EDITORIAL: Shaukat Tarin, Advisor to the Prime Minister on Finance, in his usual gung-ho style stated that the government had access to expenditure data, including bills, bank account details, travel information, accommodation details from Nadra and “now we will use artificial intelligence to estimate their income.” Needless to add, this information has been available since Tarin’s first stint as the country’s finance minister back in 2008 but violent resistance coupled with considerable influence in the corridors of power as well as the launch of legal challenges accounted for the Zardari-led government followed by Nawaz Sharif administration and the first three years of the incumbent government to postpone/delay its implementation.
Tarin recalled the German Finance Minister telling him during his previous tenure that there should be no representation without taxation which he defined as: if you don’t pay taxes then you do not have the right to vote – a comment reversing the no taxation without representation slogan that originated at the time when the US was still a colony with collection of taxes by the colonial power, Great Britain, deemed unlawful and a denial of the colonists rights as Englishmen. As a technocrat, Tarin has a one-man constituency, notably the Prime Minister, yet his comment that he would not back down from the demand of traders to abandon the use of expenditure data to ascertain their tax liability, a position abandoned per force by his predecessors, must be fully supported and one would wish him success especially as he pledged consultation. “We will try you don’t face any difficulty. But you also need to appreciate that if we have to progress then the GDP to tax ratio cannot remain 9 percent…we need GDP to tax ratio of 20 percent to have 7 to 8 percent GDP rate. We will do it together,” Tarin maintained.
Tarin further stated that there would be only income tax, which is a direct tax based on the ability to pay principal, and expenditure tax, which is an indirect tax whose incidence is greater on the poor than the rich therefore one would hope that it would be levied only on those items not in use by the poor and vulnerable. However, it is important to point out that if income tax will continue to be collected in the withholding on each transaction, as is done at present, then it shall lose its character as a direct tax and shall be more akin to an indirect tax as it is liable to be passed on.
It is important to note that while the original slogan has been evoked on numerous occasions by members of the public given that the demand for access to clean drinking water by a large portion of the public remains unmet, yet, the shortfall between taxes collected and the expenditure outlay have simply widened with time and it is unfortunate that the focus of Pakistani administrations and multilateral lending agencies has been on increasing taxes rather than on not only increasing taxes but also reducing expenditure. Had this latter position been taken, the onus on the government to raise taxes would certainly have been tempered by the Fund (International Monetary Fund) during the ongoing negotiations on the sixth review.
It is obvious and there is a need for the government to accept that its current expenditure must be curtailed if the objective is to lower the burden on the general public as envisaged in the IMF conditions – be it through voluntary sacrifice by the major recipients or be it through the government forcibly implementing a cut. Sadly with the commencement of the fourth year in the PTI administration’s five-year tenure, if past precedence is anything to go by, political challenges may be allowed to override economic compulsions.
This editorial was first published in Business Recorder on Nov 11, 2021
