For the last many years, tax proposals have had no purpose other than burdening the poor while giving more and more incentives to those who control the economic resources. The revenue proposals are mostly based on irrational presumptive and indirect taxation, the burden of which will be more on the poor and negligible on the wealthy.
The tax baboos have managed to include in the bill all the provisions that give them discretionary powers without harming their unscrupulous business friends. They have added new presumptive taxes on developers and contractors, the burden of which can easily be passed on to the end consumers. They again did not consider positive and constructive proposals from trade bodies, tax bars and tax professionals. They have imposed heavy taxes on manufacturers that will raise cost of inputs and impact adversely on exports.
Strangely, the bill imposes a number of new tax obligations on citizens as withholding tax agents, performing state functions without any compensation, but oft-repeated, long over due demand of introducing Taxpayers’ Bill of Rights has again been conveniently ignored.
The rate of sales tax and federal excise has been enhanced “to meet dire national needs”, but wealth of leaders, civil-military bureaucrats and stock market players, remains untouched. Now they can get tax-evaded money whitened by just paying two per cent tax.
The following tax proposals are going to increase miseries of the poor and in many cases the burden of indirect taxes will be passed on to the following:
* widows, pensioners and senior citizens will have to pay tax of 10 per cent in respect of profit from pensioners’ benefit scheme and behbood (welfare) fund.
* immunity from probe in respect of any moveable and immoveable assets on the value of which tax at two per cent is paid, whereas the tax-evaders should have been penalised.
* the limit of donations eligible for tax credit in the case of individual/association of persons and companies admissible at 30 and 15 per cent respectively are proposed to be reduced to 10 per cent of the taxable income, which is to dissuade the people from charitable and welfare activities.
* withholding tax on cash withdrawal from banks collected at 0.2 per cent is proposed to be enhanced to 0.3 per cent, which will hurt the common man and small business concerns.
* builders and developers would be required to pay tax at Rs50 per sq. ft. of the covered area of a unit. The developer of open plots would be subjected to tax at Rs100 per sq. yard of the plot. This being presumptive tax will be passed onto the buyers. Instead of boosting up housing industry, it will rather retard its growth.
* rate of sales tax and federal excise duty has been increased from 15 to 16 per cent “to meet revenue targets”, without realising that it will hurt consumers.
* rate of Federal Excise Duty (FED) on all kinds of telecommunication services is being enhanced to 21 per cent that is going to be a substantial burden on consumers.
If these revenue generation measures were necessary “to meet the dire needs” of the State, one can legitimately ask why progressive taxes on incomes and wealth have not been introduced.
The Finance Bill 2008 is detrimental for the economy, social justice, business and industry. Those who possess more economic power (income and wealth) should contribute more to the public exchequer. The ability-to-pay principle is regarded as the most equitable and just method of taxation. It is emphasised primarily for its redistributive role. In Pakistan, our rulers have completely deviated from this principle which is in fact, a constitutional obligation of the government.
• The tax policy has not been redesigned to improve resource mobilisation. In fact, Finance Bill 2008 is aimed at overtaxing the already ailing economy, which will be disastrous for future growth.
The common man is subjected to sales tax of 16 per cent plus many other withholding taxes at sources on essential commodities [even salt sold under brand names is subjected to sales tax]. But it is tragic that in a country where billions of rupees are being made in speculative transactions in real estate and shares, tax-to-GDP ratio is pathetically low [just 10 per cent in fiscal year 2007-08] and these sectors remain under taxed.