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Pakistan’s economy Plugging leaks, poking holes – Who will pay for Pakistan’s state?

PAKISTAN’S national poet, Muhammad Iqbal, believed the subcontinent’s Muslims needed to unite if they were to prosper. Without a strong sense of nationhood, he wrote, “mountains become straw and are blown away in the wind”.

Poetry and taxes do not often mix. But those melancholy lines grace an analysis of Pakistan’s fiscal plight by Ehtisham Ahmad of the London School of Economics. The country’s tax revenues have collapsed. Its debt is almost certainly unsustainable without outside help. And yet Pakistan does not pull together. “Textile lobbies, the urban gentry, traders and agriculturists, all point to the other and say: Tax that group first, but do not tax me,” Mr Ahmad writes.

The tax authorities can identify a mere 768,000 individuals who paid income tax last year. Even fewer—just 270,000—have paid something in each of the past three years. That is one reason why Pakistan’s tax revenues amounted to only 9.1% of GDP in the latest fiscal year, one of the lowest ratios in the world (see chart). These are exceedingly narrow shoulders on which to rest a nuclear-armed state of 180m people. The culture of cheating starts at the top. Most members of parliament, many of them conspicuously affluent, do not file tax returns.

In the months before an election, due by May, the government of President Asif Zardari of the Pakistan Peoples Party (PPP) is proposing a controversial remedy: an amnesty for evaders. They will be invited to wipe the slate clean with a one-off payment of only 40,000 rupees ($400). The government says it is a quick way to resuscitate the public finances and expand the tax net. Its critics see the amnesty as a boon for politically connected crooks.

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