Poor pay 80% while rich pay only 5% taxes in Pakistan
12 Jul, 2017
The poor pay 80% of total taxes collected in Pakistan while the rich contribute a miserable 5% because of special rights, privileges or concessions
The poorest of the poor pay 80% of taxes collected in Pakistan while the rich, whose total contribution to overall tax revenue does not exceed 5%, enjoy special rights or privileges and a concessionary regime under the country’s unethical tax structure.
The poor pay huge indirect taxes on utilities, petrol, and mobile communication which come to 80% of the country’s total tax revenue. The 36 million mobile-phone users, for example, paid US$4.6 billion in the 2015-16 year to the government’s kitty and a vast majority of them were not even in the taxable income bracket. The system does not differentiate between taxpayers’ higher or lower scales of earning and the same indirect taxes apply to both the haves and have-nots on utilities, goods and services.
The Federal Board of Revenue (FBR) – Pakistan’s premier tax collection machinery – has failed miserably to widen the tax net despite suggesting measures year after year to minimize the burden on existing taxpayers. The FBR’s lethargy and indifference has burdened the already hard-hit low-income groups. Unethical tax policies of successive governments have widened the gulf between the poor and the rich, as did the gap between direct and indirect taxes. Poor households are made to cough up more and more revenue for the exchequer despite having no or little capacity to pay.
Official figures put the spread between direct and indirect taxes at 40/60% while unofficial sources have claimed that direct taxes constitute 11.2% against indirect revenue of 88.8% of total tax receipts. The latter is far greater than regional economies; Bangladesh’s direct revenue collection is 46.3% and India gets 33.45% of its revenue via direct levies. The lower level of indirect taxes in India and Bangladesh invariably put more burden on the elite groups respectively. Tax revenue from the top 10% of the rich in Bangladesh, for example, accounts for 35% of the total national income.
A pre-budget seminar arranged by the Institute of Chartered Accountants of Pakistan in May this year was told that indirect taxes mostly hurt lower income groups, which represent 80% of the population, while the richest segments remain largely undocumented and hence untaxed.
Revenue board ‘does little to justify its existence’
Despite draining huge resources for administrative costs, the Revenue board did little to justify its existence. The performance of the FBR could be gauged from the fact that 80% of funds come via collecting agents while 15% withholding taxes are levied on salaried workers, which is deducted voluntarily and paid by employers.
The Tax Reforms Commission portrayed a grim picture of the board’s affairs. It says the FBR’s Regional Tax Offices collect a mere $68 million out of the total $31 billion in taxes collected, whereas the cost incurred by the FBR to maintain these offices is $78 million. In other words, the government would be in better shape without them, particularly when less than half a percent of the population pays taxes, which is a mere 500,000 people out of 4 million potential taxpayers.
“The elites contribute less than 5% to [tax] revenue at a time when they control over 44% of the wealth,” Obed Pasha, a lecturer in Public Policy at the University of Massachusetts Amherst, told the Asia Times. He said that the tax situation is different in every country. In the US, for instance, the rich pay taxes but the burden is on corporations and consumers. But in France and most European nations, he said the rich were made to pay the highest tax share – around 60% for people earning over a certain level of income. “What we have is a completely broken system [in Pakistan], where the entire burden is on the poor and large businesses do not pay taxes at all,” he said.
Compared to the ratio of tax paid by the wealthy in developed economies, Pakistan’s tax collection focus is squarely on its unprivileged classes.
In the UK, the top 10% of taxpayers – earning over £51,400 per annum – pay 59% of total income tax, which is nearly twice as much as they paid in the 1970s. Collectively, the tax liability of the elite in the UK has jumped from 35% in 1976.
Keeping the global trend and philosophy of taxation in mind, there is a need for Pakistan to reduce the burden of indirect taxes on its poorest citizens. A just and egalitarian tax system that is honest and efficient is the only panacea to the country’s taxation woes. The elite, including Pakistan’s powerful agriculture lobby, should be made to pay taxes.
Source: Asia Times