Flood tax proposal
Overall, the proposal may be sound but its implementation will be controversial.
The president has proposed a one-time flood-tax on urban property and farm land not affected by the flood as a means to raise money for the government's relief efforts. The idea is sound in principle given the country's over-reliance on donor funding and foreign aid to deal with such situations in the past. However, there are number of issues that the government needs to consider. First of all, the proposal is to tax only cities of Sindh in order to fund relief work in the province, which is the worst-hit in the floods. In the past, a tax on bonuses by the government to raise money for Swat’s internally displaced persons was applied nationwide, with the bulk of the money being raised in Karachi. People in Sindh would be within their rights to ask why the burden now will fall on their shoulders alone.
The other issue is of collection. A 2,000 square yard house in Karachi paying Rs200,000 does not take into account the location of the property, in which value varies. Then there is the ability of the owner to pay. For example, if the owner of a 120 yard house is expected to pay Rs12,000, this is a sizeable chunk of the family monthly income. Also, who will identify the properties? The Federal Board of Revenue has been unable to widen the country's tax base because of endemic corruption within its ranks. How then will it come up with the correct details? In the last attempt at a housing census, the army was used. Will the political government also rely on it for this exercise? What exemptions will be given is another worry, given that there will be properties owned by widows and pensioners who have no monthly income. And how will the government ensure that the exemptions are not abused is up for further debate. Overall, the proposal may be sound but its implementation will be controversial. Instead of coming up with ideas on how to raise money through innovative measures, the government should prioritise its efforts at widening the tax base. If this is done in a free and fair manner, the country's resource crisis will take care of itself in the long run.
Published in The Express Tribune, September 7th, 2010.
The other issue is of collection. A 2,000 square yard house in Karachi paying Rs200,000 does not take into account the location of the property, in which value varies. Then there is the ability of the owner to pay. For example, if the owner of a 120 yard house is expected to pay Rs12,000, this is a sizeable chunk of the family monthly income. Also, who will identify the properties? The Federal Board of Revenue has been unable to widen the country's tax base because of endemic corruption within its ranks. How then will it come up with the correct details? In the last attempt at a housing census, the army was used. Will the political government also rely on it for this exercise? What exemptions will be given is another worry, given that there will be properties owned by widows and pensioners who have no monthly income. And how will the government ensure that the exemptions are not abused is up for further debate. Overall, the proposal may be sound but its implementation will be controversial. Instead of coming up with ideas on how to raise money through innovative measures, the government should prioritise its efforts at widening the tax base. If this is done in a free and fair manner, the country's resource crisis will take care of itself in the long run.
Published in The Express Tribune, September 7th, 2010.