Daily Times

Why are we taxed? Well, because governments have developmental and non-developmental plans and both require funds for execution. In non-developmental expenditures government has to spend on social sector for those who cannot afford even the bare minimum necessities of life. Islam has set a golden principle in taxation, “it is taken from rich and spent on poor”, though it is the principle for Zakat (the compulsory alms for rich to pay) but it also mounts to the level of general ruling on taxation. The most powerful of democracies are unable to decide it even today as debate continues in congress, where republicans tax everyone and democrats tax the rich.

In democracies weak governments cannot tax the rich. It is because the rich fund the political parties for their election campaigns and without having these funds it is hard to win an election. The funding is directly or indirectly pivoted to a quid-pro-quo deal which means that recipients of funds when in power will support the rich who funded them to become the office bearers. But that is not always the case. Most of the times the richest of the rich directly contest elections to win the right of ruling the country because for the crooked-rich running of state in itself is a great ‘business’. Even this has become out-dated in democracy. Today the rich in order to become filthy rich, make their own political parties or seize the power in existing political parties. The two main parties are the richest of the rich in Pakistan as democracy is mostly the rule of the rich with few exceptions here and there.

So, rich are not taxed in democracy. Ultimately the burden of paying taxes falls on the salaried classes who can’t really defy being taxed. But then they are not the only ones, to fill its hungry purse, governments tax everyone regardless of them being rich or poor through indirect taxation. Sales tax is a glaring example; similarly taxation on utility bills is another example of indirect taxation. Sales tax and tax on utility bills is collected from the rich and the poor, some may say that the slabs for the electricity consumption are different for different number of units consumed, yet in principle the poorest will still be paying taxes, even though it may be at a lower rate not because he is poor but because he consumes less units.

Using tax as part of good governance is about decision choices that the rulers opt for, in majority of cases outcomes are already known when a particular set of choices is adopted for decisions

But in case of sales tax almost all necessities of life upon purchase are taxed, regardless of the fact whether the buyer is poor or rich. One fails to understand why the government taxes the poor for whom the tax was supposed to be collected as they could not afford to buy even the basic necessities of life. What a solution! Every successive government acts like Bhuta Khoars. So, this means that the taxation clause will make the poor even poorer and that taxation slides down more people under the poverty line by creating poverty. Bingo, what a governance model. Look how absurd it is to tax the utilities. In such a way government cannot ask people to reduce consumption of the utilities because in such a case government will miss the revenue targets, for tax revenues are a percentage of units of utilities consumed. Take even a more upsetting angle of the problem. Utilities serve as the inputs of an industry, similarly on purchase of almost all raw materials industrialists pay sales tax and income tax in advance. This means that the cost of production goes up because apart from the cost of raw materials and utility bills the industrialist also has to pay the sales tax and the income tax on all purchases; this increase in production cost is around 19% of the raw material cost. This indirect taxation tightens the industrialist’s availability of working capital; resultantly the industrialist will have to borrow money from banks to make up for the increased cost of production. This means government’s indirect taxation results in undue pressure on money market and this will occur to the advantage of the bank which is the most non-productive element of the business cycle, which does little and its earning is guaranteed whether the industrialist earns something or not. This puts both, the engine of growth and the industrialist, under an undue burden.

And remember the cost of production increases yet again because now the industrialist will also have to pay the interest on borrowed money from the bank, as exporter price competitiveness will go down the drain. For local businesses, it does not end here, this increased cost of production would be added with the profit of the industrialist and all the increase will be passed on to domestic consumer. Consumer that includes both the rich and the poor will now have to bear the expense of government’s sales tax and income tax and tax on utilities and also will be paying the interest of the borrowed money by the industrialist in addition to the industrialist’s profit to buy the product.

Ok, now that government has collected taxes by hook or by crook or through bhata type indirect taxation, next question is where the government would be spending the money, in developmental sector. Let us take an example of the previous government.

When Sharifs came to power, they didn’t use their good offices to bring Zardari to negotiate for building Kalabagh Dam; though KP government under PTI was willing to help construct the Dam which could be constructed within 4-5 years’ time promising cheapest renewable electricity, with low maintenance and recurring costs, manage flood water, increase the agricultural produce, reduce import bill for oil to produce electricity to around one-half, and of course set the ball rolling for local investment in textile and rest of the industries. This all, in turn, would have meant a lot for people allowing lesser and more manageable budget deficit and more jobs as the investment flying abroad could be retained in Pakistan. But the choice, chose to construct roads, and bridges for a limited population of their province and not the whole province but for a few larger cities.

And then they started metro-buses and trains, an elite travelling option, for few large cities. How come they do not know that if there is no or expensive electricity, industries will be shut down, exports will decline so there will be no jobs; who would use the roads and metro-buses and trains when the travelling cost on imported fuel remains high and supplies of raw material and finished goods reduces, so even the truckers are out of business. This seems to be an intentional policy for industrial clampdown. It needs to be understood that poor governance directly effects economy, politics, society, and law and order. Using tax as part of good governance is about decision choices that the rulers opt for, in majority of cases outcomes are already known when a particular set of choices is adopted for decisions. We hope that the present government will avoid choices that focus on governance in a limited sphere.

The writer is a versatile analyst and a speaker on contemporary issues