Making ‘tax’ a political campaign issue
This column is under no illusion: without a strong public demand for accountability, significant and meaningful taxation reforms will continue to elude Pakistan. What are the chances of a big push from the electorate? Sure, civil society think-tanks and donor-funded programs have been making an active case for tax reforms. But even they concede their advocacy is no good when the people don’t want it more than they do.
No electorate behaves like a monolith. But there are dominant undercurrents to how voters behave at the polls. So, how do we make the people want tax reforms? Before attempting to answer that, it must be noted that there are three main aspects of a taxation regime – tax policy, tax administration, and tax culture – and all three have to be part of the discussion.
Threatened by falling revenues, successive governments have taken stabs at reforming the ‘tax administration’ bit. But no matter how solemn the attempt, they have been thwarted by perverse incentives, bureaucratic inertia, and also business pushback in the rare case when attempts have been made to undertake some policy action. Under pressure to balance the budget, the quest for reforms then regresses into a tax policy that disproportionately burdens captive taxpayers and consumers.
The bottom line is that the tax machinery has not and will not reform itself. And those who know they owe money to the state have not and will not voluntarily part with that money – instead, they are often seen promoting their charitable contributions. To decisively dismantle the incentive structures within and the mindset without, a government needs to feel the mandate of the people. But the problem is that elected governments in Pakistan have not attempted to seek the public’s mandate to tackle the beast of taxation. Political parties have campaigned on promises of energy, better infrastructure, more schools and hospitals, clean water, etc. But rarely has one seen their political leaders explain how they are going to pay for all those expenditures once in power.
The tax mandate can come through two ways. One is the top-down approach, where a political leader starts making a clear case to followers that better service delivery is contingent on a fair, equitable, and broad-based tax policy. The other is bottom-up, where the people start demanding political leaders of their plan to reform tax policy and tax administration.
Across the political spectrum, the best hope for a top-down change lies in the insurgent party, the PTI. Imran Khan’s party is ideally placed to rally its base, and also the politically-independent folks, to the tax cause. Upwardly-mobile middle-class folks in cities and towns feel the pinch every time serious reforms are deferred in favour of a tax hike on the salaried class and more withholding taxes on services. But why does the PTI not talk more about tax reforms? Asad Umar, the party’s economic czar, told the audience at Prime’s annual debt moot recently in Islamabad that it would politically hurt PTI’s chances if it placed emphasis on taxation reforms. His golden quote: “I can’t tell you how to build the constituency for [tax] reforms”. Well, it does tell something: the power of moneyed interests in Pakistan’s politics. The party that prides itself on upending established order feels it prudent not to upset that order.
That leaves the bottom-up approach. But the chances of a grassroots campaign making its way to the top are low, for two reasons. First, this is about money, and the tax culture in Pakistan is weak. Not everyone is a crook, but many well-heeled folks avoid and evade taxes with justification that an inefficient and corrupt government cannot be trusted with “their” money. Second, even well-educated folks sometimes fail to see the link between low tax revenues and poor service delivery.
This is the kind of culture problem that the recent Raftaar campaign had been trying to tackle, albeit not without controversy (See BR Research column: “No representation without taxation,” published Nov 8, 2016). Now that Raftaar’s media campaign has come to an end, hopefully its managers would soon share the evidence of their impact assessment publicly (as transparency demands) or at least with the economic observer community.
When both approaches seem hopelessly low in currency, where will that elusive “tax mandate” come from? When will “tax” become a major campaign issue in Pakistan? Who will bell the cat? There are no answers, but that it cannot go on like this where the proletariat keeps on subsidising bourgeoisies’ privileges. The working people need political representation. Is there anybody who would like to be their nominee?
