Home Digital Magazine August 2019 issue Talking without facts: Tax issue or government expenditures?

Talking without facts: Tax issue or government expenditures?

Dr. Farrukh Saleem discusses in-depth how Pakistan's economic structure is gradually deteriorating and what are the causes behind it. Is it a decline in tax collection or the government's uncontrollable spending?

Tax

Dr. Farrukh Saleem |

In 1958, Field Marshall Mohammad Ayub Khan wanted to expand the tax net. In 1969, General Agha Muhammad Yahya Khan wanted to expand the tax net. In 1976, PM Zulfikar Ali Bhutto tried to expand the tax net. In 1986, General Muhammad Zia-ul-Haq wanted to expand the tax net. In 1997, PM Mian Muhammad Nawaz Sharif wanted to expand the tax net. In 1999, General Pervez Musharraf tried to expand the tax net. In 2008, President Asif Ali Zardari wanted to expand the tax net. In 2016, PM Mian Muhammad Nawaz Sharif once again tried to expand the tax net.

Why have the best and the most powerful failed to expand the tax net?

1: According to the Pakistan Bureau of Statistics (PBS), there are 101 million women in Pakistan. According to the World Bank, female labor participation (FLFP) hovers around 24 percent. Pakistan’s FLFP would mean that 77 million women are not employed. Surely, unemployed women cannot be expected to pay income tax.

Why have the best and the most powerful failed to expand the tax net?

2: A few years ago, the Economic Survey revealed that “if the poverty line is $2 per day in line with international standards for middle-income countries, then 60.19 percent of the population fall below poverty line in Pakistan.” Lo and behold, 124 million Pakistanis earn Rs320 or below per day. Surely, 124 million Pakistanis earning Rs320 per day or below cannot be expected to pay income tax.

Why have the best and the most powerful failed to expand the tax net?

3: Last year, the United Nations Development Program (UNDP), in a report titled ‘Unleashing the potential of a young Pakistan’, declared: “Pakistan has the largest percentage of young people ever recorded in its history.” The Report states: “64 percent of the total population is below the age of 30.” Lo and behold, 133 million Pakistanis are below the age of 30. How much do 30-year-olds make in Pakistan? Not much, I reckon. Surely, 133 million Pakistanis who are under 30 cannot be expected to pay income tax.

Why have the best and the most powerful failed to expand the tax net?

4: A little more than 4 percent of our population is 65 or over. That’s 8 million who cannot really be expected to pay income tax.

Why have the best and the most powerful failed to expand the tax net?

5: According to the National Nutritional Survey, nearly 37 percent of us are ‘food insecure’. That’s 77 million Pakistanis who are ‘food insecure’. Can anyone in their right mind expect to collect income tax for them?

To be certain, there must be a few thousand Pakistanis who are not paying their fair share of income tax. Get them all and make them pay their due share of income tax. Yes, the government can probably raise an additional Rs50 billion. Lo and behold, the budgetary deficit is Rs3,200 billion. Surely, the issue is not ‘inadequate taxes.’ Surely, the issue is ‘excessive government spending’. Imagine; current government expenditures have gone up from Rs1.5 trillion in 2008-09 to a whopping Rs7.2 trillion.

Everyone who should be in the tax net must be brought into the tax net. But, doing this will not cure our disease. Doing this will not save the Titanic from sinking.

For the record, in 2008-09, taxpayers deposited Rs1.1 trillion as taxes into the government treasury. By 2018-19, tax revenues had actually gone up to Rs3.8 trillion; an increase of 336 percent. We really need to focus on who is filing the treasury and who is emptying it all out.

Yes, the government continues to throw away a colossal Rs1.1 trillion into Public Sector Enterprises every year. Yes, the accumulated circular debt now exceeds Rs1.7 trillion. Yes, the government’s commodity operations have taken on Rs734 billion worth of debt (provincial food departments and other government procurement agencies routinely buy wheat and other commodities but are supposed to retire their debts). Yes, a good $2 billion worth of natural gas somehow ‘leaks’ out every year (in Pakistan ‘unaccounted for gas’, a euphemism for ‘stolen gas’ is as high as 20 percent against a global average of under 2 percent). Yes, the government will be paying around Rs1,000 billion this year in ‘capacity payments’ to power plants. Do you still think that the problem is inadequate taxes?

Yes, every government over the past 4 decades has been talking about FBR reforms. Intriguingly, FBR employs some 21,000 employees but around 90 percent of tax revenues get deposited into the government treasury without any active direction of the FBR.

Did you know that Pakistan only has 1.3 million credit cards? This really is the potential tax pool-no more. Can anyone show me a country where the government’s current expenditures have gone up by 500 percent in just 10 years? This year, the government collected Rs3.8 trillion in taxes. Divide that by around 30 million Pakistani households and on average every household is paying Rs125,000 in taxes.

Read more: PTI forgot Tax lessons they preached to PML-N

Everyone who should be in the tax net must be brought into the tax net. But, doing this will not cure our disease. Doing this will not save the Titanic from sinking. Please focus on who is filing the government treasury-and who is emptying it out. Once again; the issue is not ‘inadequate taxes’. Once again, the real issue is ‘excessive government spending’.

A Partial List of PSEs
  1. Pakistan International Airlines
  2. Pakistan Steel Mills
  3. Pakistan Electric Power Company
  4. Pakistan Railways
  5. Pakistan Agriculture Storage and Utility Stores Corporation
  6. Tomato Paste Plant
  7. Roti Corporation of Pakistan
  8. Pakistan Stone Development Company
  9. Pakistan Hunting and Sporting Arms Development Company
  10. National Institute of Oceanography
  11. Pakistan Gems & Jewelry Development Company
  12. Technology Commercialization Corporation of Pakistan
  13. National Industrial Parks Development & Management Company
  14. Technology Up-Gradation and Skill Development Company
  15. National Productivity Organization
  16. Council for Work and Housing Research
  17. National Institute of Electronics
  18. Pakistan Council for Science and Technology
  19. Pakistan Council of Research in Water Technology
  20. Centre for Applied & Molecular Biology
  21. National Insurance Corporation, Heavy Electrical Complex,
  22. Machine Tool Factory, Services International,
  23. National Power Construction Company,
  24. National Fertilizers Corporation, State Engineering Corporation,
  25. National Construction Limited,
  26. Pakistan Steel Fabricating Company Limited,
  27. Pakistan Mineral Development Corporation,
  28. Ghee Corporation of Pakistan, Republic Motors,
  29. Pakistan National Shipping Corporation,
  30. State Cement Corporation of Pakistan,
  31. State Petroleum Refining & Petrochemicals Corporation,
  32. Trading Corporation of Pakistan, Cotton Export Corporation of Pakistan,
  33. Rice Export Corporation of Pakistan, Pakistan Industrial Technical Training Centre and Pakistan Engineering Company

Dr. Farrukh Saleem, an economist, is a prominent public policy commentator in Pakistan. He has worked extensively with international development organizations and has been associated with Center for Research & Security Studies (CRSS). His columns have appeared in The News and The Dawn and he has been a TV Anchor with 92 News. He did his doctorate from Western Illinois University, United States.

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