Taxing times

The proposal for a ‘flood tax’, to meet what will be the massive costs of flood rehabilitation work continues to hover. It can only add darkness to an already bleak situation. There are some simple facts that need to be acknowledged. People can simply not afford to pay more taxes. We hear almost each month new accounts of desperation and despondency. The fact that it is chiefly only salaried persons who are made to bear the brunt of taxation means that those who already face the tightest budget squeezes will end up paying the price of any new measure. It is not only the poorest of the poor who are suffering.

There are other ways to raise the funds we will need for a long time to come. The taxation net needs to be drastically widened and Pakistan’s dismal tax-to-GDP ratio of approximately 10 per cent (which is among the lowest in the world) should be improved. Taxes are ineffectively collected even from groups within it, and of course the owners of agricultural land remain outside the net altogether. Furthermore, new planned taxes, such as the “reformed GST” are highly regressive and anti-poor in nature. The flood emergency is a time when this becomes especially significant and offers an urgent reason to set about a task that has been overlooked for far too long.

There are other ways too to raise money. The government should at the very least adopt austerity measures. It has already been suggested that substantial increase in salaries of government employees announced under this year’s budget could be put on hold. Furthermore, the reported unannounced increase in the defence budget for this year – by a massive Rs110 billion – needs to be questioned given that the said amount could pay for a sizeable chunk of the post-flood relief and rehabilitation effort. In fact, one well-respected economist has estimated that the figure would be more than the money that the government expects to raise through the so-called ‘flood tax’. Surely, it would be in the national interest for the government and its subsidiary organisations to consider all possible means to find funds to be diverted to the post-flood rehabilitation effort.

Published in The Express Tribune, September 27^th, 2010.