Taxes, inflation and public welfare

The Federal Board of Revenue (FBR) has achieved a milestone of collecting Rs3.965 trillion for the first time in the first seven months of the current fiscal year, for which its top management, the entire team at the headquarters and officers/staff in the field deserve kudos.

This is extraordinary performance, especially during extremely capricious economic circumstances. However, the real credit goes to taxpayers as 95 per cent of the taxes are collected at import stage, through withholding provisions (nearly 50 in income tax and sales tax on goods), advance tax and taxes with returns. However, majority of affluent citizens have not been filing returns of income tax/sales tax.

There is consensus over this year’s GDP growth being less than 2.5 per cent. Stagflation has reached alarming levels. We have hyperinflation affecting daily food items, and rising unemployment. The continuous erosion of purchasing power is creating huge financial difficulties for the poor and fixed-income earners.

The Pakistan Bureau of Statistics’ (PBS) press release for January 2023 shows a 48-year high inflation that has sky-rocketed to 32.3 per cent in rural areas and 24.4 per cent in the cities. Food inflation for the first time reached 45.2 per cent in rural areas and 39 per cent in cities. With thousands of containers of food items, raw material etc. stuck at ports for want of dollars, the prices of daily use items are out of reach of the common people at a time when the economy is at its lowest ebb, with poverty and unemployment levels touching new heights.

The worst sufferers are those living in rural areas, where income levels are extremely low. The most worrisome aspect is the fast-deteriorating food security situation. Pakistan was once a food surplus country and a major producer of wheat, but now even its availability has become a big issue. Majority of the population, especially young women and children have been badly affected by malnutrition – hardly 10 per cent are getting minimally accepted diet.

The incumbent prime minister and his mega-large cabinet have yet not considered the issue of high food inflation and food insecurity as a formidable challenge with serious future ramifications. The PDM government in the Centre, and its allies in Sindh and caretaker governments in two provinces have failed to take any meaningful steps to bring the prices of essential food items down. The growers and end users are suffering but the middlemen and those having money power (cartels, monopolies and mafias) are benefitting from the situation. The PDM’s tall claims of taking them to task have proved to be just lip-service.

Institutions such as the Competition Commission of Pakistan (CCP) and Federal Investigation Agency (FIA) initiated many inquiries in the past against the culprits, and even filed many cases. But they failed to prosecute the “all-powerful mafias and cartels”. The CCP once issued show cause notices to 19 poultry feed companies for cartelisation and a collective increase in feed prices, but it resulted in an increase in the prices of chicken and eggs.

It is highly lamentable that people with money are exploiting the financially vulnerable classes by their criminal activities of hoarding essential commodities such as wheat, oil, ghee and sugar, to name a few.

It is time all political parties, despite perpetual antagonism, must engage and unite in exposing such criminals in their parties – they are playing with the country’s future, and will be given tickets to contest all coming elections. There must be a “one-point charter” that whosoever is in power will, above all, prioritize eliminating money power, and focus on the welfare of the masses through equitable, higher and sustainable growth, to provide employment to the huge youth bulge for which 2.5 million jobs are required every year. They are the future of this country. Let us all join hands to save it.

In all the coming budgets – federal and provincial – the main emphasis should be on achieving higher growth and inclusive development benefitting all. This goal cannot be met under the existing oppressive tax system. Direct tax collection at the federal level is less than four per cent of the GDP, proving beyond any doubt that the poor and the less-privileged segments are subjected to tyrannical taxation while the rich are contributing negligibly. What makes the situation more painful is the fact that taxes collected are used less for public welfare and more to finance luxuries and benefits of elites – military-judicial-civil complex, businessmen-turned-politicians and absentee landowners in power.

The elites enjoy tax-free perquisites, benefits, palatial residences, free utilities, an army of servants etc., and also get expensive plots at prime locations either for free or at concessional rates. The way our governments – military and civilian alike – have been wasting and plundering taxpayers’ money is no secret. Since independence, no serious effort has been made to undertake institutional reforms to democratise the state apparatus that has miserably failed to deliver. This is the main cause of our economic subjugation by the International Monetary Fund (IMF) and others. We asked for it!

We have failed to achieve political stabilisation and sustainable economic growth due to perpetual failure of the ruling elite. The twin menace of burgeoning debt and monstrous fiscal deficit testify to our consistent fiscal mismanagement. The country is surviving on bailouts from the IMF, courtesy constant failure to tax the rich and not slashing enormous expenditures, now about 25 per cent of the GDP. All governments have sacrificed revenues worth trillions since 1977, extending unprecedented tax amnesties, money-whitening schemes, exemptions/concessions to the privileged.

Today, there is a dire need to tap the real tax potential and make the country a self-reliant economy, and putting a stop to wasteful, unproductive expenses, cutting the size of the cabinet and government machinery, restructure or privatise loss-bearing government-owned corporations, accelerate industrialisation and increase productivity, improve agricultural sector, reduce inequalities through a policy of redistribution of income and wealth.

It is high time that professionals and the civil society campaigned against oppressive, anti-people tax policies and relentlessly raise their voice for establishing an egalitarian state.

We can make Pakistan a self-reliant, prosperous country through fiscal decentralisation and grassroots spending at the local government level. Solutions are available but what we need is to force our political parties to implement these when in power. This should be the demand of every voter faithful to any party.

The implementation of Article 140-A of the constitution is indispensable. Political, administrative and fiscal decentralisation is the key to democratisation of institutions. This is our most neglected area. We need to establish effective local governments to provide services concerning housing, solid waste management, maintenance of roads, streets, water supply and sewerage, land-use planning and all matters related to peoples’ leisure and recreation.

Municipalities working on the principle of self-governance alone can ensure that revenues are spent exclusively for the benefit of the public and not the powerful segments of society alone. The new elected parliament should unanimously pass the Taxpayers’ Bill of Rights assuring that money collected from citizens would be spent prudently on public welfare and not for the benefit of the elites alone.

The writer, Advocate Supreme Court, is Adjunct Faculty at LUMS and member Advisory Board of PIDE