Pakistan faces insolvency but wealthy refuse to pay taxes

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Pakistan faces insolvency but wealthy refuse to pay taxes


There’s a prevailing notion that General Kayani’s military is the most powerful entity in Pakistan, however, the other day it was opposition party leader Nawaz Sharif who held a gun to the head of the Pakistani government in order to protect the rich from paying any taxes.

Sharif, a former Prime Minister and leader of the conservative political party known as the Pakistan Muslim League (PML), demanded the reversal of fuel price increases and income tax reforms lest he bring down the government with a no-confidence vote, which brought Prime Minster Yousaf Gilani and the ruling Pakistan People's Party (PPP) to their knees.

The Muttahida Qaumi Movement (MQM) ignited the crisis by quitting the government last Sunday over the fuel hikes, a move that cost the PPP its majority.

Gilani caved yesterday to save the coalition and prevent a government collapse, but did so at a high cost when he agreed to resume fuel subsidies and delay income tax reform, putting the financial solvency of the Pakistani state at risk.

The government was forced to raise fuel prices as a last resort because only 2% of Pakistanis pay income tax. Most exasperating is the fact that a multitude of government officials, landed elite and rich industrialists pay zero in taxes each year.

As a result, Pakistan’s revenues will now remain among the lowest in the world according to the New York Times. Pakistan will have to survive off aid from the United States and the International Monetary Fund (IMF). In the same NYT’s piece, Salman Massod and J. David Goodman provided a mind-blowing observation:

The Pakistani government appears to have calculated that the country is too strategically important for the United States and the monetary fund and that even though Pakistan has balked on reforms, the international community would come through with support.

Not only does this sentiment run through civilian government, it runs through the mind of General Kayani as well. Because the bulk of foreign aid is tied to U.S. and NATO security objectives, incessant war will indirectly fund the Pakistani state indefinitely. Just ask Pakistan security expert Ayesha Siddiqa who wrote in a recent assessment of Pakistan’s counterterrorism strategy:

U.S. diplomats stationed in Pakistan believe that the continuation of the fight against terrorist organizations helps Islamabad extract money from Washington. And in reality, Pakistani forces do not want the United States to leave the region.

Such views emphasize the skewed nature of Pakistani—U.S. relations. The bilateral strategic reengagement, which started after 2001, represents a patron— client relationship. Since the linkage is based simply on Islamabad providing support for U.S. security interests in South Asia, there is a trust deficit between the two states. The bulk of Pakistani decisionmakers and military commanders believe that the U.S. interest in the region will once again wane when the United States withdraws its military from Afghanistan. Therefore, as the diplomats stated, it actually benefits Pakistan to keep the threat of terrorism alive.

The problem also is that the U.S.-led coalition’s occupation of Afghanistan and the CIA drone wars in Pakistan’s western tribal areas are fueling domestic terrorism in Pakistan. But if and when coalition forces do finally withdraw, violent extremism will not leave with them because Pakistan will still need radical militants for the perpetual struggle against India.

Tax revenue and foreign assistance that does flow into Pakistan's coffers is certainly not invested in areas that lead to long-term stability, such as education and healthcare. Most of the money is diverted to the military budget to fund the war on domestic terror, nuclear development and defense against India.

In addition, private foreign aid organizations are becoming more reluctant to fill the gap and invest in areas like education, especially those burnt by corrupt Pakistani politicians who have siphoned off funds.

Meanwhile, as an anemic near-bankrupt government is unable to provide basic civil services, hard-line mosques and militant groups fill the vacuum by providing education, health care and efficient justice, while winning the hearts and minds of future radicals.

The initial steps in the long perilous journey to make Pakistan financially solvent should not, theoretically, be too difficult. Yet, from real world experience it seems this path will indeed be rife with political difficulties, chief among them being getting the rich to pay their taxes.

Pakistan faces insolvency but wealthy refuse to pay taxes - National Afghanistan Headlines | Examiner.com