By Zeeshan Shah
Pakistan needs good reforms as it battles nepotism and bad governance with the population constantly rising while per capita income is yet to improve. Even though tax creates revenue, the state needs to tackle procedures that help reduce in-direct tax on the masses, to help them sustain difficult economic times. In this situation, our salaried class has been repeatedly taxed over the years, creating pressure on the middle class, the backbone of our nation.
We need to undertake policy measures for the benefit of the consumer and the most burdened taxpayer, being the salaried class. Our buying power has drastically reduced while costs of living are higher than most other nations in Asia. To effectively improve our tax structure, our government needs to ensure job creation and income generation by improving access to jobs within the health and education, without compromising on merit and good governance.
A way out of the problem is to implement gradual tax increases over time, after keeping in mind the amount of burden already incurred by the general public. For example, the taxpayer does not have enough disposable income to pay new taxes, as their income is not sufficient for them to run their households, if additional taxes are imposed.
One of the best solutions today is to increase the minimum wage. Once again keeping the challenges in mind, an adequate minimum wage of between PKR 15,000 to PKR 18,000 should be adjusted to improve day to day lives of lower and middle-class segments of society. This will boost their savings for a rainy day and enable them to pay further taxes on commodities, water, and food supplies.
Increasing salaries of the affluent class, parliamentarians, and government officials serves little purpose to improve the economy at large. For businessmen, the costs of doing business are sharply due to lack of incentives given by the government and failure to explore the export potential of the country.
The way out for Pakistan is to increase ‘taxes in phases’ so that the burden of cost is spread over a time period of 6 to 12 months rather than instantly. This can only happen when there is affordable healthcare for families, reduced education costs for the youth and free vocational training during the period of economic slowdown.
In the last few years, a major brain drain has deprived the country as more and more people are migrating elsewhere to earn money and set up businesses, due to increased lawlessness and corruption inside Pakistan. This is killing the enthusiasm of the people who wish to remain in Pakistan and earn a decent living.
Raising taxes gradually restores confidence in the public which helps the government. As the economic crisis looms over most emerging economies in times of war, Pakistan can take advantage of the situation by improving ties with next-door neighbors to secure trade agreements in 2025.
Due to political and economic uncertainty in different countries today, there may be an increased number of remittances coming back home. In the meantime, the country needs to undertake faster reforms in order to tax various other segments, who are paying nothing compared to taxes being paid by the salaried class alone. According to reports, 22%-30% of all tax recoveries are from the salaried class of Pakistan and Pakistan is one of the top 10 recipients of overseas remittances in the last decade.
We must also analyze the amount of tax recovered from the agricultural class. How much is the actual consumption locally versus how much is being exported overseas by the country is something to explore immediately. In a stagnant political climate, every reform is crucial and needs to be implemented quickly to boost investor confidence in the country, as we battle uncertainty in the country.
Revival of our manufacturing sector is of extreme importance. Legal and consumer rights must be respected and not exploited. Accountability must be done and ‘vultures’ and ‘scavengers’ must be identified, named, and shamed using credible mainstream and social media to boost a culture of transparency across the board.
For example, if we review our monthly electricity bill today, we see loads in extra taxes being forced upon the people, leaving them frustrated and insecure. This is the problem where the governments have to play their part. We need more jobs, less inflation, higher education standards, an honest justice system, and positive tax collection practices.
If Pakistan needs to move towards being a debt-free nation, then everyone must pay taxes. Anyone who does not pay tax or does not have an NTN certificate must be able to face the laws of punishment as this white-collar crime the entire nation. Everyone needs to stop skimming cash off the books, whether it’s a judge, policeman, banker, doctor, armed forces official, or a government servant.
Where the world is making headlines in new technology and job creation, we face a dysfunctional mindset towards science and progress. Where others export their cars, we are busy importing vehicles we cannot afford. Where the world is taking care of their children, we are ignoring the basic rights of the child in providing them a safe and thriving nation to live in. While the world improves healthcare for all, we are failing to provide clear and safe drinking water for our consumers.
How can accountability flourish with such bad governance?
If we go through tax collection numbers, numbers, only 14% is recovered through direct taxes, while 86% is collected indirectly due to unethical tax collection policies of successive governments including the one today. Elitist policies to force poor people to cough up more and more revenue in taxes while they have little capacity to pay more tax is a serious criminal mindset. The Federal Bureau of revenue needs to be checked for compliance as well.
Out of 4 million people, approximately 500,000 people pay tax. While the elite contributes to less than 5% of tax revenue, they control over 65% of the wealth of the nation. This is not good governance. We need to put an end to the powerful lobbies and mafias that prohibit fair taxation. Tax evasion is a crime punishable by law and the same needs to be done by the state to equalize the burden of tax across all segments to save this nation.
If we look inward, there is a “moral decay” and a “greed for power” due to constant moral and ethical chaos. Extremism in terms of culture and policy both leads to global isolation and marginalizes society in the long run. We need leaders who are role models for our younger generation.
We must fight this negative culture of corruption so that it does not become a social norm. We must reject bribery and nepotism and pay our taxes honestly. To ensure accountability, any kind of cash payment to the government, third-party vendors, regulators, existing or potential customers – or acceptance of the same from them, must be subject to prosecution as per law.
Pakistan cannot truly dominate the world as a powerful economic entity if we do not take control of our tax mechanism and make it more lucid and transparent. Sooner or later, policymakers need to fix this as we are running out of choices to take loans from the IMF or the World Bank. Being self-reliant is the only way forward and having a broader and bigger tax net is something we must implement for the financial health of the nation.
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By Zeeshan Shah: The writer comments on international relations and public policy and is a healthcare professional and a broadcaster.
