Six economists, seven opinions

“Landlords Inc.”, a provocatively titled recent article in Dawn by Shahrukh Wani and the opinions it generated reminded me of Barbara Wootton’s quote: “Where there are six economists, there are seven opinions.” Shahrukh’s main point is that those who own land benefit enormously in unearned value from infrastructure and other development. Land is the source of value in most properties. His proposal is to levy an annual tax on property linked to the market value of land. A part of the increasing land value could thus be used for public services. Ehtisham Ahmad thinks that responsible local governance can generate 1.5% of GDP in property taxation by linking the rate per sq. meter to what it costs to deliver services. He has been working on the proposal in the case of China. Ali Cheema says “that’s exactly what we are proposing. Punjab’s current UIPT schedule is interestingly regressive by design! Our initial analysis shows that the ARV based valuation is also regressive compared to property values determined by the e-stamped land sale data at the locality level. The better off aren’t only being given better services they are also being taxed at a lower per area rate.”

Ehtisham finds himself and Ali Cheema on the same page. Now how to persuade the powers that be? This what he has to say: “If you can demonstrate roughly 1.5% of GDP through a combination of taxes related to land, plus an equalization system to ensure that all jurisdictions are able to provide similar levels of services, that would transform the subnational social spending and pandemic ‘building back better’ agenda. This would also make it easier to address the mistakes in national tax design and assignments and transfer mechanisms that should be taken up promptly to address the IMF conditions without resorting to stupid capacity related taxes to meet revenue targets but which destroy the productive base and damage growth prospects (as has happened time and again in failed IMF program after another since around 1990). Time to learn from the Chinese experience, as the Prophet had recommended (Waqar Masud knows all about this, and failed IMF programs too).”

Nadeem Ul Haque says, “good kid.” He agrees that “We are the only country with judges, engineers, police, universities, schools, utilities, FBR, army all involved in land development. What a waste.” That is as far as the agreement goes. “So great to tax people and not change a stupid model where no one knows where the buck stops.” The fire continues: “Sensationalizing does not make a point. Typical donor tactic. Taking his first figure into account which may be high. 2013-18 he says 85% growth. Annualized 13%. Dollar value depreciated by 8% or so. Let us get realistic. This area is badly articulated. The assumption is that land has to be taxed; rest is mere rationalism.” Huzaima and Ikram remind us that “the Federal Board of Revenue can acquire the property offering market price in terms of Section 230F(3) of the Income Tax Ordinance, 2001 where value declared is understated.” Finally, those who think property is nothing but files, listen to Salman Shah: “It provides liquidity to the land market. Very important innovation in Pakistan…The lack of formal finance in functioning of the land market.” Nasir Javed makes the “statement with full authority” that “the overall taxation system in the urban sector of Pakistan is designed in a manner that poor are subsidizing the rich. Be it property tax… land value tax… transport… water… waste management, etc.”

No wonder, Churchill chided Keynes for two opinions on every issue.

Published in The Express Tribune, November 27^th, 2020.

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