The case for and against a flood tax

While the upper riparian population affected by the floods has mostly returned and the lower riparian inhabitants are beginning to do the same, those at the helms of affairs are still debating whether or not to impose the flood tax to mobilise additional domestic resources for rehabilitation and reconstruction. Extraordinary events require extraordinary measures, taken quickly. Whether the delay is related to the discussions with the IMF or the laziness of the silly economic team, the consequence is that the people have been left to pursue their own coping strategies.

A surcharge on imports for the rich would have yielded immediately available resources. Income tax returns have to be filed by October 15. There is no knowing when the higher income earners will be asked to share some of the burden. Federal laxity is made worse by provincial inaction on the taxation front. They have never made any serious effort to mobilise additional resources. Even after a reversal of the vertical distribution under the seventh NFC, the provinces have been looking up to the federal government for more resources to meet the cost of rehabilitation and reconstruction.

Income, consumption and property – in that order – are well-known tax bases the world over. Reflecting the power of the privileged, consumption in Pakistan is the most taxed, followed by income. Property is not even a poor third. While consumption and income are largely in the federal domain, imposing property taxation is the exclusive jurisdiction of the provinces. Its manifold potential remains unexploited. A one-time levy on all these bases would have demonstrated that, contrary to the perceptions of the aid donors, the privileged care. But the reactions to a proposal (put forward) by President Zardari for a one-time levy on properties above a certain size suggests an interesting topic of research for political sociologists.

It seems that we like to levy taxes somebody else has to pay. Recently, the MQM had launched a frontal attack on feudalism and landlords for not paying tax on agricultural incomes. All incomes, it said, should be taxed without discrimination. Not having any feudal in its fold, the implementation of the proposal would not cost the MQM a dime. Now the flood tax proposed by the president on property in areas unaffected by floods is a clever response to the MQM attack on feudalism. The proposal does not discriminate between rural and urban property. However, it is not by accident that the greatest incidence of the flood tax in Sindh will be on MQM constituencies. Not surprisingly, the MQM leadership is resisting the tax.

And the MQM has strange bedfellows here. The PML-N government in Punjab has shown strong opposition to it. On a purely provincial matter, the explanation given is that they would look at it when the proposal is made for the entire country. It was also said that the people (the privileged?) are already overtaxed. Again, the people are already contributing to the flood relief fund. Charity yes, tax no. The fact is that the burden of the tax would have to be borne mainly by the political constituency of the PML-N. The position of the ANP in Khyber-Pakhtunkwa is no different. With positions like these, the tax-to-GDP ratio of the country cannot but continue to go downhill.

Published in The Express Tribune, October 8^th, 2010.