Pakistan's elite dodge tax
burden By Syed Fazl-e-Haider
KARACHI - The people who run the
government and make revenue policies in Pakistan
are involved in massive tax evasion. Over 60% of
the country's cabinet and two thirds of its
federal lawmakers paid no tax last year, according
to a report released by an investigative Pakistani
journalist, Umar Cheema.
The report,
prepared on the basis of information from the
Federal Board of Revenue (FBR), reveals that
President Asif Ali Zardari and 34 of the 55
cabinet members did not file a tax return in 2011,
while Prime Minister Raja Pervez Ashraf and
Foreign Minister Hina Rabbani Khar paid just
142,536 rupees (US$1,466) and 69,619 rupees as
income tax.
The report came out after the
country's new tax chief, Ali Arshad
Hakeem, declared a war on
tax evaders and offenders, offering an amnesty for
those who choose to accept a small tax burden and
warning those unwilling to sign up for the amnesty
that their assets would be frozen and they would
be banned from travel, while their names would be
released to the media.
Cheema's account,
entitled "Representation without Taxation", said
that among all the lawmakers in the federal
parliament, 67% did not file tax returns last
year, while78 members of parliament are l not
registered with a national taxation number.
"The problem starts at the top. Those who
make revenue policies, run the government, and
collect taxes have not been able to set good
examples for others," AFP quoted the report as
saying.
Hakeem, who assumed office as FBR
chairman in July, has declared his intention to
force the country's privileged class to pay taxes
and has vowed to resign if he fails to catch tax
cheats.
"We'll eventually get each one of
them. We must give people a chance to come and pay
their taxes," Reuters reported Hakeem as saying.
"We will name and shame ... It's like a war,
displaying the profiles of offenders with their
faces and names obscured. Foreign accounts,
vehicles, trips and properties are listed ... If
this fails, I have to go."
Last year, the
FBR identified 700,000 rich people who were
enjoying a luxurious life but not paying tax.
About 55,000 out of total identified wealthy
people had been issued notices to pay taxes as
they had cars, big houses and were enjoying
foreign tours.
Besides having dire
consequences for a sagging economy, the widespread
tax evasion sends a negative signal to
international donors who have already indicated
that their taxpayers are no more able to take the
burden of Pakistan's citizens continuously
avoiding tax payments and leaving their government
to depend on aid and grants from donor countries.
Agriculture, which accounts for more than
21% of gross domestic product (GDP) needs to be
brought into the tax net. Critics say that
political expediency often takes precedence over
wise economics in key sectors like agriculture,
which is almost exempt from taxation due to
political considerations. Despite the need for the
revenue, politicians are unwilling to take on
feudal land lords and industrialists in
parliament?
The country's failure to
implement tax reforms as demanded by the
International Monetary Fund (IMF) led to the
collapse of a US$11.3 billion IMF bailout program
in November 2010.
"After the walkout from
the last Fund program, the government has gone
ahead with massive tax breaks," Dawn reported
former finance minister Hafeez Pasha as saying.
"The IMF is saying 'please go back to the tax
system as it was'.
An IMF statement
released on November 29 said the country's foreign
exchange reserves were below adequate levels as
the reserves held by the central bank declined in
October to below $10 billion.
Local
experts wonder over the timing of the IMF
statement that came at a time when Finance
Minister Hafeez Shaikh with his team was in
Washington to hold talks with the IMF on a future
bailout program.
It is the repayment of
loans to the IMF that has put increased pressure
on the country's foreign exchange reserves.
Pakistan will have to pay $6.3 billion from
February 2013 to September 2015 to the IMF, after
repaying $2.52 billion to the IMF as of November
23 out of the $8 billion loan acquired in 2008. It
secured the loan after a decline in its foreign
reserves created a balance of payments crisis.
The government is currently carrying out
the modalities for a new IMF loan, which is
expected to be sought in the third meeting of the
IMF and Ministry of Finance in February. The new
IMF program is expected to be harsher than the old
one.
The country's ranking on Transparency
International's Corruption Perception Index (CPI)
has fallen to 33rd in 2012 most corrupt country
from 42nd in 2011 .
The country's ruling
elite have gained considerable expertise in
running the country on loans and donations, while
talk of self-reliance, debt retirement and
breaking the begging bowl has been confined to
fiery speeches of politicians in pre-poll public
meetings.
The government has taken out
$13.07 billion in loans in the period from March
25, 2008 to July 1, 2012, according to the
Economics Affairs Division (EAD). The country has
obtained 58 different loans worth $3.81 billion
from seven countries, while 167 loans amounting to
$9.25 billion have been taken from eight donor
agencies.
Interest payments on the
country's domestic and foreign debt increased 132
billion rupees, or $1.4 billion, during the first
quarter of the current fiscal year. Interest
payment during the July-September period came to
312.87 billion rupees, with 299 billion rupees for
domestic debt and 13 billion rupees going to
service foreign debt, according to the Ministry of
Finance.
Syed Fazl-e-Haider
(http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author
of many books, including The Economic
Development of Balochistan (2004). He can be
contacted at sfazlehaider05@yahoo.com.
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