Tax reform, not aid please

By Zubeida Mustafa

THE BBC has reported that a group of British MPs have asked the British “government to withhold extra aid to Pakistan unless the country does more to gather taxes from its wealthier citizens”.

This will evoke a strong reaction in many circles in Pakistan. It is shocking that we have shameless people here — many having been associated with policymaking — who treat foreign aid as a yardstick to measure the success or otherwise of Islamabad’s foreign policy.

They have no qualms about going with the begging bowl in hand to foreign capitals. They will be irked by the British MPs’ statement no doubt. Some will see it as an anti-poor stance.

tax-1Anyone who understands the dynamics of international politics knows that foreign aid always comes with strings attached, even when they are invisible. Sometimes the conditions are tough, but implicit, and they actually harm the country’s economy. Examples are legion of how ill-suited projects have added to the country’s debt burden without any benefits having accrued to the recipient country.

Worse still, a prolonged unequal relationship of dependency between the aid giver and the recipient spanning an indefinite period of time can actually reduce the weaker partner to a client state, something like the banana republics of Latin America of yore. This relationship enables the aid giver to exercise control over the smaller country.

This reminds me of the words of wisdom coming from our world-renowned scholar of anthropology, Hamza Alavi, who wrote in 1961 that the goal of development of a balanced economy is distorted by the pressures which are brought to bear upon the planners when aid givers are involved. Needless to say the pressures are greater in military and security matters.

More upsetting are the changes that have come in the psyche of our leaders as well as the people. Initially a loss of self-esteem was the price we paid for accepting foreign aid. That also brought a sense of embarrassment.

There was a time when no political leader would ever admit publicly that he was toeing an aid giver’s line as he was under pressure. Now no one conceals the strings and aid is regarded as a matter of right. Aid has made us a nation of beggars. There is no loss of dignity involved when ‘aid’ is sought and accepted. Worse still, a lot of this aid is embezzled and squandered brazenly. An abundance of liquidity has fuelled corruption and ostentation.

There are times when economic contingency demands that aid be accepted. But it should be for a defined period and to tide over an unforeseen emergency the country is facing. To make the national economy dependent on foreign resources on a continuing basis for current expenditures is simply unforgivable. We need planners with self-respect who do not hold this nation of 180 million hostage to foreign governments with their own agendas.

There is also the moral dimension that cannot be ignored. The BBC reported, “The International Development Committee said British taxpayers should not be paying for health and education in Pakistan while rich Pakistanis were paying little tax. They also urged ministers to ensure aid was focused on anti-corruption efforts”.

This is very telling as it reflects on the dichotomy this country is saddled with. On the one hand, we have filthy rich leaders and businessmen who do not even file their income tax returns. On the other hand, some economists claim there are up to 120 million or so men, women and children who live below the poverty line — not because the country lacks resources but because of unequal distribution of wealth and the refusal of the rich to pay their taxes.

There are others who have robbed the banks of billions in the form of loans that are not repaid. Since they are also policymakers they bend and twist rules to their advantage. Can they be condoned for whitewashing their sins simply because they claim to be the elected representatives and technically have the power to set the rules?

It all boils down to tax reforms, an honest tax collection machinery, and, above all, good governance. The BBC report said that only 768,000 individuals pay income tax in Pakistan. We know that others with clout, especially the political elite, navigate their way round the tax officers or enter into agreements with them. Since they also control the levers of power they ensure that they escape direct taxation. That is why indirect taxation is so high — 62 per cent of all revenues collected. But indirect taxation amounts to taxing the poor.

The fact is that not all people lack social responsibility. It is a paradox that many who evade taxes are extremely generous in the charity they give, which places Pakistan at the top of the list when it comes to philanthropy. It is basically a lack of trust in the government which is known to be inefficient and corrupt that leads many to tax evasion.

The political elite is, however, in a position to lead the reform process. Change has to start from the top and those who lead this process must be on the moral high ground themselves.

Note: Last week I erred in my reference to the Population Council. It is a non-governmental organisation working globally in 15 countries, with its headquarters in New York.

Source: Dawn

6 thoughts on “Tax reform, not aid please”

  1. This is really embarrassing and I hope the next Government turns their attention towards tax collection ASAP.
    It would be helpful if the British Government would prevent our political elites from using their ill-gotten gains
    to invest in the property market in the UK. Perhaps they should ask these potential investors to show their tax returns
    before they are allowed to transfer funds to UK Banks. A list of "suspects" can be provided by the GoP. The
    trouble is that UK banks and investment companies have no qualm about receiving funds not just from Pakistani
    Elites but corrupt leaders and businessman from all over the Third World.

  2. Time and again,one is compelled to infer that the pakistani society need's to be renewed and recreated.Yes,this could mean a bloody,violent revolution,emanating from grass-roots.

  3. I hope the next Government will turn the tide on this issue and bears responsibility tax collection at large scale mostly from rich cadres of the country. While change can be seen from the top where political elite neglecting tax reforms in the country on their own vested interests. We should throw away begging bowl in the name of "aid" from rich countries and create mass level awareness among people through media campaign.

  4. We got to be very careful while listening to economic advice from EU. Look what they did to Cyprus. I mean who in the world robs their citizens' bank account and lives to tell an economic success story? No one.

    Tax collection in Pakistan is one of the biggest myths. Before I delve into the topic. I have simple questions from the past and the present.

    1. When British became the global empire, were 100% of British citizens paying honest taxes?
    2. Now that Chinese are getting ready to take over the world as number 1, you all think 100% of Chinese citizens paying honest taxes?

    Higher Tax collection always lags behind development. It seldom spurs development. Pakistanis are already paying huge amount of taxes on items like food and fuel and everything in between. This unjust taxation has crippled Pak economy and put poor into further poverty. What British MPs are suggesting would lead to higher tax rates in Pakistan on things that are already too expensive to afford.

    Every salaried person in Pakistan pays income taxes. The only so-called black sheep are the non-salaried class. Going after non-salaried class to figure out their taxes is not simple. The more you pressure them, the more likely they will take their cash underground or overseas to British and EU banks. Like it has happened in the last 60+ years. This will further damage Pakistani economy.

    British MPs should also realize that foreign remittances are mainly used for Pakistani imports like oil and tea, then paying off loan/interest installments. That's the expenditure where Pakistan's situation is getting darker by the day. Unfortunately any "rupee" collection being done today or tomorrow will not help the dire situation in the country.

    British MPs do not realize that British and American citizens are using hard currencies like pounds, euors, and dollars. So the taxes collected in those currencies impact entirely differently than Pakistani rupees collected as taxes.

    Pakistan needs hard currency of at least 20 billion dollars a year that mainly comes remittances and gets supplemented with trade or aid.

    Right now Pakistani social environment is not conducive to trillions of dollars in international trade and tourism (like Chinese for example). So we are stuck with aid. Therefore putting more tax burden on salaried class will not help at all.

    So the British MPs should really suggest that in order to improve our economy, we the Pakistanis become better with export and tourism like Chinese and South Koreans. That I feel will be the saner advice.

    Thank you.

  5. In many countries collection of Revenue is faulty. Then its utilization is totally a non-public oriented. Best example can be quoted of Romania and Philippine.

    Nature has given too much wealth to each and every region and country. Switzerland, Singapore and Dubai are only depending upon the tourist rush. Still Switzerland is a home town of non-tax payers funds all over the world.

    But as a whole 'own earned simple (without oil) food is better than begged food made of butter.

  6. I like cadbury chocolate, I pay tax before it goes into my mouth. I have to hold the wrapper first, for I had paid tax to the retailer there. I have to pay it urgently. Inhaled air is taxed because it is contaminated with all the pollution that the Government has targeted as development work for the industrialists in Pakistan.

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