In the coming days, the coalition government of Pakistan Muslim League (Nawaz) despite the reservations of Pakistan Peoples Party (PPP) on budget for fiscal year 024-25, having maneuvered majority in National Assembly, will get the Finance Bill 2024 passed, without any difficulty, ignoring many sensible recommendations from the experts, Opposition and Standing Committee of Senate on Finance—this has been happening in the past as well.
Majority of the members from Treasury Bench in private also admit that Finance Bill 2024 places too much reliance on indirect taxation. However, they say, “we are bound to tow the party line”! It is undisputed fact that the present and earlier governments have perpetually demonstrated, that they have no desire or concern for making Pakistan an egalitarian State through fair and just taxation. The prerequisite of such taxation is improving contribution of direct taxes as a tool of redistribution of wealth.
The share of income tax [which is now largely indirect tax as many withholding provisions of the Income Tax Ordinance 2001 tax consumption or transactions having no nexus with taxable income, constituting full and final discharge of liability]. If we exclude indirect taxes levied in the garb of income tax under the Income Tax Ordinance 2001, the official claim of improvement of share of direct taxes [they even add Workers’ Welfare Tax and petroleum development levy in it!] in overall taxes would prove to be jugglery of figures.
Historically, the contribution of direct taxes, till 2003 when wealth tax was also part of it, as percentage of GDP has been pathetically low (below 5%). Overwhelming reliance on indirect taxes and withholding taxes raises serious questions about the fairness of Pakistan’s tax system—besides eroding tax base, creating fiscal imbalances and dampening revenue collection, it has been continuously pushing the millions below the poverty line and making the rich richer.
The rich earn enormous income, possess immense wealth, own industries, expensive commercial and residential urban properties, agricultural lands, so get elected on the basis of money power, no matter what party they join. Since the privileged classes dominate national and provincial assemblies, they never legislate progressive taxes, rather keep on getting exemptions for their perks and perquisites getting free from the State! The same is the position of militro-judicial-civil-complex. In his way, the very purpose of redistribution of wealth as main object of rational tax policy is being defeated and nullified in Islamic Republic of Pakistan.
Since Pakistan is controlled by militro-judicial-civil-complex and businessmen-turned-politicians, there is no political will to alleviate poverty by taxing the privileged classes. Elites, even in their own interest, have failed to raise the required resources for public sector development programmes (PSDP) and meeting current expenditure, but they love to fund these through expensive borrowed funds.
Adding insult to injury, money extorted in the name of taxes, mainly under exorbitant sales tax and withholding taxes, is also wasted by elites maintaining palatial residences, rest houses, messes and golf course, just to mention a few. These free luxuries met from taxpayers’ money, and getting State land on throwaway prices by elites are unique features of elitist economy—so they keep on levying more taxes than ending these VVIP facilities, free perks and benefits.
Majority of the writers, experts and TV anchors do no highlight these facts and follow the official line or narrative of the donors/lenders and their crony elites that “more taxes” are needed! Nobody raises the question taxes for what? Why 50% are living below the poverty line is not their concern.
The non-fulfilment of fundamental rights “for lack of funds” and reliance on “borrowed funds” has a clear nexus. The elites want to waste resources on their luxuries. This collossal wastage of resources, coupled with non-taxation of the rich and mighty, has created a variety of crises for Pakistan, abject poverty for majority of population, unemployment, slow economic growth, debt trap, poor infrastructure, monstrous fiscal and trade deficits, and shortage of forex reserves.
Pakistani ashrafiya (elites), comprising indomitable military complex, civil bureaucracy, higher judiciary, landed aristocracy, industrialist-turned politicians, religious and spiritual leaders (sic), media tycoons and their “celebrated anchors”, flout the rule of law with impunity and keep on sermonizing and moralizing. This is the modus operandi of our ashrafiya.
The State Oligarchy back gangs/individuals engaged in unlawful and undesirable activities and deny justice to the poor and helpless citizens. For them vulgar ostentation of money and power is essential to prove that they are the most powerful players of the State. In good old days, ashrafiya was respected as a class of nobles and highly revered. In post-colonial Pakistan, the term represents the money-power-hungry classes posing as if the country is their personal jagir (property) and all their acts are above law.
The economy of ashrafiya-controlled-Pakistan, thus, serves the interests of the privileged classes. The ruling classes, representing only 1% of entire population, own 95% of national resources. They exploit labour of landless tillers, poor urban workers and white-coloured to amass more and more wealth. Additionally, they create artificial hike in prices of essential items to snatch back whatever little is earned or saved by 98% ordinary people.
The evolution of this kind of State (Land of the Pure) is elaborated in detail by former Governor of State Bank, Dr. Ishrat Hussain, in his book Pakistan: Economy of an Elitist State. In this book, Dr. Ishrat has very aptly observed and concluded that in sharp contrast to the East Asian model of ‘shared growth’, based on rapid economic development coupled with a rapid reduction in poverty and more equitable distribution of the benefits of development in Pakistan, the elitist model confers political and economic powers to a small coterie of elite (parasites).
The main theme of Pakistan: Economy of an Elitist State rests upon the premise that the respective roles of the state and the market have been reversed in the case of Pakistan, with the result that benefits are reaped by the elite classes only. As the market has remained non-competitive in structure and distortion was rampant in the country, its economic development did not achieve the efficiency and productivity gains that the country ought to have attained in relation to its potential, compared to other countries. The instruments of state were also directed to provide benefits to the same small group, rather than apply correctives to the inequalities inevitably created by market forces.
The small elitist minority continues to enjoy the unjust accumulation of wealth in the midst of widespread poverty and underdevelopment. Commenting on Dr. Ishrat’s work, political economist Dr. Khalil Ahmad, in his book, Pakistan Main Riasti Ashrafiya ka Urooj (Rise of State Elitism in Pakistan) has also concluded that Pakistan is presently owned and exploited by ‘state elites’ whereas it should belong to all.
The present tax policies of Riasti Ashrafiya are detrimental for economy, social justice, business and industry. Those who possess more economic power (income and wealth) should contribute more to the public exchequer and vice versa. The ability-to-pay principle is regarded as the most equitable and just method of taxation and emphasized upon primarily for its redistributive role. In Pakistan, our rulers have completely deviated from this principle, which is in fact, a constitutional obligation of the government.
The existing tax system protects the establishment and exploitative elements that have complete monopoly over economic resources. The Finance Bill 2024, prepared by the Revenuecracy under the command of International Monetary Fund (IMF), presented by banker-turned federal finance minister for finance and revenue, Senator Muhammad Aurangzeb, on June 12, 2024, testifies to this fact.
In Finance Bill 2024, not a single progressive tax is levied on the rich and mighty or drastic reduction is made in wasteful expenses to bridge the burgeoning fiscal deficit of Rs. 8500 billion that is requiring Rs. 9775 billion in debt serving alone in fiscal year 2024-25 as per official documents! Unfortunately, once again the poor are burdened with more indirect taxes. In this scenario, the heavy borrowing will further increase to destroy the economy and push the entire nation in dark ‘debt prison’.
On the part of elites, there is no inclination whatsoever to make Pakistan a self-reliant economy even for their own self-interest to reap more benefits of a robust economy which is largely owned by them. Reluctance to collect taxes from the rich and mighty, rather giving them free benefits and perquisites at State’s expense, is worsening the miseries of the poor.
There is no scarcity of resources as propagated by the rulers to shift blame on others, but the real cause is outlandish living of the elites off taxpayers’ money. Look at residences of judges, generals and high-ranking civil officials with army of servants and fleet of cars. Wasteful spending on State Aristocracy and unwillingness to tax the rich is playing havoc with the economy. Behind the present chaotic socio-economic and political situation in Pakistan, amongst other factors, is an ever widening gulf between the rich and the poor.
With every passing day more and more people are being pushed below the poverty line, our rulers unashamedly waste billions on their comforts and personal security. The present crisis testifies to the failure of power-hungry, money-greedy politicians and incompetent, inefficient and corrupt bureaucrats.
Even the so-called technocrats always take the first flight to Washington after creating a mess and tearing apart the economic fabric of the country. Where are Shaukat Aziz and Abdul Hafeez Shaikh now? In this bleak scenario, Riasti Ashrafiya is not ready to surrender extraordinary perks and privileges enjoyed by them at the cost of taxpayers’ money. How can rulers and bureaucrats living in fortified containments, completely oblivious of the ordinary people’s plight, feel the pinch of life’s hardships?
We cannot come out of debt-enslavement unless there is a complete change in the style of governance—the President, Governors, Prime Minister, Chief Ministers, ministers, parliamentarians, and high-ranking government officials should be given ‘Consolidated Pay’ liable to tax just like the income of an ordinary citizen. Palatial residences occupied by them should be sold or converted into income-yielding assets, and all perquisites of civil servants and public office-holders should be monetized to remove the burden off our country’s broken financial back.
Since independence, all efforts to reform civil service have utterly failed. Numerous committees and commissions were constituted to suggest ways and means—including rationalizing pays and perquisites of employees—to bring fundamental reform in this important institution, but their recommendations remained on paper.
There has always been strong resistance from bureaucracy for change—essentially it is pro status quo and mediocrity. Change and innovation threatens rule of mediocrity and sycophancy, which are bureaucrats are famous for.
Living in sprawling bungalows with an army of servants, the top bureaucrats are least pushed to know how the common man is living—even totally indifferent towards fellow low-paid employees. They make policies while sitting in their air-conditioned rooms for poverty alleviation!
Look at Federal Board of Revenue (FBR) that has made rules making mandatory e-filing of statements and returns for small business houses without realizing the non-existence of internet facility at remote places and even in cities for want of electricity supply most of the time! Such measures indicate that the democratic form of governance is an alien concept in our peculiar milieu. State is run and controlled by a civil-military bureaucracy that has evolved for the worst—crueler than the colonial masters—since independence and political elite least concerned for democratization of governance.
Our bureaucratic structure is worst than many developing countries where decentralized governance has brought tremendous benefits for the people at grass root level. In many Latin American countries e.g. government officials get their emoluments in cash, share accommodation with fellow citizens, use public transport and their children attending public schools. Our elitist system has made civil servants masters. On the one hand, low-paid government employees hardly meet both ends and on the other, their bosses live like kings!
Democratization of governance is the solution if we have to progress. The first and foremost step should be doing away with huge government machinery [see the detailed recommendations by Dr. Ishrat Hussain, Shahid Kardar, Nadeem Ul Haque and many others]. Complete overhauling of civil service is a prerequisite for democratic governance. The reforms should be all pervasive, but as a necessary step all perquisites and benefits of government employees should be monetized.
The State must withdraw all facilities like houses, cars, servants and telephones etc. The perquisites in kind should be monetized. Let the government servants—especially the senior bureaucrats—live amongst the ordinary citizens of Pakistan and not in privileged enclaves like the GORs. This will give them real insight for formulating pro-people policies. They will comprehend the real problems of the ordinary folk.
By living in separate colonies and bungalows they are alienate from the common people. This culture has to be changed. The purpose is not only saving billions of rupees on the maintenance of colonial-styled huge bungalows, but also utilization of these lucrative and expensive properties for some productive purposes.
There is no need to maintain huge transport pools and army of drivers. Civil servants must use public transport, and if it is not worthy of them why should the masses be condemned and compelled to use the same?
Government servants should take residences on rent just as other citizens do after their entire pay structure is revised accordingly and fringe benefits/perquisites are monetized. They should get cars on lease or go to offices by public transport if they cannot afford lease rentals. This will be the starting point of change in society—dawn of democratization of governance, making all the citizens at par having access to equal opportunities or equal sense of deprivation. Those who manage and perform State functions—civil servants—must be made part of the masses. Once this is done, the politicians will also have no excuse or justification to fund their luxurious living from taxpayers’ money.
There are no two opinions that the entire budget making process is an epitome of apathy of parliamentarians towards the masses of this country, who vote them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services—housing, transport, education and health, to say the least. Even the Standing Committees on Finance of both the Houses do not know what policies and tax measures would be presented.
The worthy MNAs never bother to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor of this Land of the Pure. Time and again, it has been emphasized that democracy is not electioneering per se.
Establishment of a responsible government caring for the needs of its people is a prerequisite for true democratic dispensation which is only possible if the Parliament performs its Constitutional role, implements flawless process of accountability and ensures good governance. Theoretically, the Cabinet is answerable to the Parliament! But the stark reality is that MNAs merely run after ministers for personal favours and gains.
In every civilized and democratic society, it is the sole prerogative of elected members to initiate the process of law-making and devising of national policies after taking public input. It is the prime rule of a democratic process that no law or policy should be made unless a thorough debate is held in the parliament. In Pakistan, the rulers, military and civilian alike, always try to bypass parliamentary processes and then complain about lack of “democratic behaviour and culture” on the part of the opposition.
Every year, budget-making exercise is entrusted to bureaucrats sitting in the Ministry of Finance and FBR while the Parliament conveniently restricts its role to a silent approver. Due to non-participation of public representatives in budget-making, the financial managers and tax collectors have persistently failed to overcome fiscal deficit and remove fiscal imbalances as their tax policies are narrowly based on collecting taxes at source, without bringing mighty sections of society within the tax net or collecting what is actually due from them. They will never recommend reduction in wasteful expenses as Riasti Ashrafiya enjoy life of luxury at taxpayers’ money. Our budgets and economy is only for them!
Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
