Dr Ishrat Husain, in his latest book, 'Governing the Ungovernable: Institutional Reforms for Democratic Governance', has rightly highlighted that under the existing tax system, less-privileged segments of society are subjected to oppressive taxation. What makes the situation more painful is the fact that money collected is not used for the welfare of public but to finance the benefits of elites-militro-judicial-civil complex, businessmen-turned-politicians, absentee landowners in power. The elites enjoy tax-free perquisites, benefits, including expensive plots at prime locations. The way our governments-military and civilian alike-have been wasting and plundering the taxpayers' money is not a secret. Since independence, no serious effort has ever been made to undertake institutional reforms to democratise our mighty militro-judicial-civil apparatus that has miserably failed to deliver.
Pakistan has failed to achieve durable political stabilisation and fast economic growth due to perpetual failure of the ruling elites. The twin menace of burgeoning debt and monstrous fiscal deficit testifies to continuous fiscal mismanagement. The government has to borrow more and more money-externally and internally-just to meet day to day expenses. With fiscal deficit reaching 6.8% of GDP (Rs 2.3 trillion) and debt burden rose to Rs 24 trillion, a net addition of Rs 9.8 trillion in the last five years, there is nothing on the plate to overcome this mess. There are difficult times ahead for the new government to overcome balance of payment crisis as Pakistan's gross forex reserves would slip below $9 billion by the end of September 2018 even after securing a $2 billion official inflow from China and arranging $1.4 billion commercial loans over the past two months. Then there is no concrete plan available with any political party ruling in any province for uplifting the rural areas to a respectable status to check rising migration to urban areas, which is fast becoming a nightmare with every passing day.
The dire need in today's Pakistan is to tap the real tax potential and make the country a self-reliant economy, stop wasteful, unproductive expenses, cut the size of cabinet and government machinery, make government-owned corporations profitable, accelerate industrialisation and increase productivity, improve agricultural sector, reduce inequalities through a policy of redistribution of income and wealth. It is high time that professionals and civil society campaign against oppressive, anti-people tax policies and relentlessly raise their voice for establishment of an egalitarian state.
We can make Pakistan a self-reliant and prosperous country through fiscal decentralisation and grass root taxation at local government level. There is nothing to be pessimistic. Solutions are available. The only thing we require is to present the same, debate these publically and convince our political parties to make them parts of their manifestos. Elections should be fought on these issues and with the pledge that on winning, they would be tackled and solved.
Municipal taxation should be our top priority as envisaged under Article 140A of the Constitution. Political, administrative and fiscal decentralisation is the key to democratisation of institutions. This is the most neglected area in Pakistan. Article 140A requires that decision-making power should be with the elected local governments. A council, elected by the residents, must enjoy the right to levy municipal taxes. Municipalities should be given wide-ranging powers. Extensive functions that fall within the specific sphere of authority must include education, health care and social welfare services. The municipalities should also be responsible for matters related to the residents' free-time, recreation, housing, and the management and maintenance of their living environment (i.e. roads, streets, water supply and sewerage), as well as land-use planning and functional municipal structures.
In all successful democratic models, taxes at grass root level play a critical role in municipal self-governance. The power to levy and collect taxes is one of the cornerstones of municipal self-governance as it ensures that the municipalities can manage the functions that they have undertaken to execute or those for which they are responsible for under the law. In social democratic countries e.g. Sweden, Norway, Denmark and Finland, the most important feature of fiscal management and delivery of social services is municipal tax. Finland in 2016 collected US$ 40 billion as municipal tax-total tax collection of US$ 172 billion was 44.1% of GDP (US$ 430 billion). In Pakistan, total tax collection-both at federal and provincial level-in fiscal year 2017-18 was not more than US$ 35 billion (just 11% of GDP)!
If a country of 5.495 million people (Finland) can achieve 44% tax-to-GDP level and through municipal taxation can provide free services of health and education, we a nation of 207.775 million can definitely do much more, provided there is a political will. One of the central constitutional principles regarding municipal self-governance in Finland is that when allocating new functions to municipalities, the State has also to ensure that they have the necessary resources to carry them out. Finland has a well-functioning relationship between the State and the local authorities, as well as a state-subsidy system which ensures municipal resources and residents' equal access to services. We can learn from this great innovation of Finland. It can change the fate of our nation in a short span of time.
We have the resources but the system for self-governance as in vogue in Finland and elsewhere in the world is non-existent despite clear command contained in Article 140A of the Constitution. Resultantly, power is not with the people but in the hands of the privileged few.
Economic equality and prosperity, peace and social tranquility can never be achieved unless the taxation system is restructured and social welfare model is implemented as explained and elaborated in a study, Towards Flat, Low-Rate, Broad & Predictable Taxes, available at http://primeinstitute.org/fair-tax-campaign/towards-flat-low-rate-broad-predictable-taxes/
We need to implement Article 140A in letter and spirit. Mere existence of local governments without devolvement of political, administrative and financial power is not the fulfilment of constitutional command. Decentralization of financial powers requires levy and collection of taxes by local governments for meeting the needs of local residents in the form of education, health care and social welfare services. Municipalities working on the principle of self-governance alone can ensure that revenues are spent exclusively for the benefit of public and not the powerful segments of society alone.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)