Capacity tax: Victory for fair play

The Lahore High Court’s (LHC) decision to rule illegal the capacity tax on beverage manufacturers is nothing short of a blow to the kind of crony capitalism that has defined far too much of Pakistan’s economic history. The court threw out the Federal Board of Revenue’s (FBR) unilateral revision of the tax code that required companies to pay taxes on the basis of their installed capacity and not their actual earnings. The larger beverage companies — which have a higher capacity utilisation rate — would stand to benefit from such an arrangement, while the smaller companies would stand to lose out. It was an unfair change and we are glad the court ruled it illegal. The federal government has repeatedly laid out an economic vision for the country based on free market principles. Need we remind the government that the free market requires the government to refrain from actions that seek to tilt the playing field in favour of the privileged few and at the expense of the many. It is not the government’s job to pick winners and losers in the market. The government’s foremost role is to provide the necessary infrastructure and a fair set of rules for all players.

The unfairness of the capacity tax, however, is not the only problem we have with it. Why was the FBR allowed to unilaterally impose the tax in the first place? Whatever happened to the pledge from the government to end the culture of statutory regulatory orders? And how does a democratic government tolerate the notion of a bureaucratic body single-handedly creating tax policy in violation of the sovereignty of Parliament? We are grateful that the LHC ruled against the tax, but it should really never have been allowed to be imposed at all.

And why is the government so concerned about trying to change tax policy for sectors that are already some of the largest taxpayers in the country? The focus of the FBR’s energies should be on those who pay no taxes at all, not the honest companies that are already complying with the law.

Published in The Express Tribune, May 25^th, 2014.

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