Economic experts for equitable taxation

Source: The News
Sunday, April 27, 2008
By By Mansoor Ahmad

LAHORE: The economic experts have advised new economic managers to stop the blame game and take some concrete steps to correct the inconsistencies in economic policies that tend to benefit the rich and burden the poor.

They warned that the common man is not prepared to pay heed to the oft-repeated slogan of trusting the government and bear some pains for his future well-being. Economic decisions at the expense of the poor to generate more revenues are the same that were recommended by the IMF about two decades ago, only after it failed to convince the rulers to generate revenue from the rich.

Pakistan, the economists added, is facing a resource crunch. The governmentÕs expenditures are higher than its income. There is a need to increase the income in a sensible manner by plugging the loopholes in the tax machinery and this can only be possible if there is 100 per cent transparency in governmentÕs affairs.

The economists pointed out that Federal Finance Minister Ishaq Dar, immediately after assuming charge, vowed that resources would be generated according to the capability of each segment of society. But the new economic managers have not come up with a sound and tangible strategy to ensure equitable taxation that spares the poor and targets the affluent segments of society. They said that successive governments in Pakistan have succumbed to political pressures and instead of generating revenue from those that have the capacity, opted for the easy way out by accumulating resources through indirect taxation. The time has come when each citizen should be forced to pay taxes according to his capacity and it is unlawful to generate 65 per cent of taxes in a way that they are shared equally by the poor and the rich, indirectly.

They said petrol levies, gas surcharges, sales tax, excise and customs duties are recovered from the poor by the rich, with interest. In fact, many manufacturers, they added, conceal their actual production to save sales tax and excise duty and under-file their import invoices to pay less import tariffs. However, they charge the consumers for government taxes on their own products.

They said an analysis of the income tax collected by the Federal Board of Revenue (FBR) would reveal that 80 per cent of this tax is collected from 100 corporate sector companies. The salaried class comes next, contributing over seven per cent of the total income tax while thousands of manufacturing and trading firms contribute only 13 per cent, out of which, five per cent comes from traders and transporters. This means that the manufacturers in Pakistan including cement, textile, sugar, and engineering, pay almost the same tax as that paid by the salaried class.

They said this time around instead of asking the common man to suffer any more, the planners will ensure that all tax evaders and under-filers not only pay their due taxes but also share their fortune with the workers by providing them with daily use items at subsidised rates.

They said that inflation as a result of high oil and food rates, has plagued all developing nations. However, they added that inflation is comparatively lower in nations that have a transparent system, while in Pakistan it has crossed double digits since February 2008, in India it is 7 per cent and in China, 8.4 per cent.

They said the policy makers have unsuccessfully tried to control inflation by increasing interest rates. This they added has slowed down investment but triggered high growth in non-productive sectors such as property, finance and capital market.

The government as the major borrower has ensured high profitability in the banking sector. It has also given an upper hand to the banks in sanctioning credit to the private sector. This practice they added, would have to be curbed.