The ways of Pakistan’s (non)-tax paying elite

Published: December 17, 2012
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The writer is a freelance British-Pakistani journalist based between Karachi and London. She was formerly a staff writer for the New Statesman. She tweets @samirashackle

The writer is a freelance British-Pakistani journalist based between Karachi and London. She was formerly a staff writer for the New Statesman. She tweets @samirashackle

As you have no doubt heard by now, nearly 70 per cent of Pakistan’s lawmakers did not file a tax return last year. That means that, exempting their parliamentary salaries, which are automatically taxed by the government, they did not pay any tax at all. Many politicians have vast supplementary incomes from property, professional practices, and other sources. A 2009 study found that the average annual net wealth of a lawmaker in Pakistan ran into millions of rupees. Given that technically, any income above Rs500,000 should be taxed, that is a whole lot of lost tax money.

The release of this information, painstakingly compiled by investigative journalist Umar Cheema, has been covered by every major international newspaper and has prompted much discussion in the domestic media. But in Islamabad, there seems to have been limited political fallout. Parliamentarians, confronted with the evidence, have responded not with penitence or pledges to reform the broken system, but with flat out denial. Senator Ishaq Dar took issue with the use of the term “tax-dodger”, saying that it is “shameful that such language is being used for parliamentarians”. In a master class in how not to give a dignified response, the Senate accused the media of a conspiracy to malign politicians and vowed to investigate the tax affairs of media organisations, a childish tit for tat that serves no-one.

In 2009, the UK parliament was rocked by a similar scandal, when it emerged that MPs had been exploiting the generous system of expenses and allowances for personal gain. Backed into a corner, the prime minister, Gordon Brown apologised “on behalf of all politicians”. There were several high-profile sackings and resignations, MPs across the board were forced to pay back the money they had taken, and in some cases there were even criminal charges. The Times described it as “Parliament’s darkest day” and a “full-blown political crisis”. Those MPs that did complain of a media witch hunt were widely lambasted and forced to apologise.

By comparison, the attitude among Pakistan’s public to the latest revelations appears to be more resigned — yes, they’re dodging tax, but it’s no more than we expect. Why the drastically different response? The answer lies in the fact that of a population of 180 million, just 768,000 are registered to pay tax. That is less than two per cent. The vast majority of the population pay no tax at all, and many others are not paying as much as they should. Of course, the wealthiest are the worst offenders. Against this backdrop, the fact that parliamentarians are failing to pay tax is unsurprising: nor are businessmen, landowners, or bureaucrats. There is a long tradition of en masse tax evasion by the country’s elite.

However, to state the obvious, the fact that everyone is at it does not make tax dodging any less reprehensible. Just nine per cent of GDP is collected in tax each year, one of the lowest rates in the world. And Pakistan badly needs revenue. The state is heavily reliant on financial aid from the west and bailouts from international lending institutions. National debt stands at about 60 per cent of GDP, and the government has paid back just a third of the $7.5b that is due to the International Monetary Fund by 2015. With some justification, the population is widely suspicious of US involvement in Pakistan. Yet it is a statistic certainty that many of those complaining are not paying their taxes, thus undermining the best way to reduce reliance on American money.

While GDP figures are abstract, the brutal impact of the empty state coffers can be easily seen in any impoverished area of Pakistan. Last week, I visited Memon Goth, a village in Karachi. The school building stood empty. It was a government school, but there was no money to pay the teachers, so it was defunct and children could not attend. The story is the same across the country. Hospitals, schools, sewerage — these are the basic services which would be paid for by an effective state mechanism.

In any country in the world, the rich will do what they can to dodge taxes. In the aftermath of the UK expenses crisis, MPs may be on best behaviour, but corporations continue to find loopholes to avoid hefty tax bills. The problem in Pakistan is the huge accountability deficit in politics. This sense of impunity means that the Senate feels able to respond to serious allegations such as this with finger-pointing rather than an apology and a practical look at ways to improve the problem. This does nothing to help existing public disillusionment with the political system.

It is difficult to see how things will improve. It is a universal truth that raising taxes is unpopular. US President Barack Obama was forced to extend George Bush’s tax cuts for the wealthy during his first term because it was politically untenable to reverse them. The current proposal here in Pakistan is to offer an amnesty for tax evaders, with a one off payment of around Rs60,000. It is hoped that this will bring more people into the tax system. But as Pakistan gears up for a general election, will the ruling coalition really want to alienate large swathes of the population by forcing them to pay up? More to the point, will the country’s elites comply, or — as is usually the case — will they find a way to evade it, meaning that only the disempowered and lower-earning lose out, yet again? Existing laws are inconsistently enforced, so there is little reason to believe that new ones will be any different.

The problem is compounded by the fact that lawmakers and other powerful stakeholders are among the biggest beneficiaries of the current broken system. As Cheema’s report noted: “Those who make revenue policies, run the government and collect taxes have not been able to set good examples for others.” It doesn’t look like they are going to start any time soon. Those with the power and money have a strong vested interest in keeping things as they are — and if it holds back the development of the rest of the country, so be it.

Published in The Express Tribune, December 17th, 2012.

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Reader Comments (23)

  • Falcon
    Dec 17, 2012 - 2:05AM

    Samira –
    Well said. My only contention is with this statement…”The vast majority of the population pay no tax at all, and many others are not paying as much as they should”…Pakistan’s taxation system is distorted because of heavy reliance on indirect taxes (more than 60%), which are regressive and inflationary. Furthermore, we have too many tax exemptions that benefit the elite. So, it is the elite and upper middle class who bears most of the blame for tax evasion (legitimized and illegitimate) rather than the regular populace, which is being taxed through indirect taxes anyways. And as long as politicians continue to evade taxes, things will continue to stay like this.

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  • saad
    Dec 17, 2012 - 2:22AM

    It’s sad that its going to take the downfall of Pakistan to make these idiotic tax evaders realize that by not paying tax they re only digging a grave for themselves

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  • numbersnumbers
    Dec 17, 2012 - 8:25AM

    @saad:
    No they are not “digging a grave for themselves”! They have used their immense (untaxed) wealth to buy up foreign properties to escape to when the country finally falls apart!

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  • Ali Khan
    Dec 17, 2012 - 10:02AM

    CJ should look into the matter . .

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  • Mirza
    Dec 17, 2012 - 11:09AM

    With full dictatorial powers who stopped the four military dictators to go against the tax thiefs? However, this issue is only raised to malign the elected leaders not those who toe the line of Gen Mush and others. Every time the military comes to power they use corruption as the main reason but do nothing except to tame the politicians and only go against those who do not leave the country and oppose them. That too on the false pretext not solid evidence like tax evasion. There should be a sales/consumption tax so the rich cannot buy anything without paying tax.

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  • ishrat salim
    Dec 17, 2012 - 1:15PM

    @Mirza:

    As usual…if the dictators ( I am not a fan of any dictator nor any particular politician ) have done something wrong…why the civilian govt is not reversing it ? two wrong cannot make one right….the example of UK is enough to shame our politicians who are role models of their electorates, they cannot hide from the fact that they will be hounded as long as they are politicians & if especially in the govt….they are peoples representatives & have to submit themselves for accountability to the people….our politicians has no shame, does not resign even though expected to, claiming that ” if by resigning the state of affair will be ok “, which is reverse in any country except us……this is the attitude of our politicians because we have people like you who supports their unholy actions….hence, you are an accomplice in all the wrong that politicians are doing & will in sha Allah be answerable to Allah swt soon….

    Request ET to print my comment as truth must prevail….

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  • Dec 17, 2012 - 2:06PM

    Tax laws should be strong, also tax forces should be among the most powerful forces in he country with zero level of influence. If possible private sector should be involved with targets assigned. This is the sector where emergency should enforced otherwise shortcuts to evade economic problems are getting less day by day.

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  • meekal a ahmed
    Dec 17, 2012 - 3:29PM

    I am surprised that everyone seems to be suprised.

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  • Dec 17, 2012 - 3:44PM

    Well it’s wrong to say that we don’t pay any taxes. There is no such thing as a free lunch. We all pay heavily through the invisible tax called inflation. The burden is greater on poor than the rich though.

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  • Arthur Zobo
    Dec 17, 2012 - 5:57PM

    Who says that there is a term or feeling called Shame in this country.Yesterday was the 41st anniversary of the independence of our Bengali brothers.Ddid someone watch the media shows where everyone called it as the day when ‘those raising the name of Pakistan were killed in Dhaka’ or the military brigade that so often finds itself lecturing us civilians.What did they have to say:’why should we apologize to the Bengalis,it is THEY who were traitors and called for India’s help.What I am trying to say that whether its historical blunders or tax evasion as a nation we will never feel obliged to do the right.The temerity with which the parliamentarians,including clean guys like Aitzaz Ahsan joined the wolves in calling this report shameful.I suppose His Lordship.The CJ of the supreme court should take suo motto notice of this and only then can one hope that some feathers would be ruffled.As for the civilized world being shocked or amazed at our reaction, suffice it to say,have we ever cared for world opinion that we should do so in such mundane things as tax evasion!

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  • salim
    Dec 17, 2012 - 6:07PM

    @Ali Khan:
    He probably dodges taxes too. Got allotted 1 or more plots in prime areas too.

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  • Lol'd
    Dec 17, 2012 - 7:12PM

    @salim:

    Just as an FYI, judges are salaried employees. So all income they receive in capacity of judges are taxed at source. If my estimate of their salaries is correct the annual taxes collected from each judge of the superior court should be over Rs. 1 million. So in any case they are paying more taxes than 70% of you parliamentarians anyways.

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  • Abdul-Razak Edhy
    Dec 17, 2012 - 7:16PM

    ‘ The answer lies in the fact that of a population of 180 million, just 768,000 are registered to pay tax. That is less than two per cent.’ It works out to less than one half of one percent. More over all those who are registered, do not pay tax. Even a beggar pays indirect tax when he eats bread. The tragedy is he earns nothing and contributes to tax.

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  • Hasnain
    Dec 17, 2012 - 7:54PM

    The solution is not as complicated as it looks like. There should be income tax for ALL types of income whether from salary, agriculture, rental income, consultancy fee or even capital gains.

    The current distortions have made a number of sectors like Agriculture, Professions (Doctors, Accountants), Real Estate enjoy tax-freedom. This burden is passed on to the consumers in the form of petroleum & electricity taxes. Maybe some day the government will have to impose tax on oxygen that people breathe.

    FBR should be given the task to monitor the foreign travels, luxury vehicles, villas/mansions, child-education & lavish spendings to nab the tax-dodgers.

    Land Records should be computerized all over the country, on the pattern of Government of Punjab, to ensure transparent transfer of property without any bribery.

    There should be the principle of “no representation without taxation”. A parliamentarian should be disqualified if he fails to file his tax returns.

    The government should encourage those who pay their taxes honestly. As a mark of appreciation & acknowledgement, Special Cards should be issued to those who pay over Rupees One Million in taxes every year.

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  • Ch. Allah Daad
    Dec 17, 2012 - 7:59PM

    If no one pays taxes then from where 2500 billions come into exchequre, “Buqraats” sitting in cities would still say that we did not pay any tax. No doubt huge tax evasion is going on but bigger problem is in spending. The infrastructure which we use is in shambles, our security forces don’t have proper gears, terrorists are killing us in dozens, cases are pending in courts forever. Simple solution is that show us proper use of 2500 billions before you ask us more. Fix spending first before fixing collection.

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  • Abid P. Khan
    Dec 17, 2012 - 8:29PM

    @Ali Khan:
    “CJ should look into the matter . . ”
    .
    Why should he? The CJ, the politician or the militaryman are all a part of the same society. They go to the same sort of schools, have similar friends and they talk of ways to hoodwink their neighbours, teachers or bosses. Why should we expect them to behave as if they were not like others but made of the stuff same as Angel Gabriel?

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  • Sexton Blake
    Dec 17, 2012 - 10:20PM

    @Falcon:
    Dear Falcon,
    Your argument was quite sound, and I agree with most of it. As you are basically saying the problem with a tax system is to make fair. However, I have lived in several countries, and I can assure everybody that there is no such thing as a fair system, or at least I am not aware of one. There are additional important items to consider also, such as old age pensions, hospitalization, general medical care for the poor, assistance for people with children, all of which have to be, or should be, paid for out of taxes. As you say, the elite groups pay little tax, and this is everywhere. I cannot approve of any country I have been in, but Australia, after America, is the worst and Britain/France the best for little people. I will not go into particular details except to say my direct and indirect tax burden is appalling and has me living on the margins. The Tax Department, and Social Security, treat me, a little person in my opinion, as being wealthy, but I am 80, cannot afford a housekeeper, but have a good son who does all the household heavy work. However, I can pay my bills so may be fortunate. Having said all this, I can only agree with Samira Shacke. The tax system in Pakistan, and everywhere else, should be fair, but all I can say is, “get used to it”. I am not holding my breath waiting for any tax system to improve, or going halfway to be being fair. The elite groups will always be in control.

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  • Abid P. Khan
    Dec 17, 2012 - 10:39PM

    @Ch. Allah Daad:
    “….Fix spending first before fixing collection.”
    .
    Quite a piece of advice. Kaptaan Saheb promises to introduce a Scandinavian type of welfare system. In Denmark the tax pressure is 57% which step would you advise him to take first, as the percentage of tax payers is so deplorably low in Pak. For running a welfare system, he will have to sell his farmhouse. It may cover some of the costs but not all.

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  • Ali Khan
    Dec 18, 2012 - 8:51AM

    @Abid P. Khan / Salim

    I agree he may does that too, in-fact it’s us who have to rise and beat it. But when we feel like we don’t have the means then someone lesser evil having authority is more likely to take the action. For this sir, CJ being the best choice, may be effective . .

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  • Abid P. Khan
    Dec 18, 2012 - 2:09PM

    @Ali Khan:
    “…For this sir, CJ being the best choice, may be effective ..”
    .
    The “us” have educated/exposed to dishonesty, fraud etc. We have not been exposed to democracy except a bunch of crooks with democratic pretensions. It is just not the Mullah who is fake. The elite control your thinking by owning the media, the educational infrastructure, above all decision making.
    .
    Today plebeians have no say. They do not control their lives, they are just cogs. We have fooled ourselves by believing that the elite are heralds of a brighter future. For reasons, you can guess, they are seeing to it that status quo remains. For a change, we need a change of guards.
    .
    We cannot make do with the present lot, however disappointing it may sound.

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  • Parvez
    Dec 18, 2012 - 4:17PM

    Nicely spelt out. This is an old story its intensity waxes and wanes with time but over the last few decades its only growing. Along with the greed there is hypocrisy, shamelessness and a self destructive tendency involved that they are too dim witted to understand.

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  • Ali Khan
    Dec 18, 2012 - 4:42PM

    *@Abid P. Khan:
    I agree with the part that rulers / elite could change our conditions. I agree with calling us cogs too, rather i can find a more precise word! we are potatoes. But that’s ‘us’ means a few energetic people who write blunt blogs in paper against status quo, who comment out-rightly and speaks loudly in their institutions, universities and gatherings with friends. That part can bring a change …
    If you believe you can do something you’re right, if you believe otherwise you’re right again.
    And Resources are always there.
    *

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  • salim
    Dec 18, 2012 - 5:26PM

    @Lol’d:
    There are many heads under which income tax is chargeable. Besides people want to know where Arsalan Ifthikar Chaudhry got the capitical to start a multi million business. Perhaps we’ll never know as his case has been put in the cold storage.

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