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Flood of Taxes – Elite exempted

November 12, 2010

“Unless we are prepared to share bread with our grief- and disaster-stricken brethren, we should not expect others to help us,”President Zardari said in a meeting with his party members, in order to rally support for the one-time flood tax on the wealthy of this country. Little does he remember that the civil working society of Pakistan, has physically, emotionally and financially been helping the grief stricken since he was on his trip to France and UK. Only if the President was in Pakistan and had displayed sincerity with his people then, rather than challenging the news reports about his negligence, the world would have donated and provided generously to Pakistan. But the party and the Government was too busy defending their leader from “propaganda” unleashed by the local and International media against their lack of attention to the crises.

People have not understood why the tax is imposed only in Sindh and why not all over Pakistan? When all four provinces were affected by the floods. Perhaps, the ruling party’s power base is in Sindh and in order to implement this tax nationwide they proposed to start from the province. Based on the political feedback, pressure of injustice, it will give a valid reason to implement it throughout the country at a later stage. Isn’t this tax on the residents of Sindh discriminatory?

As the devastation from the floods had begun, it would have been the right chance for the Government to file for waivers of previous loans, of which the country pays around US$ 2 billion in interest only. Rather our state has acquired more loans from the IMF, ADB and the WB to add to the burden. Donations from around the world still remain lower than the annual interest of the previous loans that exceed US$ 55 billion. The world offered help in kind mostly, avoiding cash payments. Instead the NGOs and Humanitarian organizations are preferred by the donors who provide fair and transparent disbursement of the aid.

Government of Punjab has clearly denied the implementation of flood tax, as they are already collecting income tax on agricultural products in their province. The remaining three provinces are not able to expand the tax net on its agriculture sectors. The ruling party of Khyber Pakhtunkhuwa is with the Government in implementing the flood tax in Sindh, but we do not know what will their position be once the same is applied in their province.

Pakistan needs to concentrate on economic rehabilitation of the areas affected by the floods. Serious land reforms are required at this stage in order to accommodate the displaced, who have lost all their belongings. The agriculture sector in Pakistan makes up for the quarter of the country’s economy, and tax contribution from this sector is nil. Prices of products have tripled since the beginning of floods, which has allowed artificial shortage and stock hoardings, and there is hardly any check or accountability of the elite, landlords and the feudals. The poor continue to subsidize the rich, and the working class regularly contributes to the national economy by tax deductions at source.

5% of the total working class of Pakistan pays income tax, once it qualifies for the set earnings bracket. The remaining are too rich or working on minimum salary brackets. Until 2007, income tax was paid by almost 1.7 million professionals, but since last year the number fell down to less than 1.0 million. This additional burden of flood tax is bound to increase the income tax share by an additional 10% from the working class, who is already under the immense pressure of making ends meet, as inflation soars to above 30%.

Pakistan has tax-to-GDP ratio of around 9.6%, while many countries in the EU go up to 45%. The US stands around 30% and many other Asian states level at 15%, including India which is triple our size and population but maintains about 18%. Pakistan needs serious structural reforms within the tax-collection units. The policies need to be adjusted to expand the tax net without burdening or targeting only the working class in this economy, and letting the others go free and unaccountable. These are the fundamentals steps which need to be taken for reducing poverty which lies at 33% in Pakistan.

There are numerous other sectors and section where the Government can generate an additional Rs. 25 billion, such as reducing state expenditures and controlling the Rs. 300 billion annual loss by the public sector. However it appears that this Government will go ahead with the new “Flood Tax” on a national level, even then they will not be able to generate the amount as desired.

VAT is no more being implemented, because of the political outburst. However, the same when being applied as RGST, seems to be nobody’s concern, and there is no reaction from the political parties or the civil society. This percentage increase in to the existing Sales-Tax is expected to generate and additional revenue of Rs. 300 billion for the FBR, which will then help push up the Tax to GDP ratio to 12% in next 5 years.

During the 2005 earthquake, Pakistan received more than US$ 6 billion in cash and kind, and the whole nation was mobilized with physical and monetary contribution for its people. To fully recover from the floods, Pakistan needs double the amount, but unfortunately we have not been able to reach half of it.

I sadly wonder why?

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