Time to tax the rich and spare the poor.
By: Tarique Khan Javed
President, Overseas Pakistani Investors Forum.

People on the march:
The mini revolution of 27th December 2007; was an eye opener and a major factor in the formation of current political set up. Rich in the country realized that it was a close call and they must agree to share their wealth to avoid a full blown revolution, which will result in their loosing everything and lot of bloodshed. Army realized for the first time the power of the people and instead of clashing decided to go on sideline.

Currently the PPP government with the help of its progressive partners MQM and ANP is in a strong position to give relief to the common man and tax the rich.

Currently 70% tax revenue is derived from Indirect Tax like Custom duty, Sales Tax, Excise Duty etc while Direct Taxes are limited. It is estimated that only 1% population pays Direct Income Tax while 99% manage to get away with it. This unthinkable in other Countries where upto 99% pay direct income tax which forms the bulk of national revenue. People in places like Europe and Canada pay upto 70% taxes out of their salaries; yet do not complain as they feel it is going to help the poor in the country. This is the height of human development and sacrifice.

What can be done immediately:
The Benezir Income Support initiative is a laudable effort. However this not enough. Lot more can and must be done by the Government like:

1) Remove all Sales Tax on Electricity and Gas.
2) Remove Oil  and Gas development  surcharges on Petrol, Gas, Diesel and Furnace oil.
3) Remove all custom duty on:
a) Edible oils ( between 9,000 to 16,800 per metric ton)
b) Sugar 10%,
c) Salt-20%,
d) Peneucilline-25%,
e) Bandages 20%,
f) Cigarates-35%,
g) Wine and Beer-90%

and  all other  items used by the common man. All sales Tax and Excises duties on these items can also be removed.  This will immediately bring down prices of these items and provide relief to the poor.

The lost revenue could be recovered by imposing equitable tax on large houses according to size, shops according to size, cars and motorcycles depending on CC, heavy taxes on all luxury goods etc. Such taxes will help reduce the apparent gap between rich and poor and calm the society.

The other way to pay for the lost revenue is by reducing non development expenditure by same amount. Elimination of only one big expenditure that of either Military or Debt service can pay for the above  mentioned relief to the poor.

In the past I have suggested that all Military installations in the cites must be moved to remote areas and all Military Land in the cities be auctioned. If done so such a large amount of cash can be generated that all our Internal and External Debt may be paid of and a major expense of Rs 241 billion be saved to be invested on social sector or giving tax breaks to people like mentioned above.

Unjust Budget of Pakistan since inception:
Indirect taxes and Inflation are two tools which have been used by Rulers to keep poor in the country continuously poor; and not allow them to come out of poverty trap. Rulers get away with this injustice due to ignorance of the masses and very low level of understanding of fundamentals of Economics; even by journalists and intellectuals. People are unable to form a common stand and make this a major election issue.

The burden of expenses of the Rulers, Military, Repayment of past debt and interest thereon and development expenditure is 80% (may be more if we factor in inflation) borne by the poor, while rich pay so less that they are becoming richer by the day.

An analysis of 2005-6 Federal budget indicates that out of Rs 975 billion total revenue only Rs 217 billion came from Direct Taxes, rest from Indirect taxes like Customs (136), Sales Tax (296), Federal Excise(58), Surcharges like that on Natural Gas(17) Petroleum (1 and 16 in previous year) and Non Tax Revenue (247).

On the Expenditure side Rs 241 billion each was spent on Defense and Debt Servicing and Rs 95 billion on General Administration. These three expenses of Rs 577 billion do not help the common man and must be reduced drastically.  Three other expenses namely Grants Rs 162 billion, Subsidies Rs. 86 billion and Development Rs 228 billion do benefit the common people and must be increased substantially, to reduce poverty and create a just society.