Unavoidable recipe

The elitist classes have had a monopoly over political power ever since independence. It is now taking advantage of the in-built avenues of corruption in the inherited colonial system of governance. They have built their own fortunes while the poor masses have borne the brunt of their devious machinations. According to the World Bank, poverty in Pakistan shot up to 39.4% as of last fiscal year with 12.5 million more people falling into the trap due to poor economic conditions. It has urged Pakistan to take immediate steps to expand the tax net by bringing agriculture and real estate into the tax net and reducing wasteful expenditure to achieve economic stability through fiscal adjustment of over 7% of the size of the economy.
The IMF’s emphasis on expanding the tax net by taxing the wealthy segments of society, bringing agriculture and real estate sectors into it, and focusing more on giving relief to the poor masses, is an unavoidable recipe for putting the economy back on the rails. It is the failure of successive governments to neglect these aspects which is undoubtedly the source of almost all our economic woes including the unsustainable fiscal deficit, spiraling inflation, low rate of investment and precarious balance of payments position.
Back in February the IMF chief had also advised the government to tax the wealthy to boost its tax revenue in order to function as a country. The message was clear that the high earners pay taxes and only the poor get subsidies. That advice fell on deaf ears as the budget for 2023-24 did not address the root cause of the country’s ever-dwindling tax revenues by bringing under-taxed and untaxed sectors such as real estate, agriculture, and retail effectively into the revenue net for fear of political backlash. It relied on increasing the tax burden for captive taxpayers including the salaried class and the organised corporate sector to meet the revenue goals of the IMF for a new bail-out.
The truth is that the country cannot only be run on foreign aid or investments. The generation of revenues through taxes is a vital ingredient of socio-economic development. Taxes are a critical measure of a nation’s development and governance. The tax-to-GDP ratio is used to determine how well the government directs its economic resources. Higher tax revenues mean a country is able to spend more on improving infrastructure, health, and education—keys to the long-term prospects for a country’s economy and people. As per the available date tax-GDP ratio in Pakistan is 10.3 far below the Asia Pacific average of 19.8%. It is also below the OECD average (34.1%) by 23.8 percent. So there is a considerable room for improvement in this regard.
Unfortunately, successive governments have been giving priority to political expediencies rather than recognising the economic realities and shaping the country’s economic policies accordingly. No wonder then that the country is now in an intractable debt trap. It is forced to look for loans and assistance from global lenders to survive and pay for its debts leaving little money to help its masses groaning under the weight of burgeoning inflation.
The only way Pakistan can pull itself out of this vicious circle is to act upon the recipe suggested by the IMF and the World Bank. There is no escape from taxing all incomes, irrespective of their source and reducing indirect taxation which directly affects the poor masses. But the problem is it is easier said than done. The vested interests would fiercely resist any such move and the incumbent government would also feel under tremendous pressure not to lose the support of those sections of the society which actually help it to sustain and regain political power.
Under the circumstances, a national consensus is required to affect the much-needed structural adjustments in the economic system and develop a growth model that is vigorously pursued by all the governments rising above their political agendas and considerations. It surely requires a charter of economy enjoying the support of all political parties and other stakeholders.
The country also needs to break the hold of the elitist classes on political power to be able to adopt pro-poor policies. Keeping in view our social milieu, the system of proportional representation provides the best answer in this regard. The single constituency system through which we elect our representatives promotes and encourages elitist political culture to the exclusion of the poor segments of society due to the astronomical costs involved in contesting elections. So, for the traditional politicians it is a kind of investment that they make in the political industry and then reap the dividends through blackmail of the incumbent government and resisting the reforms to protect their vested interests. They cannot be expected to axe their own feet by adopting the suggested course.
In my view, the praetorian powers can play a decisive role in the switch-over to the system of proportional representation and the formulation of a national charter of economy. Through their benign intervention, they must bring all the political parties to the negotiating table and make them agree on the proposed change and seek the help of the economic experts in devising the charter of the economy before the elections are held. Holding the elections under the same system and expecting different results would be insanity.

Malik Muhammad Ashraf

The writer is a freelance columnist. He can be reached at ashpak10@gmail.com.

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