Taxing the rich

Having been criticised repeatedly for not doing anything to tax the wealthy, the government has, at last, decided to levy taxes on some of the more well-off members of society. The latest proposals include a 10 per cent tax on first and business class airline tickets as well as an increase in the sales tax on services provided by professionals such as accountants, lawyers, doctors, dentists, architects, engineers and interior decorators. The sentiment behind the policy is laudable, but if this is the best the federal government can do then they have a long way to go before Pakistan’s tax system becomes anywhere near progressive.

The tax on luxury airline travel is justifiable, although we object to the government’s use of the withholding tax as the mechanism to enforce it. A withholding tax, after all, is a poor substitute for people paying their taxes honestly for fear of being audited by the Federal Board of Revenue. Audits, and not withholding taxes, are the real key to making the rich pay their fair share.

Our broader objection is to the increase in the taxes on professional services. The increase from six per cent to 10 per cent — while large — is certainly not outrageous, and the government can justify having that tax rate for services provided by professionals who are largely from the upper-middle class. However, we object to the fact that the government is turning to sectors that are largely documented and pay their taxes anyway. Law firms, accountants, and engineering firms are relatively small segments of the Pakistani economy but largely well-documented ones. Admittedly, health care should probably be paying a larger amount in taxes, but that is a problem of enforcement, not of a low tax rate. In other words, this is once again a case of the government taxing what it can, and not what it should.

The truly wealthy in Pakistan are the industrialists who have lobbied for exemptions from the tax code, or the large traders who keep few records of their transactions and evade taxes outright. We will believe the government’s promises to crack down on the wealthy tax cheats when it goes after those people, not the honest folks who are already paying their fair share.

Published in The Express Tribune, June 1^st, 2014.

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