POLICYMAKING in Pakistan is an amateur parlour game — everybody plays policy on TV, in drawing rooms and wherever they like and all without reading, investigating or learning about how the rest of the world makes policy. And let us hasten to add, this is by no means unique to the present — all governments in our history have done this.
Someone powerful in the decision-making hierarchy otherwise tremendously busy picks up stray ideas. Bureaucrats looking for accelerated career paths, fall over backwards to implement these suggestions. No time to think, investigate, understand — after all development must not wait for thought, debate and investigation, even when some of these ideas are patently self-serving requiring further investigation.
Nowhere is this more apparent than in tax policy. All of us witness and suffer from the application of new and crazier proposals every few weeks. Arbitrary taxes on energy, internet, school fees, cars, houses, consumption, mobile phones, bank transactions, aeroplane tickets — the list grows by the hour. Yet the exemptions for many holy cows, SROs, subsidies to outmoded industries that have not been modernised in decades continue to prosper from these arbitrary taxes. Similarly, the untaxed perks and plots to those in positions of power and privilege swell at taxpayer expense.
Arbitrary taxes on energy, internet, school fees, cars, bank transactions, plane tickets — the list grows by the hour
No one questions this strange system as the citizenry is expected to docilely pay these taxes so that the much-maligned tax-to-GDP ratio can rise to some magical number.
Have you noticed how regularly governments form tax reform committees comprising mostly of the same tax practitioners (thriving from this complicated and dysfunctional structure) and the same industrialists benefiting from subsidies and SROs? The committee meets like a parlour game. There is no serious study, only princes playing policy.
Let us not forget the donors who for over 30 years paid large sums to consultants for policy advice to be implemented hastily. Can we please ask them to explain such a regime of crazy predatory taxation? Do advanced countries have such arbitrary taxes and that too applied so frequently?
The pet peeve of the donors and the SRO lobby is the non-filer! Oh yes, high theory is used here. Give them an incentive to file by penalising everything that non-filers do.
The most recent such ‘invention’ is the 0.6pc tax on cheques made/received by non-filers, further expanding the outsourcing of own responsibility to collect taxes to others, in this case the banks, holding them accountable for any errors of omission. How very convenient, when technology and establishment of common data bases, the requirement of CNICs/passports etc for transactions in cars, property and travel shouldn’t require any such crazy tax. Also, the existing withholding tax regime is already providing a rich database to identify potential taxpayers if there is the desire and will to widen the tax net.
The underlying hypothesis must be that anyone with a bank account should ipso facto be a taxpayer and if he/she isn’t should be forced to become one. And one thought that Islamabad was pushing ‘financial inclusion’ as a cherished objective in a country with one of the lowest proportions of the population using banks.
Allow us to illustrate the stupidity of it all with a few real life stories.
Daud Rashid has been working 14 hours a day in the Middle East for the last 30 years, dutifully sending money to his family that he sees once a year while also trying to save a nest egg for retirement. He remains a Pakistani since no one will allow him to stay in the Middle East. The new penalties for non-filers are biting him hard.
Meet Jani khala of Yalan. Her husband died 25 years ago leaving her with some savings in Behbud that she is living off. She has a house in Gulberg that her hardworking husband left her and that greedy eyes are all looking at enviously. Outwardly, khala appears very rich and yes her house is valuable. But she skimps and saves to live on her limited Behbud income. Her children in the US send her money that she uses for her medical expenses. Once a year they send her a ticket to visit them. She now has to pay Islamabad every time she withdraws money. Vultures are circling around her. Some with proposals for bribing FBR, selling/exchanging her property, managing her money! But then she should get no sympathy, she is a non-filer.
Farid Hayat, a student from a humble background but great ambitions has a scholarship, works two jobs to pay for college and a future. Unfortunately, he puts his money in a bank and needs internet and has to pay college fees. His income is below the taxable limit and hence he is that despicable non-filer.
One of us promised his driver that he would pay for his Haj this year. The man applied but his name did not come up in the lottery. Now he wants to return the money so that he can try again next year. You guessed it, he is that shameless non-filer and should pay the 0.6pc.
Again one of us has a leased car and when this year went to pay the annual token tax the Excise and Taxation Department insisted they wanted the NTN of the branch of the bank (not of the bank!) which was handling the lease to avoid having to pay the non-filer rate. A phone call helped to convince the man at the window, others in the queue without the appropriate connections simply had to pay the bribe!
These are just some stories of how poorly conceived policy disrupts lives. Nobel prizes have been won on understanding how tax policy must be neutral not disrupting lives. Yet our policy dilettantes know better.
There is enough experience around to show how simple tax policies implemented by a competent administration, using technology, can multiply revenues but of course our dilettantes suggesting taxing the chicken coop, the lavatory and kitchen know better.
Nadeem ul Haque is a former deputy chairman of the Planning Commission. Shahid Kardar is a former governor of the State Bank of Pakistan.
Published in Dawn, September 1st, 2015
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