When are we going to stop making individual specific laws that only benefit those who do not deserve any benefits at all? Here is one more example.
Benefiting the rich
Thursday, May 15, 2008
Huzaima Bukhari & Dr Ikramul Haq
Wealth Tax Act, 1963, was abolished on specific demand of ex-Prime Minister-cum-Finance Minister Shaukat Aziz, as a precondition for taking charge of our finances. He being an “intelligent” man was fully aware of the fact that after becoming “resident” in Pakistan, his total world assets would attract provisions of that law culminating into substantial tax liability on annual basis as basis of determining “net wealth” was market price of assets and not their cost at the time of acquisition. After 9/11, since the country was made “USA satellite state” (courtesy Bush-Musharraf axis), “services of a proxy,” as was the worldwide practice of USA, were imposed on us for economic subjugation.
The “proxy” for self-interest demanded the repeal of a tax despite its progressive nature, which was introduced in 1963 as it was difficult to tax income in an undocumented economy. Though yielding less revenue as compared to other levies (which was not due to its potential but unnecessary exemptions given to the rich), its importance lay in taxing the rich. It was the only personal tax on the wealth of big landlords (who otherwise are exempt from income tax). It was the best tool for documenting the wealth of the nation and its distribution patterns to ensure social justice by redistribution of income in the favour of the poor. Abolition of this tax and many others (capital gains, estate duty, gift tax, etc., all during the military dictators, Ayub, Yahya, Zia, and Musharraf, not only caused tremendous revenue losses to the nation but also inflicted misery on the majority of the people of Pakistan.
Today, our financial wizards are talking about financial impediments, inter alia fiscal deficit of over 9 percent of GDP and extra borrowing of over Rs5 billion, mercilessly wasted on the endless non-developmental expenditure, lavish perquisites of the ruling elite, and to make good this loss, the only option in their view is raising the prices of oil (knowing very well that such raise triggers rise in cost of living).
In 2002 before its abolition, wealth tax was the only progressive tax left in Pakistan with tremendous potential for growth, if exemptions given to the rich, especially absentee landlords were scrapped. This became obvious immediately after its repeal when billions of rupees (estimated at $60 billion) started pouring in from all over the world remitted by all and sundry without any fear of being investigated, courtesy amnesty given in Section 111(4) of the Income Tax Ordinance, 2001. Influx of enormous wealth was directed to the stock exchanges where the dominant stakeholders continued to gobble the small investors through unholy manoeuvrings. This dreadfully stripped the entire nation of its right to live in peace and economic prosperity.
This also increased investments in non-productive sectors, with people refusing to take risks on industrial projects that could have proved more beneficial to the masses. The last five years have negatively flung Pakistan’s economic condition not just ten years back, but many decades. With marked rise in population, with no attempt to increase resources or even improve the existing ones, with the divide between the rich and poor touching dangerous levels, with continuous political turmoil and to top it all, reliance on an extremely regressive tax system, one can confidently say that our country is now on the threshold of economic collapse unless serious measures are not adopted to veer it off this perilous track. In these circumstances, political will has to be shown by the elected government to recoup billions of worth of taxes from the rich instead of increasing oil prices (where per litre tax component is over Rs25).
Over the last many years, tax policies have been formulated serving the interest of billionaires that include amongst other politicians, generals, high-raking civil bureaucrats, industrialists and rich property owners at the expense of the poor. It is evident from the following:
a) In the last two years alone, revenue loss on account of reduced rate of taxation (5 percent) on income from property and non-taxation of wealth tax on rented out premises is estimated at Rs80 billion as per survey done by the Excise and Taxation Department of the Government of Punjab. Increased dependence on presumptive taxation has deprived the exchequer of tax worth of Rs550 billions from the manufacturing sectors from 1992 to 2006.
b) From 2003 to date, according to a conservative estimate, we have lost Rs 50 to 70 billions worth of wealth tax that could have been imposed on unaccounted/untaxed wealth amassed by those already enjoying the privileges of a luxurious life. FBR’s estimate that it was a worthless tax is wrong.
The FBR stalwarts forget that wealth tax may be an outdated levy in civilised countries of the world (after achieving the supreme goal of creating an egalitarian society) but was specifically introduced in the subcontinent because of the tendency of Third World nations to invest in unproductive areas as gold, real estate, bank balances or even cash tucked away in hidden vaults. It was meant to discourage hoarding of precious wealth and directing it towards constructive sectors and economic growth, for which innumerable incentives were provided in the Act. What to talk of ordinary people, many of our own political elite have been found to be owners of unfathomable wealth, safe in Swiss banks and foreign countries. If they claim to be true representatives of the people, they owe it to this country to bring back all this wealth and if they do not surrender it to the nation, at least they should be prepared to pay tax.
Besides, it is a fallacy that tax authorities can investigate into unexplained investment, expenses, etc. Section 111(4) of the Income Tax Ordinance has rendered them helpless as it allows the taxpayers to whiten illegally earned income through an extremely simple and easily available procedure by going to a money exchanger and getting fictitious foreign remittance in his account after paying a nominal premium of 1 to 2 percent of the entire proceeds! It is irrelevant to delve into such details at this juncture but suffice to say that Section 111 is no remedy vis-à-vis taxing enormous wealth generated from untaxed and/or ill-gotten income/wealth.
The nation desperately seeks explanation from all those in power: Why the privileged are continuously being favoured and poised against their own poorer brethren? Why is it that ordinary taxpayers having income of more than Rs500,000 are required to submit annual wealth statements whereas rich and mighty politicians, who have exempt agricultural incomes have not yet made public their declarations of assts? Why do they hesitate from paying wealth tax but charge Rs25 per litre tax on petroleum products knowing very well that they are massively consumed?
Why not restore earlier subsidy on petroleum products and make good the loss by levy of wealth tax? Why not curtail unnecessary and extravagant expenses on the establishment starting from the President house, to fill up the void? Why not reduce the number of ministers/advisers instead of following policy of appeasement and doling out public offices as if this nation was not burdened enough by worthless and incompetent bureaucrats?
Despite the bleak scenario, there is always a ray of hope that wisdom will prevail and someone whose heart is fraught with patriotism in the true sense of this word will rid this nation of the neo-colonial subjugation to those who are constantly dictating their terms to a leadership.
The writers are visiting professors at LUMS. Emails: [email protected] and ikram@huzaimaikram. com
