Taxation: what it buys us
The government lives up to its end of the bargain better than the public.
Any advocate of paying taxes in Pakistan faces the following criticism more than any other: why should we pay taxes when the government does not give us anything in return? It seems like a fair argument and almost invariably goes unchallenged.
While I cannot speak for any other person, I would like to enumerate the ways in which the government of Pakistan, directly or indirectly, benefits me.
As a salaried individual based in Karachi, I am part of the most heavily taxed class of the country. We pay both income taxes on our salaries as well as sales tax on most things we buy. Yet, it is my contention that even we, the most heavily taxed people in the country, are not over-taxed.
A few numbers will help illustrate this assertion.
I pay a grand total of 7.5 per cent of my monthly salary in income tax. By my calculations, I spend about 30 per cent of my income on items that are subject to sales taxes. At the current rate of 17 per cent, that takes away another 5.1 per cent of my income, bringing the total tax bill to 12.6 per cent. In comparison, I paid about 33 per cent of my income in taxes when I lived in New York.
The contention is that, given the difference in effective tax rates, what I get in return here is comparable to what I got in the US.
Education
The government, through the Higher Education Commission, provides funding for large public universities. I am currently enrolled in the University of Karachi’s law programme at the SM Law College, a public institution. My total annual tuition is Rs23,000. The total cost of my legal education would come to just under Rs90,000 for all three years. This figure includes tuition, miscellaneous fees and course books.
This is an affordable number for me and is made possible by the heavy subsidisation of higher education by the government – an act that helps thousands of families enter and sustain themselves as part of the middle class.
But a number that seems reasonable to me may not be affordable for all students. The government has a solution for that too. After the 2002 budget, the government now offers interest-free student loans to qualifying students at public universities, making higher education even more affordable. The loans cover the full cost of tuition, boarding and books.
If I were an American citizen, the US government would have subsidised my higher education at public universities, similar to what the government does here. However, its student loans would not cover my full cost of tuition and would carry an interest rate of about 6.8 per cent.
While many would argue that education from a Pakistani public university carries little value, I would like to point out the following fact. My law degree from SM Law College allows me to take the New York State Bar exam without attending any American law school. I will have paid less than $1,100 for my entire law degree, while a friend who attends Boston University Law School will have paid over $180,000 – financed mostly through debt. His degree gives him a much better chance of getting a decent legal job in New York than mine, but he also has a lot to lose if he fails.
Healthcare
Admittedly, the government’s healthcare facilities in most of urban Pakistan seem far better designed to handle emergencies than primary care. The public primary care facilities do not function very well, if at all.
Nonetheless, there are three government-run hospitals in Karachi that offer highly subsidised healthcare, sometimes even free of charge, to all citizens. That is three more than in any major city in the United States.
Infrastructure
Any resident of most large cities in the country would have to agree that the roads seem to have gotten a lot better over the last decade. In Karachi, more than many other cities, driving is far less of a pain than it was 10 years ago. The intra-city highway network in Punjab has improved remarkably and has led to rapid urbanisation and the development of suburbs and exurbs of major cities.
This improvement in infrastructure was not free: our taxes paid for it. While the infrastructure in many other countries is better – and Pakistan’s infrastructure is far from good – I am at least appreciative of the fact that there has been an improvement. But that is not all. The government does far more for businesses.
One of my consulting clients is setting up a cattle farm in Sindh. The provincial government provides highly subsidised veterinary care for the animals, lowering costs and improving profitability of the business.
And both, the federal government and provincial government of Punjab are actively lobbying for export market access for Pakistani meat, succeeding in the case of Malaysia. None of our clients paid a single rupee in bribes to get any of these favours.
You get what you pay for
While the government as a whole is undoubtedly corrupt, and interacting with state agencies is almost always unnerving, it is simply untrue to say that it does not provide anything in return for the taxes it collects.
The government can and should do more for the average citizen. And corruption must go down dramatically before we can have faith in the government but there are still good people in government. And some of them are even doing a good job.
The social contract between citizens and the state, where we pay for taxes in exchange for the provision of services, is currently dysfunctional. Somebody needs to take the first step to fix it. Why not us?
The writer is a financial and management consultant based in Karachi and can be contacted at farooq.tirmizi@tribune.com.pk
Published in The Express Tribune, November 29th, 2010.
While I cannot speak for any other person, I would like to enumerate the ways in which the government of Pakistan, directly or indirectly, benefits me.
As a salaried individual based in Karachi, I am part of the most heavily taxed class of the country. We pay both income taxes on our salaries as well as sales tax on most things we buy. Yet, it is my contention that even we, the most heavily taxed people in the country, are not over-taxed.
A few numbers will help illustrate this assertion.
I pay a grand total of 7.5 per cent of my monthly salary in income tax. By my calculations, I spend about 30 per cent of my income on items that are subject to sales taxes. At the current rate of 17 per cent, that takes away another 5.1 per cent of my income, bringing the total tax bill to 12.6 per cent. In comparison, I paid about 33 per cent of my income in taxes when I lived in New York.
The contention is that, given the difference in effective tax rates, what I get in return here is comparable to what I got in the US.
Education
The government, through the Higher Education Commission, provides funding for large public universities. I am currently enrolled in the University of Karachi’s law programme at the SM Law College, a public institution. My total annual tuition is Rs23,000. The total cost of my legal education would come to just under Rs90,000 for all three years. This figure includes tuition, miscellaneous fees and course books.
This is an affordable number for me and is made possible by the heavy subsidisation of higher education by the government – an act that helps thousands of families enter and sustain themselves as part of the middle class.
But a number that seems reasonable to me may not be affordable for all students. The government has a solution for that too. After the 2002 budget, the government now offers interest-free student loans to qualifying students at public universities, making higher education even more affordable. The loans cover the full cost of tuition, boarding and books.
If I were an American citizen, the US government would have subsidised my higher education at public universities, similar to what the government does here. However, its student loans would not cover my full cost of tuition and would carry an interest rate of about 6.8 per cent.
While many would argue that education from a Pakistani public university carries little value, I would like to point out the following fact. My law degree from SM Law College allows me to take the New York State Bar exam without attending any American law school. I will have paid less than $1,100 for my entire law degree, while a friend who attends Boston University Law School will have paid over $180,000 – financed mostly through debt. His degree gives him a much better chance of getting a decent legal job in New York than mine, but he also has a lot to lose if he fails.
Healthcare
Admittedly, the government’s healthcare facilities in most of urban Pakistan seem far better designed to handle emergencies than primary care. The public primary care facilities do not function very well, if at all.
Nonetheless, there are three government-run hospitals in Karachi that offer highly subsidised healthcare, sometimes even free of charge, to all citizens. That is three more than in any major city in the United States.
Infrastructure
Any resident of most large cities in the country would have to agree that the roads seem to have gotten a lot better over the last decade. In Karachi, more than many other cities, driving is far less of a pain than it was 10 years ago. The intra-city highway network in Punjab has improved remarkably and has led to rapid urbanisation and the development of suburbs and exurbs of major cities.
This improvement in infrastructure was not free: our taxes paid for it. While the infrastructure in many other countries is better – and Pakistan’s infrastructure is far from good – I am at least appreciative of the fact that there has been an improvement. But that is not all. The government does far more for businesses.
One of my consulting clients is setting up a cattle farm in Sindh. The provincial government provides highly subsidised veterinary care for the animals, lowering costs and improving profitability of the business.
And both, the federal government and provincial government of Punjab are actively lobbying for export market access for Pakistani meat, succeeding in the case of Malaysia. None of our clients paid a single rupee in bribes to get any of these favours.
You get what you pay for
While the government as a whole is undoubtedly corrupt, and interacting with state agencies is almost always unnerving, it is simply untrue to say that it does not provide anything in return for the taxes it collects.
The government can and should do more for the average citizen. And corruption must go down dramatically before we can have faith in the government but there are still good people in government. And some of them are even doing a good job.
The social contract between citizens and the state, where we pay for taxes in exchange for the provision of services, is currently dysfunctional. Somebody needs to take the first step to fix it. Why not us?
The writer is a financial and management consultant based in Karachi and can be contacted at farooq.tirmizi@tribune.com.pk
Published in The Express Tribune, November 29th, 2010.