Pakistan's taxing, federation, equality (split from A critical look at the economy)

[Sa1eem]

Re: A critical look at the Pak economy

@Aalsi

Very Good Read.

Brother, you are welcome. Actually it is not only a good read but very worrying read too. There are many worrying facts in that DAWN article, and I believe government have to ponder many points in that article so that it can be corrected:

http://www.dawn.com/2003/09/15/ebr1.htm

Point one: Pakistan is the only country using population as the sole basis for revenue sharing.

Question is not why, but Question is why double standard?:

The group studied seventeen countries. After a detailed review, the group reached the conclusion that Pakistan is the only country using population as the sole basis for revenue sharing. The most commonly used criteria besides population, of course, are: tax collection, fiscal efforts of the province/state, area, backwardness, development gap, inverse population density, equal share, income distance method, fiscal discipline.

When there was united Pakistan, where East Pakistan had 56 percent of population and West Pakistan had 44 percent, this population criteria was not there. At that time same principle was considered as anathema, something disliked, and thus resources were distributed on basis of parity: But when East Pakistan got separated and advantage of population started going to Punjab, this principle became the most desirous.

It shows bias attitude of federation in favour of Punjab at the cost of other provinces: It is called ‘head I win, tail you lose’. If population was most liked way of distributing resources, than why after 1971 and why not before?

Since 1974 NFC Award, population has been the sole criterion for revenue sharing among the Provinces in Pakistan. Before 1971, this principle was an anathema and parity was the rule. As soon as we rid ourselves of our ‘colony’, we went back to population basis. If a different basis is applied, Punjab would stand to lose.

Well, if parity between provinces was criteria before 1971, why not today? Why distribution of NFC award should not be equal for all 4 provinces? It is funny, but if it was good before 1971, why not today? Well, if population was not used for distribution before 1971 and population is not used for distribution of resources anywhere in the world, than why in Pakistan and that also after 1971, just to give Punjab undue advantage?

Point two: One of the most disturbing fact mentioned in that article is little tax contributed by people in Punjab. One have to think, why people in Punjab do not pay Taxes and do tax-chori?

It may come as a surprise to some, that Punjab, a much larger province in area, population and resources, and claiming the lion’s share in expenditure, both direct and indirect, contributed a meagre 17.7, 10.9, 18 and 10.8 per cent respectively. On an average basis, Punjab contributed 22.9 per cent against Sindh’s contribution of 67.5 per cent.

We should know that for every 2 person in Sindh, Punjab has 5 person, but Sindh contributes around 3 times more taxes than Punjab. That means there is 7.5 times more tax per head from Sindh than Punjab. It means that for every Rs 1.00 tax collected in Punjab per person, Sindh contributes Rs 7.50 in tax per person.

**This shows that people in Punjab are stealing taxes in big way and this is the reason that ‘Tax to GDP’ ratio in Pakistan is one of the lowest in the world. **

I can understand that people in NWFP and Balochistan are not paying much taxes, because those two provinces are under-developed. Nevertheless, Pakistan have to get rid of this Tax-choor culture from Punjab, so that Punjab also starts contributing fair share in taxes, if not Rupee to Rupee, still at least Rs 4 to Rs 5 per Rs 7.5 collected from Sindh per person.

**Point three: **Another worrying fact that shows up in the article is unfair distribution of collected resources (NFC award) without taking into account the source of resources.

Sindh has got a raw deal not unlike erstwhile East Pakistan. Its legitimate share in the divisible pool has been denied to it whether the government is military or ‘civilian’ Out of Rs189 billion it contributed in 1999-2000 it received only Rs30 billion. It is being subjected to substantial resource transfer to other provinces and the federation.

Well, as can be seen from above, if this situation would stay, than it is unavoidable that discontent and feelings against Pakistan would grow in Sindh. Thus, this has to stop. Rather, situation should be such that provinces collect all taxes in their province and than work out a system where they contribute to Federation, not other way round, where federation collects and distribute to province.

Point four: Further worrying fact mentioned in above article is:

Punjab contributes much less than it receives. It appears satisfied, more so, because bulk of the federal government expenditure mostly on the military and the civilian outfits, occurs in that province. Besides, it controls all the levers of power.

Above fact metioned in that article is worrying as it shows that people feel discontent because perception is that most of Pakistan federal expenditure happens on military and public servants where most people employed are either Punjabis or expenditure happening is in Punjab.

It is unfortunate that Pakistani culture of nepotism has created this division, but than due to the existence of this perception, government has to do something so that this perception changes for security of Pakistan. It means that people from all provinces in proportion to their population should be in military as well as government services and jobs in provinces should be from people within province, else this perception would keep creating discontent that could be harmful for the unity of the country.

Here there is misconception that a person from Punjab that took domicile of Sindh represent Sindh. We should realize that as things are in Pakistan, inter-provincial migration is not seen as migration by people. As the perception in Pakistan, migration is only for those who have no natural province or area of their own as nothing can be done about those that have no natural province (unless a new province is created).

It is unfortunate, but situation today in Pakistan is that a Butt or Chaudhari is considered as Punjabi regardless of the adopted province of that person. If a person is Talpur or Junejo and living in Punjab since last 100 years, he would be seen as Sindhi, because natural province of Jatoi, Junejo or Talpur is considered as Sindh.

For instance, Musharraf lived in Punjab most of his life, he walks and talks like Punjabi, his wife is from Okara, still he is considered as Muhajir from Karachi - Sindh (because his family initially settled in Karachi). In same way, ex-CJ Iftikhar Chaudhari was settled in Balochistan and took up job on Balochistan domicile, still since he has natural province ‘Punjab’, for most Pakistanis, he is Punjabi. Similarly many non-Punjabi families who migrated from India to Punjab and settled in Punjab are today considered as Punjabi, whereas those Punjabi who migrated and settled in Karachi, and have nothing to show any connection to Punjab (like name, link, or attitude) are considered as Muhajir.

I believe that best is to divide Pakistan into many Provinces so that this feeling reduces, else Pakistan would stay a fragile union and government will have to do something to reduce this feeling, else this could become harmful for future union of Pakistan.