Not by fire-fighting alone
There can be no two opinions about the fact that the government needs more revenues today than ever before. However, what it also needs is more solutions to bridge its revenue gap rather than resorting to presidential ordinances to collect additional tax. According to an ordinance promulgated by the President of Pakistan on March 15, 2011, a flood surcharge is required to be paid by every taxpayer at the rate of 15% of his or her payable income tax for the period from March 15 to June 30, 2011. It is obvious that the government must boost its revenues during the remaining period of the current fiscal through additional tax measures but it is somehow oblivious to the reality that this will add to the people’s miseries as well. This can be gauged from the fact that out of a total of some 1.7 million taxpayers in the country, 1.6 million pay about Rs. 21,000 each as income tax every year. All these people fall under the lowest tax bracket where their annual income tax is less than Rs. 500,000. If additional tax collection to meet its budgetary woes was the objective, then the government should have gone for a measure that would encompass more people and on a much wider scale.
Given that the 15% flood surcharge is a temporary fix, the government’s chronic monetary problems need a much bolder solution than it is willing to pursue. This brings into focus the key problem that in Pakistan far too many people escape the tax net through various ploys such as lobbying for exemptions or by avoiding documentation. A presidential ordinance is a sort of constitutional backdoor which offers a relatively small amount of money in this instance. The government should take the great leap and impose the much maligned reformed general sales tax (RGST) which would also provide the added advantage of levying the tax across the entire value chain instead of the burden being placed on the end user.
The government has announced fresh budget cuts of Rs.67 bn to make the new tax measures more ‘palatable’ to taxpayers. Development spending has been scaled down further, fresh recruitments have been banned and non-salary expenditure has been halved. It is clear that these measures are necessary to boost tax revenues to protect the economy from collapse, but they cannot be described as being equitable and fair. They will only serve to further burden the salaried class while no effort is visible in broadening the tax base and making the system equitable by removing exemptions given to the rich growers and to speculators in the property and stocks sectors. The steps the government has currently taken can best be described as fire-fighting measures but these can never prove adequate in actually stabilizing the economy. To the contrary, such gambits will only lead to a massive erosion in public support as the economy continues to fumble in the dark