WASHINGTON DIARY: Choking the poor
by Dr Manzur Ejaz, USA
May 19th, 2009
Most of the revenue collected by Pakistani government is through indirect taxes paid by those who are least capable of paying. The reason? Pakistan’s economic elite, from the merchant to the industrialist, refuses to pay their income and business taxes.
The top Pakistani financial advisor, Mr Shaukat Tareen, has grudgingly accepted the lowering of petrol prices mandated by the Supreme Court. Alternatively, the Obama administration is planning to tax beer and junk food to pay for its health programme. It seems the Guru US and its pygmy follower Pakistan are so deep in economic crisis that they have resorted to taking similar anti-people regressive tax policies.
Mr Tareen was upset with the Supreme Court’s judgement to lower petrol prices because if the decision is acted upon, his career as a successful economic manager will be over. He and his predecessors’ entire wizardry has been limited to extracting funds from the common people through indirect taxes.
The Supreme Court investigation shows that the federal government receives Rs 22.86 profit for every litre of petrol sold in Pakistan. This means that the government is collecting billions of rupees through petrol sales every day. And petrol is just one commodity out of hundreds though which the government skims the earnings of the common Pakistani.
As a matter of fact, most of the revenue collected by Pakistani government is through indirect taxes paid by those who are least capable of paying. The reason? Pakistan’s economic elite, from the merchant to the industrialist, refuses to pay their income and business taxes.
Indirect taxation on necessities that have to be purchased by the common people is always regressive and a classic economic mechanism to transfer wealth from the poor to the rich. This is done by making the poor pay for building of the entire economic infrastructure while the top beneficiaries, the ones who appropriate the lion’s share of national wealth, pay much less.
In an equitable economic system — not necessarily in socialism because that is a different ball game altogether — the top wealth holders pay most of the taxes, which are used by the state to provide services to all.
The Pakistani economy is always in crisis, with the government begging richer nations, because revenue collection through skimming the common people’s money has its limits. Therefore, there is always a shortfall of revenue, forcing the government to cut more public services. This perpetual phenomenon is because of the economic elite who refuse to pay their due share.
Whether it is a general or a civilian who sits in the Presidential Palace, the government remains by the elite and for the elite. The assemblies, the commerce chambers and the security headquarters are always filled with people for whom the notion of paying taxes is alien. Therefore, Pakistan’s economy is always in a state of degeneration.
Political instability, religious extremism and terrorism are just a few of the outcomes of a highly inequitable economic system. The proliferation of madrassas is also closely linked to this inequity. Observers and researchers have shown time and again that madrassas attract children from poor families that can afford to neither feed nor educate them.
It is ironic that lately, a similar process of shifting the burden on the common people is happening in the United States. In the name of user fees and taxing bad behaviour (smoking, drinking etc.), successive US administrations have put in place economic policies that transfer wealth from the poor to the rich.
Consequently, the gap between the rich and the poor has reached a level never seen in US history. The US, once known to be an egalitarian society, has now become even more rigid than its European counterparts, who were notorious for their aristocratic domination. The current US economic crisis was created by the very unjust economic system that was practiced from 1980s onward.
The Obama administration, due to strong opposition from the lobbies of the rich and powerful, is unable to fulfil it election promise of providing health coverage to every American; forty-five million of whom today have no coverage.
Last month, to provide partial coverage to poor children, the Obama administration had to increase tax on cigarettes. Now, to provide health services to the remaining poor Americans, sodas and alcoholic beverages are going to be taxed heavily.
Given current trends, the US will soon become dependant on indirect taxes. Consequently, its economy may start resembling the Pakistani economy with similar results. Most poor children may end up in church ‘madrassas’, which may then produce Christian Taliban. The ruling elite will realise the consequences of its disastrous polices, but only when it’s too late. The US should learn this lesson from Pakistan.
The writer can be reached at email@example.com