Going after tax dodgers

It is the state’s responsibility to establish a social-welfare state and not that of the private sector


M Ziauddin March 16, 2019
The writer served as executive editor of The Express Tribune from 2009 to 2014

Nobody pays his taxes voluntarily. It is considered extortion by the taxpayers. It is only the fear of being caught and punished that makes one pay taxes honestly. Even in the most civilised countries, rich people enlist the services of the best tax lawyers to manipulate the tax laws so as to have their income tax liabilities reduced to the minimum.

Still, the tax laws in these countries have remained strict enough to coerce the taxpayers into paying enough to fund their socio-economic and defence budgets.

In Pakistan every time a new government comes in, no matter which — civilian or military — one invariably hears pledges to broaden the tax base and go after tax dodgers with no holds barred. But these pledges turn into regrets within a matter of couple of months with the government accepting to live with the ‘facts of life’.

Remember the way Musharraf sent teams of Army personnel to the markets doing roaring business to coerce them into paying their dues? But within no time, not only was this campaign abandoned but all those rich rent-seekers that the-then NAB Chief Lt Gen Amjad had caught and incarcerated were freed and made partners in the loot by the official economic managers.

The first Benazir government had, soon after its arrival, announced its intention to introduce value-added tax for the purpose of documenting the economy. It was a non-starter from the very word go, because on the one hand the tax collectors were not interested in getting the economy documented for obvious reasons and on the other the big and small businesses went all out to get the reform overturned; so much so that the Paris Club meeting of that year had arranged a special private sector session at which the government of the day was warned not to disrupt the norms of free market!

This time again we are hearing the same noises. The plea as usual is that since the economy is going south, this is not the right time for disrupting the private sector with tax reforms. Instead it should be allowed to continue to fleece the government with renewed vigour so that it succeeds in creating enough wealth as is being desired by Prime Minister Imran Khan so that he is able to fund a welfare state on the lines of Riyasat-e-Madina from out of this wealth.

So we are back to the same old time- tested but failed theory of ’trickle down’ which never trickles down; the rich keep accumulating wealth without either reinvesting or fulfilling their legally binding corporate social responsibilities. The problem is that we never ever tried to establish a tax culture in the country.

The income from agriculture is the biggest source of black money in the country. This is ‘no-questions asked’ income.

If one sincerely wants to have the economy documented and catch the tax dodgers, one should first bring agriculture income into the tax net. Next, instead of using the law of ‘living beyond known means’ to blackmail politicians, the government should use the information available with the NADRA about the real incomes of the rich in this country and send them notices to comply with the income tax laws with the clear warning that in case of failure to comply, they would be arrested and punished without fail.

The PM wants to create conditions conducive for the private sector to create wealth. But then this route to wealth has already caused massive inequality in the world. Richest 62 people are said to be as wealthy as half of world’s population. Greed is indeed, never good.

The massive inequality that followed concentration of wealth in a few private hands (22 families) in the 1960s in Pakistan had left the incoming first PPP government no option but to adopt the socialist model of development.

Nevertheless, it is the state’s responsibility to establish a social-welfare state and not that of the private sector. Therefore, wealth needs to be created in the public sector using policies designed for the purpose and financed with revenues earned through taxing the rich.

Published in The Express Tribune, March 16th, 2019.

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