File photo of a market in Peshawar
In a recent report, the World Bank—and not for the first time—urged Pakistan to “close all tax exemptions and bring incomes from agriculture, properties and retail businesses under the effective tax net to generate an additional revenue of up to 4 percent of GDP (about Rs. 4 trillion) in the short term.” It goes on to say that taxation of real estate and agriculture, respectively, could bring in revenues of 2 percent and 1 percent of GDP. The additional revenue, it stands to reason, would reduce Pakistan’s dependence on the “begging bowl” of foreign loans, which undermine its sovereignty, and enable the allocation of resources for the most vulnerable segments of society.
An earlier World Bank report had estimated that 39 percent of Pakistan’s population of 240 million lives below the poverty line, highlighting the need to reduce indirect taxation and collect revenue from those most able to afford it. Unfortunately, Pakistan’s rich have historically paid little in taxes, with some estimates claiming landowning classes evade taxes of over $1.2 billion annually. Lawmakers, many of whom belong to feudal families and resist any attempts to bring them into the tax net, facilitate this. Exempting agriculture from taxation in an ostensibly agrarian economy is especially questionable, as it only serves to impose a heavy burden on the rest of the country.
To overcome Pakistan’s perennial problem of an unequal distribution of income, the rich need to pay their fair share and the government needs to reduce its reliance on extracting ever-higher taxes from salaried individuals, which is shrinking Pakistan’s already miniscule middle class. In this regard, global lenders can play a significant role in leveraging their influence with the Pakistani government to insist that hitherto untaxed or under-taxed sectors are formally brought into the tax net.