Covering for the corrupt and the incompetent

Dar pushed these sweeping changes in taxation of energy sector without presenting them to parliament

It is very hard to find anything praiseworthy in Finance Minister Ishaq Dar’s decision to impose additional taxes on the energy sector. It is the wrong policy, done for the wrong reasons, and has the added disadvantage of being undertaken in a potentially unconstitutional manner. Let us start with the details of the new taxes themselves. Firstly, there is the hike in the sales tax on electricity generated by diesel-fired thermal power plants, a policy that has little merit since whatever money the government would collect in additional revenue, it will have to pay out in additional subsidies on electricity. Diesel is the single most expensive way to generate electricity and, along with furnace oil, is the reason the government has subsidy expenses in the first place. Making something more expensive only to have to subsidise it even further is effectively an accounting trick: no new money will actually come into the government’s coffers, but the government may be able to claim to the IMF that it met the organisation’s tax collection targets.

Then there is the hike of sales taxes on fuel. Unto itself, this is not necessarily an unjustifiable position for the government to take. Raising taxes while oil prices are falling is an efficient way to raise revenue while doing no real harm to the economy since the retail price of fuel will not actually go up as a result. However, the government’s priorities were revealed by the manner in which the tax increases were levied: the rates for all taxes went up, except those for High Octane Blended Component, the fuel used exclusively by the wealthiest for their luxury cars. This is not the first time Mr Dar has been more lenient on luxury car owners compared to other fuel users. By what logic did the finance minister increase the tax on kerosene, a fuel used by the very poorest of Pakistanis, but not on the fuel used by people who are so wealthy as to be able to afford to fuel up their gas-guzzling luxury vehicles with a more expensive fuel and not notice the bill? This decision reveals the government’s true priorities and the picture it portrays is not one the Nawaz Administration should be proud of.

Then, of course, there is the reason why these taxes are being imposed: to cover up for the corruption and gross incompetence of the Federal Board of Revenue (FBR). The FBR management appears to consist entirely of people devoid of any sense of mathematical logic or reasoning, which is ironic considering they are tasked with managing a good portion of the government’s numbers. FBR officials spend most of the year wallowing in their failure to crack down on tax evasion or even corruption within their own ranks and then in June of every year — when the finance ministry cracks the whip to meet its annual target in the last month — hastily collect advance taxes from large corporations to make it look as though the FBR has met its target, even though all it has done is destroy its ability to meet its target for next year. After all, if a company pays advance tax in June, that means it owes no taxes in July, which does not bode well for the start of the next fiscal year. The futility of deploying this scheme would be self-evident to anyone, but apparently not the ‘geniuses’ who run the FBR.

And as if all of this insanity were not enough, the minister had the gall to push through these sweeping changes in the taxation of the energy sector — which collectively accounts for a quarter of all taxes paid in Pakistan — without presenting them to parliament. Instead, the measures were pushed through an administrative order, and even there, the minister did not seek the consent of his cabinet colleagues.

In short, we find ourselves highly critical of the finance minister’s decision. Mr Dar should remember that he is a democratically-elected official, who ultimately owes accountability to the people.

Published in The Express Tribune, August 5^th, 2015.

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