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Thursday, February 15, 2024

We filers are idiots? – Ikram Sehgal

Ikram Sehgal |

A marked deterioration in the economy, a treasury on the verge of bankruptcy and huge levels of debt made fresh fiscal measures unavoidable, the PTI’s Federal Minister for Finance had perforce to present the Finance Supplementary (Amendment) Bill 2018 in the National Assembly (NA) on Sep 18.

Several positives in the budget notwithstanding some of the measures contained in the ‘mini-budget’ are not only painful but give a perception of the government’s policy vision becoming blurred and incoherent. Some proposals were perplexing and counterproductive. The lifting of curbs on non-filers of tax returns allowing them to purchase vehicles and property exceeding Rs 4 million triggered widespread disagreement and debate.

While re-structuring was a totally new discipline to Moin known to be a strategic planner par excellence and logistical genius in banking circles, he did turn CBR around to an extent.

Imposed (to their credit) by the previous PML(N) government led by PM Shahid Khaqan Abbasi during its last budget, it prompted car manufacturers and real estate dealers/developers to rise up in arms complaining that the decision brought about a sharp decline in vehicle sales between 20% to 50% while sales of property was also affected. The reality, well beyond the reach of even the upper middle class, car and property prices actually declined.

Read more: Common man’s uncommon PM -Ikram Sehgal

The government’s decision runs contrary to the PTI’s stated aim of bringing more people into the tax net. By lifting the ban the government has given non-filers a carte blanche to make hay by bringing them at par with tax filers’ incentives. The Khaqan Abbasi initiative was one of PML-N’s better policy actions, the first step towards further penalties/restrictions being imposed on non-filers e.g. renewal of NICs, passports, etc, etc to bring them into the tax net. Asad Umar caved in to the many special interests groups protesting vociferously to have this ban removed, will the opposition take this appeasement as a precedent for the future?

At 12.5%, an appalling tax to GDP ratio, Pakistan has the lowest ratio of income taxpayers to the total population lower than the average for the developing world and far behind neighbouring countries India, Sri Lanka and even Nepal.

A 2017 World Bank South Asia regional profile of business indicators show Pakistan ranked 172nd out of 190 countries. Only 1.4 million, less than 1% in a country of 220 million, file tax returns, the low tax collection giving woefully insufficient expenditures on healthcare (0.7% of GDP) and education (2% of GDP). This stifles the country’s growth potential.

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Asad Umar makes even less sense claiming that the ban prevented overseas Pakistanis, being non-filers of tax returns, from investing and doing business in Pakistan. People in Gilgit-Baltistan (GB) and Azad Jammu and Kashmir (AJK) were treated as non-filers, yet a satisfactory solution was found.

FBR agreed to treat their active taxpayers as filers enabling them to get benefits in money transactions, registration of vehicles, sale and buying of properties as enjoyed by Pakistani taxpayers (filers). The same can be done for overseas Pakistanis. One solution could have been to fix different tax rates, substantially less for filers than for non-filers for the next five years, encouraging people to file returns to pay comparably less tax on passenger cars and commercial vehicles.

Reforms in the finance sector were not allowed to flourish by those with vested interest. Sheer patriotism led to the late Moinuddin Khan sacrificing his upwardly mobile career. Having very lucrative terms as the head of Standard Chartered in Hong Kong, he resigned to take over as Chairman of a floundering Central Board of Revenue (CBR) on a salary less than 20% of what he was drawing abroad.

While re-structuring was a totally new discipline to Moin known to be a strategic planner par excellence and logistical genius in banking circles, he did turn CBR around to an extent. Unfortunately, for Pakistan, Mian Nawaz Sharif’s sincere intent ultimately came to grief at the altar of populism. Going after the major tax evaders, including some of Sharif’s fat cat friends in the Liberty Market, was Moin’s great mistake. Resigning from the CBR, he ultimately died heartbroken.

I was privileged to work with this support technocrat uncovering tax dodgers in “Operation FOXHUNT”. Given the go-ahead by Sartaj Aziz as Finance Minister, it was scuttled by Ishaq Dar, who having agreed with the exercise as Federal Minister for Economic Affairs but terminated it when he became Finance Minister.

Read more: Why good advisers matter?

The stated goal of PTI is to strengthen democracy and national cohesion by narrowing the gap between rich and poor by uplifting the poor. Paying taxes helps the government financially to improve on social services and create jobs, but feeling included also people across the broad-spectrum take ownership of the country by paying taxes. By being interested in policymaking they will feel responsible for their country.

The act of filing means taking ownership of the state even if no tax or a small amount is paid. Anyone owning a car personally is a potential taxpayer and should be a filer.

“No taxation without representation” was the slogan of American settlers in the late 18th century protesting against paying taxes without representation in the British parliament in London. “No representation without taxation” is the slogan for Pakistan to tell non-filers that they have no political and other rights in this country if they do not contribute proportionately to the running of Pakistan. Rights always come with responsibilities and paying taxes is the major responsibility connected to citizen’s rights. Basically each and every citizen should declare his or her income, even small amounts.

The act of filing means taking ownership of the state even if no tax or a small amount is paid. Anyone owning a car personally is a potential taxpayer and should be a filer.

Simplifying taxation procedures will protect our industries. Our agri-based economy is heavily reliant on the agriculture sector. Agro-based industries being less capital intensive create employment opportunities in rural areas, raise the income of farmers, provide a boost to agricultural production and increase exports of agricultural goods.

Our Agro-based industries include rice and wheat milling, sugar making, oil crushing, poultry, fish processing, dairy products, and many others. Instead of providing protection to our industry e.g. bread, butter, cheese, milk, toffees, biscuits and even “lassi”, etc, we import these items that are produced domestically. Imported items line our store shelves, such imports destroy our local industries.

To stop prices soaring, the luxury tax must be imposed in a way only the very rich can afford it. While we gullible stupid million or so filers must bear Atlas-like (with apologies to Ayn Rand and her book “Atlas Shrugged”) the burden of 200 million plus (with30 million non-filers camouflaged among them) Asad Umar seems to believe what we filers really are, certified idiots! One will wait to see what Imran thinks?

Ikram Sehgal, author of “Escape from Oblivion”, is Pakistani defense analyst and security expert. He is a regular contributor to articles in newspapers that include: The News and the Urdu daily Jang. The article first published in Daily Times and is republished with author’s permission. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.