Taxing wealth

Despite some modest gains in the fight against absolute poverty, the economic models being used to deliver global growth are lopsided and unsustainable. Besides wreaking havoc on the environment, top-heavy growth models have failed to make wealth trickle down to the poor. Instead, an obscene amount of money remains concentrated in the hands of the few, percolating down modestly to middle tiers which serve the structures of power, while deprivation amongst the masses remains rampant.

Studies have reconfirmed the above trends. The very wealthy are getting richer, and the poor keep losing out. About 100 million people were pushed into poverty by Covid-19 during 2020 alone, with the number of poor people expected to rise to at least 150 million by year end.

Polarisation, radicalisation, and the rise of xenophobia are a direct outcome of global inequalities, being used by populist leaders to further their own opportunistic and myopic agendas. Some high-profile cases highlighting grand corruption and extreme tax minimisation have surfaced over recent years. Super-rich individuals and corporations should be prevented from making exorbitant profits via tax avoidance and stashing their cash in tax shelters.

In 2014, Thomas Piketty, a French economist, proposed a global wealth tax to reduce wealth inequality. If effectively implemented, such a tax can raise substantial revenue to address global human development needs.

After many years of discussions, there is some evidence of international efforts to create a fairer international tax architecture. A framework for international tax reforms, including a minimum corporate rate of 15%, was recently agreed upon by over 130 countries. The ongoing tax reforms can help prevent countries competing to offer the lowest tax rates to attract investment, which often results in multinationals paying very little tax. There is an undoubted need to put an end to the fiscal race to the bottom and to compel corporate giants, including digital companies, to pay a fairer share of taxes. However, big pharmaceutical companies in Europe and the US are now gearing up to push back against this overhaul arguing that squeezing their profit margins will undermine their ability to fight back a next pandemic. The extent to which the world will be able to put in place measures to tax the global elite with their barrage of lawyers and lobbyists remains to be seen.

In addition to this effort to tax global wealth, poorer countries like Pakistan should also consider imposing progressive capital or wealth taxes on the super-rich. A national levy can easily be imposed on the top 0.1% of the national wealth hierarchy which, in our country, includes just a couple of hundred thousand individuals possessing individual wealth which exceeds millions of dollars. Such a levy could raise billions of dollars of additional public revenue. Such a progressive tax may be resisted by the argument that the country is already reeling under heavy taxation and the tax on capital or wealth of the top rich will further burden the common man. This is a totally untenable argument as Pakistan is among the most undertaxed countries. Moreover, our tax revenues mostly come from indirect and regressive levies which undiscerningly impact ordinary consumers.

A recent proposal to impose a Super Corona Tax on high income bracket earners to contend with the impact of the ongoing pandemic was a good idea that could have served as a litmus test for more long-term progressive revenue generation measures. Yet, the local elite managed to subvert any such attempts given that the budget for the new fiscal year has introduced no such measures. We will now have to continue relying on indirect taxes and more debt to address over massively unmet public expenditure needs.

Published in The Express Tribune, July 31^st, 2021.

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