Taxation or rent seeking?

In today’s world, taxes are levied by almost every government, except for a few resource-rich countries. The purpose of taxation is primarily to raise revenue for the government. Tax revenues support government expenditures which are in terms of service delivery. The types of services governments provide against the taxes vary, ranging from policing to health and education.

While people pay their taxes, they expect to receive services in return. This is a very rational expectation. Whereas, when a government levies taxes, even if not pronounced, it by default agrees to return the money in the form of services. This is a basic principle of taxation.

As opposed to taxation, rent-seeking is another practice that some governments adopt. It is a technical term which is widely used in different contexts. While introducing this label, Anne Krueger in her article, “Political Economy of the Rent Seeking Society”, considered corruption and bribery in government as rent seeking. Other political economists define it as people’s lobbying of a government to grant them subsidies and financial privileges that would ultimately enhance their personal wealth. But in pure economic terms, rent seeking refers to a situation where an entity seeks to gain without reciprocal contribution.

Looking at this concept vis-à-vis taxation, it seems it is the opposite. When a government levies taxes without reciprocating through improved services, the government may be called rent-seeking.

In Pakistan, the current PTI government since its inauguration in 2018, has been stressing more on improving revenue through taxation — a great idea as it aims to break the long-lasting tradition of tax evasion in the country. Moreover, the objective stated by the government to improve tax-bases is to lessen the country’s dependence on international financial and monetary institutions. This is also a fair argument, but is not enough.

If the government is broadening the tax base, and levying more taxes, the taxpayers expect some visible improvement in services delivered. While the government announces an annual increase in tax-based revenue, it does not reflect on the condition of services delivered.

Beginning with policing services, reports of the police mishandling citizens persist. Although budget figures have been raised for the education and health sector, no visible improvement is noticeable. It is also hard to claim that citizens’ experience of interaction with government service providers has changed at all.

This is an area of policy that needs consideration. Vigilant monitoring systems are necessary. The Pakistan Citizen Portal is a good example but it’s not sufficient to cover the broader shortfalls in service delivery.

As a Pakistani citizen, one can understand that the government’s wealth is not increasing through taxation, for a good amount of taxes goes to debt repayments. But the expectation of citizens to have improved service delivery, nonetheless, stands valid.

Along with focusing on increasing tax revenue, which is a good approach, the government should also focus on improving service delivery, at least for taxpayers. This can be done through many ways. One possible way is that the government bars non-filers and tax evaders from using services in the country. The taxation system and BISP/Ehaas systems can be linked to NADRA record. Through this, the poor, students, non-taxables, taxpayers, and tax-evaders and non-filers can easily be identified. And simply, using National Database Records, services shall be denied to tax-evaders.

Yes, such initiatives require a lot of improvement in ICT infrastructure, but an improvement in ICT is also needed to make our context relevant to today’s world.

In a nutshell, while the government is levying taxes, it needs to deliver on services too, otherwise, taxation would become rent-seeking.

Published in The Express Tribune, July 8^th, 2021.

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