Intra-nomics: Everyone needs to be taxed equally instead of the salaried class, says Ishrat Husain

Published: April 10, 2012

Former governor of State Bank says that informal sector and services sector are excluded from taxes

KARACHI: Karachi has renowned boutiques, five-star saloons, expensive health clubs and gyms, educational institutes and vocational training centres, but no one dares tax them even though all of them are flourishing.

This, according to Dr Ishrat Hussain, the former governor of State Bank, is needed as right now Pakistan has no option but to boost its income from taxes to be able to bridge the gap between its expenses and its revenue.

He said this at a pre-budget seminar, organised by the Karachi Union of Journalists at the press club on Monday.

Husain, who is currently the director of the Institute of Business Administration (IBA), said that businesses thrived in the informal and private sector but their contribution to the national economy was almost nothing because they did not pay taxes. “The policymakers and authorities of the country should devise a uniform mechanism for taxation,” he said. “The public sector and fixed-income groups are bearing all the country’s burden.”

The former governor advised that taxes should be applied equally to all the sectors instead of the manufacturing sector and the people who earned fixed salaries. The agriculture and services sectors also had a large share in the GDP but it did not reflect in the revenue which was generated.

On the other hand, the informal sector, which consisted of practitioners and consultants of different fields, were reluctant to pay taxes despite handsome incomes and plenty of resources.

Besides them, a significant chunk of agricultural traders saw a record boom in their income because of bumper cash crops. Although their lifestyle was growing more materialistic by the day, they did not pay taxes.

The government should devise a framework in the upcoming budget that would enable all the people to be taxed equally according to their income. In this way the country will drive itself towards durable self-sustainability and financial sovereignty.

Director Husain urged the government to facilitate the manufacturing sector and exporters with different policies and provide them with infrastructure and utilities so that they can fetch foreign revenue to strengthen Pakistan’s macroeconomic position.

Meanwhile, the president of Karachi Chamber of Commerce and Industry, Mian Abrar Hussain, said that the cost of production needed to be controlled as a priority. It has driven up because of the deteriorating law-and-order situation over the years. He said that even after 64 years of independence, Pakistan had failed to devise any plan for energy security. “Nevertheless, we do have a nuclear security plan,” he said. “We need to exploit it to fulfill almost 40 per cent of the country’s energy needs to resolve the crisis.”

Abrar Hussain also highlighted the need improving trade within the region despite international discriminations meted out against the country. The economic blocks need to be prioritised – Pakistan, Turkey and Iran should make the first block, South Asian Association for Regional Cooperation should make the second, while the third could be with Pakistan and Central Asian countries.

Published in The Express Tribune, April 10th, 2012.

 

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Reader Comments (12)

  • A. Khan
    Apr 10, 2012 - 6:06AM

    How about firstly reducing non-developmental expenditure first, before you start taxing people ? General perception of everyone is that there is no point paying taxes as it will be used in official cars or simple embezzelled anyway. So lets start by cutting down on the minister;s Mercedes Benz, their air conditioned offices and homes with 24/7 power supply. Lets see the MNAs take a salary and privileges cut. And then and only then we should talk about taxing the people more.

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  • khalil
    Apr 10, 2012 - 8:14AM

    Absolutely agree with Dr. Ishrat’s observations. The next question is how do we spend it? By giving away to parliamentarians for “development “work??? Energy crisis, so much being talked about. get over the circular debt, all pieces will fall in place…Reallocate the resources… gas… current efforts are in right direction. Collect the electricity bills from all… no subsidies… That’s the solution… Effectively change the pricing formula…. for example, KPK and Balochistan consume around 9% of oil related products… the rest of the country subsidises it thru IFEM…. Eliminate IFEM, and rework the numbers to reduce the pricing burden… IFEM is around Rs14 to 18 billion..

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  • Sabih Shad
    Apr 10, 2012 - 3:55PM

    @A. Khan:
    … and till that time let the “Salaried Class” suffer.

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  • Ali Tanoli
    Apr 10, 2012 - 7:08PM

    Any educated karachiet dont pay tax and then cry we Run the country like bangalis used to say PUTSON is running west pakistan….Recommend

  • fus
    Apr 10, 2012 - 7:57PM

    @Ali Tanoli, yet another usesless and far from truth comment. Most of the salaried class lives in Karachi and pay taxes since they are deducted directly from salaries. Recommend

  • Shahzad
    Apr 11, 2012 - 5:00AM

    The salaried class includes generals politicians bureaucrats I wonder if all their income earned and unearned is taxed otherwise agree with mr ishrat Hussain

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  • Sohail
    Apr 11, 2012 - 6:50PM

    Why does no body speak about inappropriate use of tax money, wrong / expensive policies and how to drive growth the economy to lead to increase in revenue.

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  • Apr 11, 2012 - 10:09PM

    Umm.. everyone is being taxed at 13% rate atleast. Its called Inflation Tax!

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  • Syed Sarfraz Ali
    Apr 12, 2012 - 11:30AM

    Very right, Pakistan should enter into economic block efforts as does the Indians are doing in BRICS, despite very common grounds. Yet, they are working towards one common goal of economic cooperation amonh BRICS (Brazil, Russia, India, China and South Africa) members.

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  • Meekal Ahmed
    Apr 12, 2012 - 10:25PM

    Rather belated advice. What did the author do, even though he was Governor, for the years he served under a Dictator who, in theory, was in a position to take tough action against the crooks and cheats who don’t pay their taxes or the sectors that are exempt (agriculture) and undertaxed (services)?

    These pre-budget seminar’s are just a social gathering, full of sound and fury, and pious intent. A total waste of time and money. In the end, nothing will happen and we will muddle along as we have for 64 years.

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  • Humayun
    Apr 14, 2012 - 4:42PM

    Dr. is emphasising direct taxes, I guess. Every body pays indirect tax when he fills gas tank, pays utility bills, buys packed food and other daily life essentials.

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  • Tareen From Dallas
    Apr 17, 2012 - 3:25AM

    Which one came first the chicken or the egg? In other words what should come first the tax revenue or the transparency in how those revenues are spent? If a large majority of people do not pay taxes then they have little interest in demanding true transparency which is the case in Pakistan. On the flip side, if taxes are not paid by this large majority which means, that the govt has to look to foreign sources to run the country’s affair then this very govt is not going to care a lick about what the people think.. This is the main conundrum that has brought Pakistan to the current state of affairs. If Pakistani people truly want to be the main stakeholders of their own future. It is going to cost then as it does every one else in the world. Beggars can’t be choosers. So which one will occur first? or perhaps a sensible govt can move on both fronts at the same time. Which is asking too much of the current bunch.

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