Naeem Afzal
The world economists are of the view that tax policy is a complete philosophy or a system of policy. It’s neither just a donor’s advice nor any executive discretion. It’s a complete system, encompassing equitable, flexible, and pre-defined rules.
First of all, a good tax policy is not predatory. Its role is not just finding places to tax or take them into the so-called tax net. It underlines a proper mechanism based on a fundamental question:
1) Why more taxes?
2) How to tax?
3) Is the tax policy fair?
4) Are these taxes justified?
If a tax policy does not contain this set of elements, then it’s not a good tax policy. If it merely seeks people, corporations, and companies to pay more tax, then it’s a worse tax policy.
Pakistan’s tax policy lies in the latter category. First, it’s totally unpredictable: one morning a donor will visit Islamabad, then in the afternoon, tax policy will be changed. Second, it has a sole objective: expanding the tax net, while ignoring the other crucial elements, such as “Is the tax policy fair?” and “Are these taxes justified?”
Let me make it clear: donors and ministers deceive you by saying that Pakistan has the lowest tax-to-GDP ratio in the world. Its agriculture and retail sectors pay a minuscule amount of money to the national exchequer.
But they don’t show the picture of the expenditure side. Where do they spend the money collected from us? What they don’t tell you is that Our Federal Government is the most expensive government to run in the world. Its huge size exists not to serve common citizens but to sustain the career paths of the colonial bureaucracy. Why don’t they tell you that they spend billions on divisions and ministries that have been devolved to provinces after the 18th amendment? It loses more in SOEs losses than it spends on defense and PSDP combined. In short, the sixty-five percent footprint of government in economic activity is totally unjustifiable.
For instance, bureaucrats keep moaning about the low tax contribution from the agriculture sector. It’s 23% of the gross domestic product but pays only two billion rupees in the tax. They are right in their claim. Donors also say that in meetings. But my question is, how can they tax agriculture when the government keeps interfering and fixing the prices of wheat and rice? Why should farmers pay taxes for buying cars for bureaucrats when they use the expensive power, fertilizer, and pesticides in the regions? First, develop the agricultural markets. Let the farmers do businesses freely. Then tax them fairly on the value addition.
Suggestions:
First, Pakistan must have an autonomous Tax Policy Office; policy and collection should be separated. FBR must handle only execution of tax policy.
Second, each new tax must justify itself. It must answer the question: Why tax more if the government can reduce the expenditures?
Third, a tax should be protected from the fluctuation of the political fabric. So, businesses may develop their long-term investment plans.
