Tag Archive: Taxation


Secretary of State Hillary Clinton has put across her message without mincing words, “the Pakistani elite also need to pay up so that the world follows suit”, more or less like that. The issue of paying taxes by the salaried middle-class alone and the unjust taxation system has assumed so much significance and attracted so much attention that some pundits have started foretelling a public revolt, if not a revolution. And if Hillary can see it coming then it is coming, for sure. This elite-based taxation system will have to go away to make space for a just and equitable system in which all pay taxes according to their capacity.

So much has been written on this subject which is dry in nature and which creates bad taste at the end of reading an article on it. However, Saqib Omer Saeed, in his article appearing in the Express Tribune has approached this subject in an interesting manner. In view, the tax is a product which the government has failed to sell. Here are excerpts from the article:

Due to negative media portrayal, people look upon taxation as a monster. I can’t agree with classical economists, nor with the conventional discipline of tax science. To me, taxation is merely a product of the government. I know the objection can be raised that if tax is a product, we can avoid buying it. I think we need to ignore this aspect, however, and try to make one point: everybody has to buy this product. It is a product that works for the well-being of society and helps governments work towards social and infrastructural development. That means by ‘selling’ tax, the government can generate revenue that allows it to fund projects for the public good. As I previously stated, tax is a product; therefore it follows that we, the clients, are the kings.

They need to be careful not to make the “product” (i.e: tax) too expensive. It is actually revenue that is taxed, not businesses or individuals. The government needs to make sure that they take care of their clients’ revenues, for their own good. It is not advisable for them to develop tax in a way that would harm businesses, or make people poor. The focus should be on increasing prosperity, for their own long-term benefit. In order to a good relationship with their “clients” (i.e: citizens), the government needs to help people earn. This means that they have to market effectively by increasing people’s wealth, so that they are able to afford taxes. No government can be efficient if they simply collect tax, rather than investing in it. Investment in taxes means that it is necessary to multiply the number of clients-those with income and earning. The best would be to invest in establishing businesses that can increase tax revenue in the long run.

It is always advisable to diversify the tax portfolio, rather than putting pressure on selling tax to just one strata of the economy. Diversification of taxes would be a great step in reducing the economy’s unrest. In countries like Pakistan, agriculture or capital gains are wholly exempt from taxation and only the salaried classes are taxed. This can lead to a point when people would rather ignore taxes than pay them. Those who are responsible for collecting taxes need to behave like salesmen. They need to discuss the means for increasing people’s revenue, so that they are able to pay more taxes. It is advisable for the government to survey tax-buyers to find out means for improving people’s cash flow. To create a tax culture, it is best to convince people that taxes are not there to harm them, but help create a more prosperous society in the long run.

New client development is another thing that would help promote taxes. The government has to plan a fixed percentage of tax revenue that will be invested in promoting entrepreneurs and small businesses. When businesses grow, it would automatically increase tax revenue as well. As a business, the government has to care for its own costs. They have to use intelligent means for tax collection and need to be cost efficient. During phases where the government is investing in taxation procedures, it must keep its running costs low.

In countries like Pakistan, taxes are becoming a symbol of terror. This is mainly because of the performance record of the government and their reputation for corruption. It would be best if people could pay taxes knowing that the money will be used for their own benefit. Generally, the government is thankful if if people pay the taxes that are imposed on them. Taxation should be a process whereby the taxpayer thanks the government for using his money to improve society. A little change of perspective is always required to cultivate an acceptance of something that is considered bad but may actually be very beneficial. If the reality can’t be changed for the time being, then changing perceptions may help create that change.

I think it is time for tax authorities and governments to rework the concept of taxes in Pakistan. They need to build credibility and educate people about how taxes are the way to a bright future, rather than a monstrous thing to be avoided. This would require a massive endeavor from the government. I know my post of will receive a lot of criticism, but if companies can sell cigarettes that are harmful to consumers, why can’t the government sell tax, which is highly beneficial (if used sincerely). It is a time to design a framework for developing taxes, rather than imposing them by force. The best way is to take the middle path. This will come from brainstorming: our country is unique and therefore needs unique solutions.

 

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At the end of recession, life for airlines may have improved with 2.4 billion passengers, 43 million tonnes of cargo, 32 million jobs, just 1 accident for every 1.4 million flights, 2% of global carbon emissions, $545 billion in revenue, $54 billion in charges from monopoly providers, $217 billion in debt.  This is global air transport today. But in spite of a happy looking air transport industry, the road ahead is bumpy or, like they say in airlines, you may encounter turbulence all the way. You need to keep your seatbelts fastened.

Giovanni Bisignani, Director General and CEO of IATA has warned that the industry still faces real downside risks: like excess capacity, spoiled labor force, uncontrollable costs, taxation and ever-increasing fuel costs. These risks are capable of spelling disaster for air transport business. These risks are briefly explained as under;

1.         Capacity
Excess capacity is one. The upturn will bring temptation. 1,340 aircraft will be delivered this year (15) and only 500 are for replacement. The discipline of chasing profits, not market share, is the only way to protect the bottom line.

2.         Labor
Labor, out of touch with reality, is the next risk. Airlines cannot pay salary increases with our $47 billion in losses. Pilots and crew must come down to earth and strikes at this time are shortsighted nonsense. Labor needs to stop picketing and cooperate.

3.         External Costs

Labor is not the only one with hands in airlines’ empty pockets. The $2.1 billion in cost savings that IATA achieved in 2009 disappeared with increases of $2.6 billion. This year’s IATA Wall of Shame starts with the 19 European ANSPs who increased costs by $413 million. It is clear that regulated performance targets must replace the cost recovery model. On the airports side, ACSA in South Africa is a national embarrassment, increasing its bill by $1.2 billion over the next five years. And this year airlines have a special place on the Wall for the Western GDSs. They are leeches charging at least $4 per transaction when China Travel Sky does it for just $1.20. On top of that, they sell you your data with a seven-digit price tag.  That is pure profit. BASTA.

4.         Taxation
The fourth risk is taxation. Governments went $2.7 trillion in debt to bail out the bankers, stimulate economies and support currencies. Airlines and our passengers should not get the bill to clean up the mess. Any tax increases should be directed at the banks starting with their billion-dollar bonus pots  .

5.         Oil
The last risk is oil price volatility. From $40 per barrel in 2009, crude almost hit $90 per barrel earlier this year. Hedging is critical for airline business, but speculators are making huge profits. Governments must protect the economy from irresponsible profiteering.

Two notable experts on taxation have recently made an interesting comparison of European and American Taxation Models and have concluded that our budget-makers, consciously or unconsciously, are following American Taxation Model while dealing with economic classes within the society. Please go to Business Recorder to read article by Huzaima Bokhari and Dr Ikramul Haq. According to these experts, European governments in general and Scandinavian in particular, deplore the idea that people should remain mired in poverty.

In order to address this issue, these governments have initiated a number of welfare programs to help those lagging behind enabling them to move up economically and socially. According to these experts, these European governments resent the sight of rich families staying at the top, and thus impose high taxes on them to redistribute wealth and income in their societies. In the European view, social stability is desirable and if a certain amount of inflexibility is needed to underpin it, that is a price worth paying to avoid the perpetual class conflicts and restless uncertainties of market-driven models. This is how they do not let the monster of extremism raise its ugly head.

On the contrary, we have not been able to eliminate, let alone control the menace of extremism because our successive governments since 1962, following the American approach of free-for-all meritocracy started benefiting the rich through their economic policies. Inequalities are growing; wealth is being transferred from the poor to the rich with skilful maneuvering of prices of the essential items of daily consumption by the rich. State also gets taxes by price hikes in petroleum prices and make up deficiencies by levying surcharge. Ordinary people cannot afford even every day food consumables – what to talk of sugar, which the ruling mafia has converted into “white gold”. What makes the situation worst is persistence of unprecedented wasteful non-development expenditures.

Although we are already lagging behind and have lost precious time to initiate action, it is not too late to start following European Model even today. The time-bomb of class discrimination is ticking and can explode anytime soon.