Campaign donors and tax policy

Most Pakistanis are probably not aware of the fact that the beverage industry is one of the largest taxpayers in the country. In addition to the corporate income taxes that all profitable companies are required to pay, they pay higher sales taxes and excise duties than most other industries. It is also a largely documented industry that has historically not caused the government too many problems with taxation. So we are somewhat surprised that the government felt the need to re-impose a completely different, outdated and discredited model of taxation on this industry.



The so-called capacity tax changes the regular sales tax and excise duty model — which depended on how much each company sold — to one where each company is required to pay a tax on its total production capacity, regardless of how much it sells. Needless to say, this is essentially incentivising the companies to lie about how much they can produce, and how much they can sell, just to avoid getting hit by a tax that does not take into consideration their ability to pay.

So why exactly was this tax imposed? Ostensibly, the government is trying to collect more taxes from an industry it knows it can squeeze. But the reality appears to be different. Time and again, officials at the Federal Board of Revenue have testified before the cabinet and parliament that this new tax is not working, and that it is resulting in less taxes being collected than before. But still, the Nawaz Administration keeps pushing to maintain this new monstrosity.

Meanwhile, according to inside reports circulating in Islamabad, the new tax was levied at the behest of politically well-connected owners of beverage companies who also happen to be large political campaign donors of both the PML-N and the PTI. Disturbingly, neither party has publicly disavowed these claims. If there has been any quid pro quo of policy favours in exchange for campaign donations, the public has a right to know. Such activity is illegal under campaign law and is tantamount to bribery. If the government does not reverse this disastrous policy, it may only serve to confirm the worst suspicions about its true intentions for implementing the new tax.

Published in The Express Tribune, March 20^th, 2014.

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