Taxing problems

Instead of widening tax base and getting more people to pay direct tax, we always try protecting the rich and powerful

In the first month of the new fiscal year, our samdhi finance minister levied new taxes using administrative measures in a bid to shore up revenue collection, after tax collectors fell short of their July target. The target set was Rs157 billion and revenue collected was Rs143 billion. The samdhi had earlier promised that no such measures would be used, but as is usual in such circumstances, a loophole was set aside for this purpose.

This is not surprising, given the manner in which our tax collection machinery operates. Instead of widening the tax base and getting more people to pay direct tax, we are always trying to protect the rich and powerful with the result that we rely heavily on indirect taxes.

This is indeed a double whammy for the poor salaried class, whether in the public or private sector, whose tax is deducted at source and is then also subject to a wave of indirect taxes that the government sees fit to raise time and again.

For example, after the July shortfall, the government will be imposing a 36.5% sales tax on electricity generated by diesel-fired power plants and an increase in sales tax on almost all petroleum products. This in turn will result in a higher power and electricity tariff, which in turn will directly impact all of us. There is no relief for someone who already pays direct taxes. But then this is a powerless and silent majority that continues to suffer.

In the budget, the government imposed Rs238 billion in new taxes and set an ambitious target of Rs3,104 billion for the fiscal year ending June 30, 2016. Given the state of the economy, these are unrealistic figures. Not because of the expectations of the international financial institutions, but because of the reluctance of the government to clean up its tax collection system.

Let us put this in some perspective. Till now one is talking big numbers and problems that one cannot fully comprehend. Now let me give you some examples. Some of these examples are now provincial subjects, but the tax collection machinery operates like this – whether at the local, the provincial or the national federal level.

For the past two weeks I have been trying to pay my motor vehicle tax (MVT). This is collected by branches of the National Bank of Pakistan but almost all these branches say that their link is “down” and they cannot receive payments. The reason why this is so is because after a couple of months pass, the same officials will take payments but with a penalty.

That “penalty” will be divided into two – half will go to the exchequer and the other half will go into the pocket of the person collecting the tax. A lesser penalty is imposed if I pay a bribe. Look at the irony of this: to pay tax in Pakistan, I have to bribe someone.

It is another matter altogether, where my tax money goes. The MVT is not used for roads in Karachi. Instead, I think most of the money goes into buying motor vehicles for government ministers and their lackeys. Take for example the wedding our PM arranged for his family member in the Holy Land. Guests were transported and looked after at public expense.

In my foolishness I decided to go to the main MVT office to pay my dues within due date. The clerk there penalised me for being over-smart. He levied a withholding tax at a far higher rate than the MVT itself – a totally illegal act but one that will make me think twice for not paying the “penalties” in future.

Cleaning up our tax system is something that should have been done long ago. The Excise & Taxation department is not alone. Whether it is federal tax, land revenue, property tax, octroi – anything, where there is a babu sitting on the other end with a pen and an official challan book. Forget about good governance if you cannot clean this area up.

The problem is that our politicians themselves benefit from this system. One calculation, I made recently, made me realise that I pay more direct tax than Prime Minister Nawaz Sharif and former president Asif Zardari combined. In fact, you can also add in some of their more illustrious family members. Where is the justice in this?

Published in The Express Tribune, August 3^rd,  2015.

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