Intra-nomics: Everyone needs to be taxed equally instead of the salaried class, says Ishrat Husain

Former governor of State Bank says that informal sector and services sector are excluded from taxes.

KARACHI: Karachi has renowned boutiques, five-star saloons, expensive health clubs and gyms, educational institutes and vocational training centres, but no one dares tax them even though all of them are flourishing.

This, according to Dr Ishrat Hussain, the former governor of State Bank, is needed as right now Pakistan has no option but to boost its income from taxes to be able to bridge the gap between its expenses and its revenue.

He said this at a pre-budget seminar, organised by the Karachi Union of Journalists at the press club on Monday.

Husain, who is currently the director of the Institute of Business Administration (IBA), said that businesses thrived in the informal and private sector but their contribution to the national economy was almost nothing because they did not pay taxes. “The policymakers and authorities of the country should devise a uniform mechanism for taxation,” he said. “The public sector and fixed-income groups are bearing all the country’s burden.”

The former governor advised that taxes should be applied equally to all the sectors instead of the manufacturing sector and the people who earned fixed salaries. The agriculture and services sectors also had a large share in the GDP but it did not reflect in the revenue which was generated.

On the other hand, the informal sector, which consisted of practitioners and consultants of different fields, were reluctant to pay taxes despite handsome incomes and plenty of resources.

Besides them, a significant chunk of agricultural traders saw a record boom in their income because of bumper cash crops. Although their lifestyle was growing more materialistic by the day, they did not pay taxes.

The government should devise a framework in the upcoming budget that would enable all the people to be taxed equally according to their income. In this way the country will drive itself towards durable self-sustainability and financial sovereignty.

Director Husain urged the government to facilitate the manufacturing sector and exporters with different policies and provide them with infrastructure and utilities so that they can fetch foreign revenue to strengthen Pakistan’s macroeconomic position.

Meanwhile, the president of Karachi Chamber of Commerce and Industry, Mian Abrar Hussain, said that the cost of production needed to be controlled as a priority. It has driven up because of the deteriorating law-and-order situation over the years. He said that even after 64 years of independence, Pakistan had failed to devise any plan for energy security. “Nevertheless, we do have a nuclear security plan,” he said. “We need to exploit it to fulfill almost 40 per cent of the country’s energy needs to resolve the crisis.”

Abrar Hussain also highlighted the need improving trade within the region despite international discriminations meted out against the country. The economic blocks need to be prioritised - Pakistan, Turkey and Iran should make the first block, South Asian Association for Regional Cooperation should make the second, while the third could be with Pakistan and Central Asian countries.

Published in The Express Tribune, April 10^th, 2012.