CLUBBING THE UNTAXED INCOME
GOVERNMENT SHOULD TAX THOSE WHO HAVE ENJOYED EXEMPTION FOR DECADES.
SHABBIR H. KAZMI
June 6 - 12, 2011
Despite the best efforts, as stated by the economic managers of Pakistan, the country is likely to face a whopping budget deficit of up to one trillion rupees. This makes many jittery but the rulers are not willing to cut down their extravaganza and the feudal lords enjoying majority are not ready to listen to any proposal to tax their income.
While more tax may be imposed or existing rates increased, the capacity of existing taxpayers has exhausted. On one hand, many of the people are losing jobs or face reduction in salaries and perks and on the other hand purchasing power is on the decline affecting sales of virtually every item from foods to consumer durables. However, rich are getting richer evident from sale of luxury cars and construction of condominiums (high-end houses) in Lahore, Faisalabad, Multan and Karachi.
Budget is nothing but an exercise to try to meet the expenses through revenue collection and meeting the shortfall by borrowing from the central bank and/or commercial banks.
While the government lures the banks to investment in government papers by offering higher return, private sector is deprived of its legitimate share. Since the political and economic conditions are not conducive for undertaking fresh investment, the existing plants just can't be run due to prolonged outages of electricity and gas. Lower production leads to lower collection of duties and taxes and high cost of doing business increased the probability of going delinquent.
It is no secret that bulk of annual expenditure go towards three heads: 1) debt servicing, 2) defense and 3) taking care of luxurious life style of the elected representatives. Since this government has come into power, it has been on the borrowing spree with the result that at times it has to compromise on the national integrity and country's sovereignty. Disbursement of last tranche of standby arrangement was withheld only because the economic managers failed in containing the budget deficit to the level agreed with the International Monetary Fund (IMF). The situation became very nasty as its coalition partners refused to approve imposition of new taxes. The coalition repeatedly came at the verge of breakup on the question of increasing prices of POL products and electricity and gas tariffs.
Pakistan's defense expenditures have gone up because now it has to secure borders from all the sides. Insurgents are coming from India and Afghanistan and have also created safe havens in Balochistan for undertaking terrorist activities in Iran.
The chief of the group operating from Balochistan has been executed in Iran after his chartered jetliner flying over Iran was forced to land. The latest attack on Merhan Naval base is also the part of the attempt to weaken Pakistan from undertaking surveillance of its 1200 kilometer long coastal line. Added to this is the ongoing military operation in North and South Waziristan. Therefore, to maintain minimum level of deterrence Pakistan has to spend a huge amount on purchase of military hardware. The two planes destroyed at Mehran base cost US$72 million to the country. In order to regain the lost level new planes will have to be purchased.
The present ruling regime is often accused for lavish spending, nepotism and gross violation of good governance. However, at no stage the 'friendly opposition' has put its foot down. PML-N seems too busy in saving its government in the largest province, which is also often accused of being a safe sanctuary for Pakistani Taliban. These elements have been involved in attacking sensitive installations and killing innocent people, the attack on Data Darbar is the most naked example of terrorism against the masses.
The rulers have also failed in resolving the menace of inter corporate debt plaguing the entire energy sector. They have been talking about recovery of full cost from the consumers who pay their bills, but have failed to do any thing to contain T&D losses hovering around 40 per cent mainly made of electricity thefts. Experts say one percent is equal to almost on billion rupees. If the cash flow of distribution companies based on present tariff is ensured, these entities will have surplus liquidity, despite mismanagement and corruption.
If the rulers are serious in containing budget deficit they will have to improve the tax collection regime, which eats up Rs300 billion and also get rid of loss making enterprises also eating up Rs300 billion and the remaining Rs400 billion can be collected from feudal lords by taxing agriculture income. The government must follow the cardinal principal that all sorts of income should be taxed, irrespective of the source.
The feudal lords enjoying majority in the legislative say that taxing income from agriculture will hurt the small farmers. It is the biggest fallacy because tax is directly linked with the income. On top of this, there is also a defined threshold level, which keeps the lower income groups immune from paying the tax. Governor State Bank of Pakistan, Shahid Kardar said there is a visible shift in clubbing all sorts of income from agriculture.
Many of the groups have enjoyed exemption from paying tax. Now the time has come to make them pay tax on their income. It is true that recovery in the initial days will be low because of the difficulties in recovering the dues. Therefore, first the land record has to be updated, sale and purchase of major crops and income from orchids has to be documented. Once the system is put in place then identifying the evaders and those not making proper disclosure would be much easy. Let this government take the credit of imposing tax on income from agriculture. The party in its initial manifesto promised three things, Roti, Kapra and Makan. Distributing charity creates beggars. Give every one a chance to earn without compromising his/her self-esteem.