Let us not encourage the brain drain!

Increasing income taxes will only mean that investments dry up.


Our Correspondent April 29, 2012

KARACHI: People are our most valuable asset. They must feel secure, in control of their destiny, confident in their leadership, and believe that they are being treated fairly.

It was shocking to read a report in a prominent local newspaper that the government was contemplating increasing personal income taxes from current 20% to 35% as the maximum bracket and collapsing 16 slabs to six which will effectively increase personal taxes by a factor of 5 to 7 times for citizens in the lowest income bracket.

This is contrary to statements made by the finance minister on multiple occasions that no taxes will be increased but instead the focus will be more towards expanding the tax net. One would sincerely hope this news is mere gossip.

Taxation, as everyone would agree, is part and parcel of any civilised and progressive society. Taxation is the bread and butter of any government’s revenue stream which is used to provide everything a nation needs ranging from strong governance, robust infrastructure, personal security, 24/7 accessibility to utilities, widespread and mandatory education, good quality health facilities, and a clean environment. In addition it also helps to finance the complex machinery of the bureaucracy as well as the running of our parliament and senate.

Taxation must be planned in an organised manner with a long term focus on sustainability. It must not be planned with a short term focus on quick revenue generation.

The latter approach has a major drawback as it can wipe out years of good work in building commerce, trade and manufacturing investment. Personal taxation indirectly impacts investment and economic growth as it can drive professionals to countries which offer a better quality of life.

To me there are two key points to this dialogue: Firstly, the benefit to the national exchequer of this huge increase on personal income taxes will be miniscule (less than 2.5% of total government revenues) while the hurt to a very small population of taxpaying citizens will be shattering.

Secondly, the access and availability to quality human resources will be hurt, which is a key stimulant to any economy. These human resources, like any business entity, also need to budget and plan their yearly spending and saving plans. Citizens need to prioritise and save for their children education, housing, utility payments, rest and recreation, and above all food and clothing whose reported inflation over the last 4 years has nearly doubled. Considering the pro and cons of increasing personal taxation, the damage of this move on the country’s taxpaying citizen’s motivation will be significant and will far outweigh its benefit to the government.

Personal taxation needs long term stability else the human resources can make the decision to move to countries where they find quality return on their investment on personal taxation.

Taxpaying citizens of Pakistan are already playing with a significant handicap; let us not do anything which may instigate a brain drain of qualified and technical professionals to look outside our borders to make a living. Until our governments start treating human resources as their most precious assets, no progress can be made on the economic front.

If this measure is indeed being debated for the upcoming budget, one would strongly suggest to the relevant authorities not to venture this way.

Published in The Express Tribune, April 30th, 2012.

COMMENTS (9)

Abrupt | 9 years ago | Reply

Govt does not seem serious to bring the other professions under tax umbrella. there are various Tv shows running that depicts luxurious lives of landlords, actors, singers who don't pay even single penny as taxes. only white and blue collar easily available to cut its throat,

From across the Border | 9 years ago | Reply

Just wanted to point the course taken by the Indian Govt. In the broadest sense, there are 2 kinds of Citizens, Salarized class and Entrepreneurs. The Salarized class usually do not have means to escape tax, due to 'TDS' (Tax deducted at source), i.e the company paying the salary would predict the yearly tax of the employee and deduct the tax amount every month. Also the Tax collected from Salarized class amount to a small portion of revenue to the Govt. Where it was loosing out was the Entrepreneurs who usually show way less income and hence did not pay any tax or very minimal one. And in a country like india there are way more Entrepreneurs than Salarized class(and I bet its the same case in Pakistan). So the loss of Tax revenue was quite significiant. So Instead of increasing the tax amount, which would mean only the Salarized 'middle class' would be over-burdened and also would not result in too much of revenue increase for the govt, the govt decided to reduce the tax/increase the tax slab. The thinking was, if the tax to be paid was less, more Entrepreneurs would start showing increased income in order to convert their 'Black' money into white and collectively the Govt would earn more tax revenue. Also they came up with 'PAN no', a unique number given to each tax payer. And everyone needed to provide a PAN number for bank transcation worth more than 50 thousand rupees. Thus making it easier for Govt to track people's transcation. This increased the Entrepreneurs' risk of being caught for not paying taxes. So the plan of the govt worked, these steps did result in more Tax revenue. But I agree, Countries abroad do charge a greater Tax, but the kind of previliges they give in return is also much better. The common complaint among people In India is that they do not see thier Tax money's worth of returns. And the Entrepreneurs complain that 'when I make profits Govt takes my money, but if I end u making losses Govt does not pay me anything even if i end up on the streets!'

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