WE have a fiscal deficit of more than Rs900bn, forcing us to borrow from domestic and foreign resources. The government hopes to have net resources of Rs2.4774trn this fiscal year. The shortfall is alarming but the government shows no concern about cutting non-development expenses. It is rather bent upon levying indirect taxes, raising prices of inputs utilised by the business, without realising its impact on the common man. Owing to the diminished purchasing power businessmen can no longer recover the cost of various inputs from end-users. These factors create a most unwanted economic picture.
Although the FBR has been wasting much time and money for the last few years on forming such task forces, committees, etc., the declining trend in tax-to-GDP ratio continues. From 13 per cent in 1995-1996, it was expected to increase the tax-to-GDP ratio, but it sank further to 8.9 per cent in 2009-2010 whereas the international standard is set at 17 per cent. The FBR did not meet the revenue target of Rs1,380bn — revised downwards from original Rs1,500bn — for the last fiscal year. This is sad. It needs an inquiry by the House Standing Committee on Finance. Public hearings at this forum should be conducted to find out the reasons for the FBR’s failure to meet the required target of tax-to-GDP ratio of 10.2 per cent for fiscal year 2009-2010. The major problem is the FBR’s unwillingness to perform its duty of revenue collection and indulgence in activities that fall outside its mandate.
Pakistan needs to reform its taxation system. Since military rulers during their rule abolished the entire progressive taxes, e.g. estate duty, gift tax and capital gain tax, the decision of taxing ‘agriculture income’, passed by the parliament in the shape of Finance Act, 1977, was thwarted by the military regime. Through this law the parliament amended the definition of ‘agricultural income’ as obtaining in section 2(1) of the Income Tax Act 1922 to tax big absentee landlords. This was a revolutionary step to impose tax on agricultural income at the federal level for the first time, but foiled by a military dictator.
The Wealth Tax Act 1963 was also abolished through the Finance Act 2003. The repeal of this progressive law, especially suitable for Pakistan where enormous assets are created without disclosing income, was shown to be justified despite tremendous revenue losses and the ensuing misery inflicted on the majority of the people.
The fact is that the state does not need any borrowing if taxes are levied according to established norms. The need is to tap the tax potential and make the country a self-reliant economy, stop unproductive expenses and increase productivity, improve the agriculture sector, bring inflation to a single digit, cut inequalities through income redistribution.
Higher rates of income taxes, capital transfer taxes and wealth taxes are some means adopted for achieving these ends in all democratic countries. Economic equality and prosperity can never be achieved unless the taxation system is reformed completely — it needs partial decentralisation where taxes are collected for education, healthcare and social services, etc, through municipalities working on the basis of self-governance — and revenues are collected for the public benefit.
M. AZAM SHAIKH General Secretary, Tax Bar Association, Larkana
