in tax base since 1991, when major tax burden was shifted to consumers by introducing presumptive taxes in income tax law. The lack of judicious balance between direct and indirect taxes and levy of regressive taxes in the garb of income tax, petroleum development surcharge etc is a factor in pushing an overwhelming majority towards the poverty line. Since the fiscal policy has not been devised by a representative Parliament, the priority has never been given to tax the rich and provide relief to the poor.

The indirect taxation under the garb of presumptive tax regime on transactions, without evaluating its impact on the life of poor masses is a serious cause for concern. According to official figures, the contribution of income tax [although a major portion of it is now composed of indirect levies or expenditure taxes) as percentage of GDP is continuously declining; it was merely 2.8 per cent in 2006-07, 2.9 in 2005-06, three n 2004-05, 3.01 in 2003-2004, whereas in 2002-2003 it was 3.15 per cent.

The FBR chairman in his press conference on July1, made the tall claim that the direct taxes during fiscal 2006-07 maintained “its marvellous growth throughout the year”. The claim made in respect of the direct taxes, “the year-end overall growth has been over 45.6 per cent, is however not sustained. In the direct taxes of Rs328 billion for fiscal 2006- 2007, the share of various taxes is as under:

Taxes collected at source on goods and services/contracts/supplies/rent etc, being full and final discharge, are in substance indirect levies, if subtracted from income tax collection, the actual figure comes to Rs220 billion. Thus the share of income tax as percentage of total revenue is not more than 26 per cent, whereas the same is claimed at 31.7 per cent.

Out of total collection of Rs840 billion by FBR in FY2006-07, regressive taxes are to the tune of Rs620 billion (after making adjustment of indirect taxes collected under the name of income tax!). It has distorted the economy, raised the cost of doing business, widened the gulf between rich and the poor and made the national industry non-competitive.

The revenue deficit, despite this collection of Rs840 billion, is high at

Rs200.5 billion and fiscal deficit at Rs373.5 billion. The FBR chairman claimed that the share of direct taxes was sharply increased to 39 per cent in fiscal 2006-07 against 30 per cent in FY06. This is gross misrepresentation of data. If presumptive taxes on goods and services camouflaged as income tax are included it touches 70 per cent.

The average share of direct taxes for high income countries is 46 per cent while in the low income countries it is 28 per cent. In 2006, Iran and India posted direct tax shares of 40 per cent and 29 per cent respectively as compared to 39 per cent by Pakistan [in reality it is not more than 30 per cent.

The present tax policies of government are detrimental for economy, social justice, business and industry. The ability-to-pay principle is regarded as the most equitable method of taxation. It is emphasized primarily for its redistributive role. Our rulers have completely deviated from this principle, which is, in fact, a constitutional obligation of the government.

The common man is subjected to sales tax of 15 plus one per cent Federal Excise (tax incidence is 42 per cent on finished imported goods after applicable customs duty, sales tax, federal excise, mandatory value addition and income tax) on essential commodities [even salt sold under brand names is subjected to 15 per cent sales tax] but big industrialists, landed classes, generals and bureaucrats avoid paying taxes. In a country where billions of rupees being made in speculative transactions in real estate and shares, tax-to-GDP ratio is pathetically low [just 9.5 per cent in fiscal year 2006-07] and the government is least bothered to tax undocumented economy and benami {name-lender) transactions.