More taxes!

In a move that surprised no one, the government has reportedly assured the IMF that it will squeeze the poor even harder if there is any risk of a revenue shortfall compared to the targets agreed as part of the $7 billion IMF bailout package. The proposed Rs200 billion tax measures are another example of an administration out of ideas and more willing to squeeze the already burdened masses rather than confront the powerful elites who remain outside the tax net.

The proposed measures are textbook examples of regressive taxation, including almost doubling the withholding tax on cash withdrawals for non-filers from 0.8% to 1.5%. This could also end up backfiring and cause a reversion to a more cash-based economy. Taxes on mobile and landline calls are set to rise to 17.5% and 12.5% respectively, a move that will disproportionately affect every citizen, from daily wage earners and migrant workers to small business owners. Even the push toward renewable energy is being penalised. While many countries are making solar panels tax-free and even subsidising purchase and installation, Islamabad has proposed increasing the sales tax on solar panels from 10% to 18%.

At the same time, the wealthiest segments of society, along with much of the agriculture sector, continue getting beneficial treatment. Sindh and Punjab recently deferred increases to agriculture income taxes, citing recent floods and other factors. However, the deferral also benefits many farmers unaffected by the floods. A more effective approach would have been targeted waivers or subsidies only for affected farmers, ensuring that only those who truly need them benefit.

The government's focus on meeting short-term revenue targets without evaluating the impact on the economy has also crippled trade and industry, and with it, the long-term growth potential — even though steady growth and a fair, progressive tax system could easily bring about the kind of revenues needed to sustain and eventually expand government spending.