Uneven tax burden

New tax data shows how hopelessly broken our collection system has become, as collection from the real estate sector crashed by 29% in the first two months of the current fiscal year. The realty sector holds special significance because it is the playground of the rich, and in a country where tax avoidance is a passion of the rich, realty is one of the few areas where they are taxed appropriately.

Realty tax revenue fell by over Rs11 billion year-on-year after the government chose to cut advance taxes on property transactions by half, reducing the sale tax rate to 2.75% and the purchase rate to 1.25%. To the surprise of no one except the people making the decision, this cut property-sale revenue by 32% and purchase revenue by 22%.

Meanwhile, the salaried class paid a collective Rs91 billion, which is about 325% of the entire real estate sector's taxes paid. This reflects how the government chooses to punish hardworking Pakistanis to reward real estate speculators, whose industry contributes almost nothing to economic growth.

The taxman is not doing much better elsewhere. Pakistan's tax-to-GDP ratio is barely 10%, far below the 15% average of comparable emerging countries. Undocumented economic activity amounts to nearly 40% of output, translating to an astounding Rs25 trillion outside the tax net. Overall income tax collection fell by 4% in the first two months, Rs74 billion short of the target. Meanwhile, import-stage taxes now account for almost half of total revenue, which is unsustainable.

Granting tax relief to the real estate sector is quite literally a wealth transfer to the already wealthy in a country where about 29% of the population lives in poverty, and millions more can't even afford to dream of owning property - literally, as Pakistan is also one of the most income-immobile countries in the world, meaning that someone born poor will almost certainly die poor. The focus should be on changing this, rather than ensuring those born rich get an even larger share of the wealth at everyone else's expense.