Not by fire-fight­ing alone

Enterprise - - Editor’s desk -

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

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