Daily Times

‘As two-thirds of the tax collected is in the form of indirect taxes and one-fourth of the entire amount comes from petroleum and petroleum products at various stages (which is passed on to consumers), the overall incidence is regressive’- Dr. Ishrat Husain, Governing the Ungovernable: Institutional Reforms for Democratic Governance.

Dr. Husain, the Advisor to the Prime Minister on Institutional Reforms and Austerity, in his book relying on the work of renowned tax expert and writer, Huzaima Bukhari, observed that under the existing tax system, less-privileged segments of society have been subjected to oppressive taxation. What he has failed to highlight is abuse of taxpayers’ money to finance unprecedented benefits available to military-judicial-civil complex, businessmen-turned-politicians, absentee landowners etc. The elites enjoy tax-free perquisites, subsidised and/or free facilities of travel, rest houses, clubs, golf courses and awards comprising expensive plots at prime locations either at concessional rates or free of cost. The way our governments-military and civilian alike-have been wasting and plundering taxpayers’ money and national resources is not a secret. Since independence, no serious effort has ever been made to undertake institutional reforms to democratise our mighty military-judicial-civil apparatus that has miserably failed to deliver. This task given to Ishrat Hussain by the premier holds the key for success of the PTI government.

Pakistan has failed to achieve sustainable political stabilisation and accelerated economic growth due to perpetual failure of the ruling elites. The twin menace of burgeoning debt and monstrous fiscal deficit testifies to continuous fiscal mismanagement. The government of PTI since coming into power has had to borrow heavily-externally and internally-to meet day to day expenses. With fiscal deficit of last year of PML-N that reached 6.8% of GDP (Rs. 2.3 trillion), debt burden rising to Rs. 29.86 trillion and record current account and trade deficits of $18 billion and $37.7 billion respectively, the challenges on the fiscal front were daunting for the PTI government on assumption of power. Even after securing billions from Saudi Arabia, UAE, China and others and expected package of $12 billion from the International Monetary Fund (IMF), our economic woes continue.

The PTI government borrowed Rs. 2240 billion during the last five months. The primary reason for unprecedented local borrowing is huge wasteful spending on monstrous state machinery, imprudent use of state property/assets and inadequate revenues-taxes and non-taxes. The dire need in today’s Pakistan is to tap the real tax potential, stop wasteful, unproductive expenses, cut the size of cabinet and government machinery, make government-owned corporations profitable, use state land for earning income, accelerate industrialisation and increase productivity, improve agricultural sector, reduce inequalities through a policy of redistribution of income and wealth. It is high time that professionals and civil society campaign against oppressive, anti-people policies and relentlessly raise their voice for establishment of an egalitarian state.

We need to implement Article 140A in letter and spirit. Mere existence of local governments without devolvement of political, administrative and financial power is not the fulfilment of constitutional command

We can make Pakistan a prosperous country through fiscal decentralisation-taxation at local government level and its spending for welfare of common citizens. There is nothing to be pessimistic. Solutions are available. The only thing we require is to do more research, present the same, debate these publicly and convince all political parties to make national prosperity their common agenda.

Local self-governance should be our top priority as envisaged under Article 140A of the Constitution of Pakistan. Political, administrative and fiscal decentralisation is the key to democratisation of institutions. This is the most neglected area in Pakistan. Article 140A requires that decision-making power should be with the elected local governments. A council, elected by the residents, must enjoy the right to levy municipal taxes. Local governments should be given wide-ranging powers. Extensive functions that fall within the specific sphere of local unit (council) must include education, health care and social welfare services. They should also be responsible for matters related to the residents’ free-time, recreation, housing, and the management and maintenance of their living environment (i.e. roads, streets, water supply and sewerage), as well as land-use planning and functional municipal structures.

In all successful democratic models, taxes at grassroot level play a critical. The power to levy and collect taxes is one of the cornerstones of self-governing community as it ensures that the council/municipalities can manage the functions that they have undertaken to execute or those for which they are responsible for under the law. In social democratic countries e.g. Sweden, Norway, Denmark and Finland, the most important feature of fiscal management and delivery of social services is municipal tax. Local governments in Finland in 2018 raised revenues of €41.9 billion [US$ 47.7 billion] and total tax collection [€121 billion] was 44% of GDP. In Pakistan, total tax collection-both at federal and provincial level-in fiscal year 2017-18 was less than US$ 40 billion (just 11% of GDP).

If a country of 5.5 million people (Finland) can achieve 44% tax-to-GDP level and through municipal taxation can provide free services of health and education, we a nation of 210 million can definitely do much more, provided there is a political will. One of the central constitutional principles regarding municipal self-governance in Finland is that when allocating new functions to municipalities, the State has also to ensure that they have the necessary resources to carry them out. Finland has a well-functioning relationship between the state and the local authorities, as well as a state-subsidy system which ensures municipal resources and residents’ equal access to services. We can learn from this great innovation of Finland. It can change the fate of our nation in a short span of time.

Unfortunately, there is no concrete plan available with any political party ruling in any province for uplifting the rural areas to a respectable status to check rising migration to urban areas, which is fast becoming a nightmare with every passing day. We have the resources but the system for self-governance as in vogue in Finland and elsewhere in the world is non-existent despite clear command contained in Article 140A of the Constitution. Resultantly, power is not with the people but in the hands of the privileged few.

Economic growth, revenue mobilisation and prosperity can never be achieved unless the taxation and spending system is restructured and social welfare model is implemented as explained and elaborated in Towards Flat, Low-Rate, Broad & Predictable Taxes (Prime Institute, Islamabad).

We need to implement Article 140A in letter and spirit. Mere existence of local governments without devolvement of political, administrative and financial power is not the fulfilment of constitutional command. Decentralization of financial powers requires levy and collection of taxes by local governments for meeting the needs of local residents like education, health care and social welfare services. Local governments working on the principle of self-governance alone can ensure that revenues are spent exclusively for the benefit of public and not the privileged segments of society alone.

The writer is Advocate Supreme Court and Adjunct Faculty at Lahore University of Management Sciences (LUMS)

Published in Daily Times, March 3^rd 2019.