The trouble with Pakistan’s taxation system is that it is highly regressive. It has created distortions. Decisions taken in recent years have done nothing to alleviate the miseries of the people as regards taxation, though one or two measures in the recent budget are professed to bring [procedural] relief to some categories of income tax payers. The scope of the self assessment scheme, for example, has now been extended. However, its true impact would be known only with time. Critics allege that it is calculated to provide relief only to large and medium business and industry and the higher bracket tax payers!
The fact is that the common people are overburdened with taxes. The worst part is that there are too many indirect taxes. Of course, whether direct or indirect, taxes are supposed to flow into the government treasury, one may say. It may also be argued that indirect taxes are more prevalent because of the absence of what they call ‘tax culture’ in Pakistan, but the onus for this situation lies on the prosperous segments of society rather than on the lower income groups. The corrupt CBR officials makes it as difficult for indirect taxes to reach the government treasury as direct taxes. Indirect taxation is in any case much less fair to the poorer sections of society. The middle class, as well as what they call the ‘upper middle’ class, are likewise burdened with taxes on minor property and the escalating utility charges. The high cost of living generated by high indirect taxation is leading to the fast dwindling of the middle class.
Much responsibility for this can be laid on utility companies, the latter shifting the burden of pilferage of electricity and misuse of telephone lines etc. to the bona fide consumers, instead of controlling the leakages efficiently. You have taxes galore, from exorbitant conservancy, fire and water taxes, and TV and VCR license fees (the latter had no rationale whatsoever), to the perpetually increasing surcharges on electricity and gas, plus dubiously inflated telephone bills that are difficult to challenge. Thus even those without taxable incomes, must, perforce, pay this plethora of indirect taxes. To compound it all, the government has thought it fit to reduce the profit rate on national savings instruments, thereby reducing their capacity as well as propensity to save.
Water tax for apartments is too high. Normally, the KWSB provides only one connection on a plot, whether it has a bungalow or a block of flats with a hundred apartments. In most apartment blocks, the water supplied is not enough for the residents’ needs and they have to supplement it with water purchased through tankers, or water from borings that is unfit-for-consumption. That adds about Rs600 to Rs 1000 per month to the cost of living in an apartment. However, oblivious of all this, the KWSB charges water tax according to slabs based on floor area and the zone where located. The tax of each individual flat is almost equal, and in some cases greater than, that charged for a house of comparable area — definitely unfair, considering the meagre quantity of water actually supplied. The same is true of conservancy charges. [now charged by the city government] The only [lopsided] logic they give in justification is that they are unable to charge these taxes from unauthorized Kutchi Abadis and so must get the shortfall from the leased property owners! The regressive nature of the taxes is evident.
The road tax proposed to replace the MV tax would add one more regressive, tax to the already many regressive taxes. The city governments should try to rationalize the rates of these taxes and make them more fair.
For commercial users, the basis for calculation of water tax was the NARV. This again is hardly a rational way to levy water tax. Why not install water meters for the commercial users. Then they would be charged as per actual usage.
There is no denying the existence of a certain amount of tax evasion, but this is manifestly due to collusion between the tax officials and the tax payers. This is the chief reason for the government not being able to collect as much tax as it ought to. The more the authority of the tax official, the greater is his propensity to use it in his own interest, rather than for the benefit of the state. This problem has grown rather complex with time due to the prevailing culture of corruption and must be tackled in earnest.
Some of our technocrats, particularly the imported ones, who have gotten into the easy and smug habit of trying to transplant Western concepts and practices onto the hapless Pakistanis, without taking into account objective realities, are full of advice for the government in this regard. Some of them even preach the philosophy, as in the West, that the non payment of taxes is a cardinal sin, but forget the local conditions. They perpetually stress the virtues of paying the taxes but have no word about the facilities given to the tax payers in return! Nor do they seem to realize, when recommending withdrawal of whatever little concessions the government gives to the lower income groups in the social sector, that there are inherent differences in the situation in the Western industrialized nations and Pakistan, and that high taxation in those countries is often justified by the social security available to the common man that has to supported with high taxation.
One often comes across the reference to the slogan of ‘no taxation without representation’ that was raised in the United States, at the time of what is known in history as the Boston Tea Party, the looting of the British tea-carrying ships that proved to be the prelude to the American War of Independence. Subsequently, the taxes were paid to an independent government but the proper use of the taxes for the welfare of the tax payers was equally strongly stressed. Unfortunately, our establishment often seems to believe in the dictum in reverse: “No representation without taxation!”
In our blessed environment, even paying the tax honestly often does not save you from harassment at the hands of the tax hounds. One has to go begging the tax inspectors to get one’s Income Tax Assessment Order passed. In the countries they cite as paragons of virtue in tax matters, you get it without hassles, with either a demand note or a refund cheque. When such a scenario does come to pass in Pakistan, I am sure most people will be only too glad to fulfil their tax obligations more willingly.
It remains to be seen how the tax reform this year extending the scope of the self assessment scheme works out in practice, and whether it is followed by the CBR in letter and in spirit. Previously, a person who has paid tax honestly all his life but fails to make it in a particular year due to bad business, was in for trouble at the hands of the tax officials. For self assessment to apply, one had to show an income a certain percentage above the previous year’s! Could he expect mercy from them? Yes, but at a price.
Could anyone hope for a reasonable attitude in a system that just does not recognize that incomes can fall as well as rise? Or who assess a man’s income from the amount of utility bills he is made to pay?
Most of the tax evasion is by the privileged, who can afford to bribe the tax officials and pay the income tax practitioners, and who often pay income taxes that are only a fraction of even the modestly paid salaried managers. The law abiding citizen pays for the misdeeds of the errant rich, who use half a dozen airconditioners and rig their electricity meters, the industrialists who either bribe or temper with their connections to steal electricity in connivance with the officials as well as for those ‘poor’ in Kutchi Abadis who use kundas. KESC makes up the shortfall by constantly increasing the electricity charges every now and then. The telephone people are not far behind, with inflated number of calls and, despite denials, multi metering etc. In fact, the people are overburdened with taxes that are constantly being increased under the combined influence of two factors: the privileged getting away without paying taxes and the corrupt bureaucracy siphoning away government revenues, thus reducing the net proceeds from taxation and forcing the government to cover the deficiency by levying more and more taxes and increasing the prices of utilities and petroleum products.
The recent budget has tended to increase their hardship. Duty on some food articles such as edible oilseeds was increased and a new tax imposed that will contribute to increasing the prices of edible oil considerably. As the general secretary, the consumer rights commission of Pakistan (CRCP) has alleged, GST rate is high compared to the income levels of an average person, and the manner of its levy is also unjust. Coupled with as much as 20 percent GST on almost 190 items including edible oils, talc, solvent oil and calcium carbonate and the galloping utility charges, the plight of the lower income groups has worsened.
I carried out a small exercise, to estimate the taxes an ordinary person belonging to the (fast dwindling) middle class has to pay annually. The assumptions made were that he owns a small house or apartment in a middle income area, maintains an old, small car dating back to the 70’s, and has only two children whom he has admitted in a private school because the education in government schools is simply deplorable.
The taxes included Property tax, Conservancy, Fire and Water tax, MV tax, Income tax, various taxes and surcharges in utility bills, TV and VCR license fees. On per annum basis, it comes to around Rs. 36,000/-, or about Rs. 3000 per month It still does not include a variety of indirect taxes, or the newly imposed taxes like the car parking charges on public roads and parks that he is made to pay these days. [Interestingly, following the lead of the DHA, the municipal authorities have levied charges even for entering some public parks maintained through the tax payers’ money! ]
This list is by no means exhaustive and if he lives in an apartment complex, he has to incur, in addition, maintenance charges, cable charges for viewing TV and expenses for purchasing potable drinking water, that come to about Rs. 1500—2000 per month. If he has an income of around Rs. 12,000 per month, the barest minimum for a family of four to keep body and soul together and stay in the middle class, this comes to around 30-45 % of his monthly income. If the reader belongs to the middle class, he can try to make such an estimate for himself and compare the results.
Now the government has imposed GST, even on medicines and some edibles of common use. Almost everything is taxed. What still remain untaxed is on way to becoming taxed. And all this without any social safety net whatsoever, and getting little by way of return. Yet, we hear it said, often scornfully, that people don’t pay taxes in Pakistan!