Taxation: A way forward

September 16, 2019

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The writer was dean of the school of humanities and social sciences at Lums.
The writer was dean of the school of humanities and social sciences at Lums.

I DON’T believe there can be a way forward on our taxation problem unless taxpayers are given a fair and patient hearing and their concerns are allayed in a convincing manner.

Let us consider the period from 1988, when the PPP came into power under Benazir Bhutto, to 2018, when the PML-N lost power under Nawaz Sharif. These two parties shared power during this entire period of 30 years except for the 10-year takeover by Gen Pervez Musharraf from 1999 to 2008.

Now consider the fact that no less than the Supreme Court of the country characterised the rule of the PML-N as that of a mafia and that Nawaz Sharif, currently in prison, was accused of siphoning money abroad and buying properties there with unaccountable funds. Consider also the fact that since 2018, the new government has spared no effort to tar the PPP rule with the same brush. In fact, it has advertised to the world the fact that all political governments in Pakistan since 1988 have been worse than robber gangs.

Let us give the new government the benefit of the doubt on these allegations. But then, consider the implications. Is it the position of the government that taxpayers should have continued to pay taxes to robber gangs knowing full well that their taxes were being diverted abroad to buy ranches, manors and villas? Which party is the one that ought to be deemed naive in this situation? Instead of congratulating them for refusing to be taxed without representation and without even a modicum of honest rule, the government is actually labelling the taxpayers as cheats and criminals. This is either hypocrisy or a complete inability to think through the logic of its arguments.

Taxpayers here have valid concerns: does the government care for us?

It has been noted that the government, while declaiming the complete dishonesty of the PPP and the PML-N, has said not a word about the record of the Musharraf era. Let us, once again, concede the benefit of the doubt and accept that the Musharraf era was squeaky clean by contrast. This would then raise the question of why taxpayers were still not prepared to comply in an era of honest governance.

Let us not forget, however, that the Musharraf rule, no matter how clean, was constitutionally illegal and that there is still a case pending to that effect. Once again, instead of congratulating taxpayers for refusing to pay taxes to a usurper, the government is actually implying that people should have passively accepted the fait accompli. Clearly, this too is a position that fails the test of logic.

In order to grasp this contradiction, consider the grip of the MQM on Karachi in its darkest days. Everyone agrees that the MQM was running the city like a robber gang and the existence of various mafias (land, water, transport, etc.) was widely acknowledged. Nobody in their right mind would have expected or asked the city residents to pay taxes to an administration of that kind. That notwithstanding, the party was extracting taxes from industrialists and traders under threat of force. This was appropriately known as a jagga tax and was not taxation but extortion or tax terrorism. The obvious conclusion should follow: any forcible collection of taxes by a dishonest or illegal government is a form of terrorism and not taxation.

In this perspective, it is mindless to proffer comparative arguments of the sort favoured by our governments, bureaucrats, academics, consultants and donor agencies. It is completely irrelevant to argue that the tax-to-GDP ratio in Pakistan is below that of neighbouring countries and therefore screws should be tightened on taxpayers. Taxpayers in the other countries might actually value what they are getting in return for their money. Taxpayers in Pakistan have legitimate concerns: Does the government care for us? Where is our money going? Have we approved of the usages? Is the burden being shared fairly? These concerns deserve immediate attention. Responding to them with indignation, contempt or coercion signals that nothing has changed except the rhetoric.

*Read: Experts call for ‘deep-rooted’ tax reforms

What then is the way forward? Let us continue to give the new government the benefit of the doubt and accept that it comes with clean hands. Still, this is a very tall claim that needs to be proven given that many of its stalwarts are rolling right over from within the folds of the erstwhile robber gangs. We thank a merciful God. He has now shown them the path of righteousness. But once bitten is twice shy — fool me once, shame on you; fool me twice, shame on me. There must be credible proof of this newfound righteousness before taxpayers can revise their opinions of those who they have had the misfortune to be their rulers.

This points to a clear path. Let each individual associated with the government disclose publicly to taxpayers the taxes they have been paying over the years, the properties they own, the sources of the funds used to acquire them, and the assets in the names of their spouses and children. And if they have erred and wish to be forgiven, they should extend the same forgiveness to all and start with a clean slate and a level playing field. Once taxpayers are satisfied that they have a government of the people leading the way with public disclosure, they would have no hesitation in contributing their fair share.

Of course, it is quite conceivable that many people have been evading taxes for venal, not principled reasons. But the essential point remains: on what grounds can we ask them to pay taxes to dishonest or illegal governments? And, on what ethical principles can dishonest or unconstitutional governments insist on collecting taxes?

Read: Tax base is growing, FBR team tells PM

It all boils down to a deficit of trust that has now festered for many decades. It cannot be erased by loud claims. There is only one honourable way to erase that deficit and the first move rests with the government. Without that we shall continue to struggle with extortion no matter what anyone might care to call it.

The writer was dean of the school of humanities and social sciences at Lums.

Published in Dawn, September 16th, 2019