Poor people pay more taxes | The Express Tribune
KARACHI:
Economist Dr Kaiser Bengali has said that people in the low-income group are paying more taxes in Pakistan than those in high-income brackets, as the share of indirect taxes has spiked to 85% compared to the government’s claim of reducing their ratio to 59-60%.
Speaking at a workshop titled “Budget Reporting” at the Karachi Press Club on Tuesday, he said “a study found that the top 10% rich people pay Rs19 in taxes out of every Rs100 spent, while the bottom 10% poor people pay Rs22 in taxes out of every Rs100 spent.”
“Our tax system is highly unjustified,” remarked Bengali, who has served in various capacities in different provincial governments.
He said the share of indirect taxes stood at 85% including the withholding tax (WHT), which was burdening more the low-income group compared to people in the high-income group.
Theoretically speaking, according to Bengali, the withholding tax is a direct tax. But practically, it has become an indirect tax.
He elaborated that the prevailing regulations demanded that businesses and households pay the WHT in advance like on the supply of goods. Later, the taxpayers come to know they were not liable to pay the WHT and can claim refund while filing the annual tax returns.
However, there is no mechanism in place to pay and receive the actual refund. A large number of people do not claim it. Accordingly, the tax is incorporated into the cost of production and impacts various income groups differently, affecting the poor the most one way or the other.
The economist said the government claimed that the share of indirect taxes had been reduced to 59-60% but when one would adjust the WHT, the share of indirect taxes would surge to 85%. After 1992, the WHT had been introduced in Pakistan.
He emphasised that the tax would become justified if the government spent it on the betterment of low-income group people. However, it did not happen.
He pointed out that most of the time finance ministers opted to impose and increase taxes on the commonly and widely used products like wheat flour, cooking oil/ghee and sugar, as no one could afford to reduce the consumption of essential goods. “And this ensures higher collection of revenues by the government.”
He elaborated that poor people spent most of their income on food and kitchen items and while the rich also spent more on food, its ratio remained low in proportion to their total income.
While underscoring the need for savings, the economist said there were 40 divisions in Islamabad, including the ones which had been transferred to provinces under the 18th Amendment.
These divisions are carrying 70 departments among others that are of no use today like the Human Development Council and the Human Development Commission and the addition of three new departments under the Benazir Income Support Programme (BISP).
He called for shutting them down, which would save Rs30-35 billion annually for the government.
He praised the BISP, saying no corruption was found there. However, the addition of three new departments under the BISP umbrella was eating up Rs5 billion for no purpose.
He decried that no government had introduced a low-cost housing scheme after 1977 and people were forced to pay heavy rents for residences.
The available information suggests that in some cases up to 20 people are living in a room in Karachi. They live in such a congested space that they cannot even sleep peacefully.
He was of the view that the government was facing a dearth of finances, which was why it was delaying the presentation of next year’s budget. The International Monetary Fund (IMF), according to Bengali, has barred Pakistan from using the fund’s new loan for repaying the Chinese debt. “That’s why Prime Minister Shehbaz Sharif has left for Beijing to persuade them to reschedule the maturing loan or give Pakistan a new loan to repay the maturing one.”
Published in The Express Tribune, June 5th, 2024.
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Biting the hand that feeds you | The Express…
BRUSSELS:
Cutting tax rates in the highest income tax brackets has the most positive impact on tax revenues and the economic growth. The important point is to recognise that people don’t work to pay taxes; they work to earn what they can after tax.
It is the after-tax rate of return on work, after all, that is the incentive that propels output and employment growth.
Given the data on tax rates and tax revenues from the highest income earners, there is no way anyone can take for granted that higher tax rates mean higher revenues. The highest tax bracket income earners when compared with those people in lower tax brackets are far more capable of avoiding and evading taxes.
Rich people are highly incentivised to keep their money. They are smart and they have money – they can hire lawyers, they can hire accountants, they can hire members of the National Assembly, senators and bureaucrats.
They are the people who want a favour from the government. Rich people can buy influence. They don’t only have the means to buy influence, but they also have the ways of doing it. This fact is universal and Pakistan is no exception.
Money is a universal language, but it speaks at different volumes. Rich people can get around taxes. If the government taxes rich people too much, they will flee the jurisdiction for favourable pastures and not pay any taxes.
The optimal tax system is one where taxpayers recognise their obligations to pay taxes and believe the tax system is fair and equitable. Then rich people will pay taxes willingly.
Pakistan’s tax agenda should be to stop high-income earners from not paying their fair share of income taxes. Given that they hold the majority of the nation’s wealth, they contribute disproportionately in income taxes to the national exchequer.
What’s missing in Pakistan is a simple, straightforward, broad-based, flat rate and predictable tax system. A flat tax system should be with no exemptions, no exclusions, no deductions and no credits.
A flat income tax means that all taxpayers, regardless of their income level, pay the same percentage of their income in taxes. It is fair and creates incentive for better compliance and more tax revenues.
For example, say the tax code has a flat tax rate of 10%. A taxpayer earning Rs9,000,000 would pay 10% of the income in taxes (Rs900,000), while a taxpayer earning Rs90,000,000 would also pay 10% of the income (Rs9,000,000). So, while the tax percentage stays the same across all income levels, your specific income determines how much you owe in taxes.
The advantage of flat income tax over complex progressive or graduated rate tax systems is that it is straightforward and takes the same proportion of income from each taxpayer. The simplicity of this model, offering clarity and ease of administration, shouldn’t fool you. It will have massive beneficial consequences.
In a progressive tax system, the tax rate increases as income levels rise. Higher-income individuals pay a higher percentage of their income in taxes when compared to those with lower incomes.
Unreasonable high progressive tax rates lead to quixotic tax enforcement, corrupt implementation of rules and regulations, counter-productive behaviour of individuals resorting to avoiding, evading and misrepresenting their true income.
The rich are particularly sensitive to high income brackets. The elasticity of supply of taxable income is the greatest in the highest income brackets. Tax rate cuts in the highest income tax brackets have the most positive tax revenue and growth impacts.
The government should incentivise high-net-worth individuals by being a protector, a creator and a friend by bringing them gradually in the tax fold. It will also diminish the “trust deficit” that exists between the high-income earners and the tax collector.
The rich, in return, should recognise their obligation to pay taxes and believe that the tax system is fair and equitable. They should set an example by marketing themselves as patriots who care for all the citizens and want to share a common prosperity for all Pakistanis.
The writer is a philanthropist and an economist based in Belgium
Published in The Express Tribune, June 3rd, 2024.
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EaseMyTrip posts its highest Ebitda at Rs 228 crore…
This achievement marks a substantial 19 per cent year-on-year (Y-o-Y) growth. The company also disclosed a consolidated revenue from operations of Rs 5,906 million for the same period, reflecting 32 per cent increase compared to the previous fiscal year.
In the fourth quarter of FY24, EaseMyTrip exhibited commendable growth across various segments.The company reported 1.4 Lacs hotel nights bookings, marking a substantial 39 per cent increase over the previous year, and contributing 12 per cent to the segment revenue.
Bookings in the train, buses, and others segment rose by 53 per cent to 2.7 Lacs, contributing 8 per cent to the segment revenue.
The gross booking revenue for the quarter amounted to RS 20,900 million.
Furthermore, the Ebitda for Q4 FY24 stood at RS 577 million, indicating a noteworthy 24 per cent increase Y-o-Y, while the Profit Before Tax (PBT) for the same period was RS 550.7 million, also experiencing a 24 per cent increase Y-o-Y.
Throughout FY24, EaseMyTrip continued its trajectory of growth and success. The company reported 5.2 lacs hotel nights bookings, representing a 49 per cent increase over the previous fiscal year, and contributing 9 per cent to the segment revenue.
Bookings in the train, buses, and others segment surged by 67 per cent to 10.4 Lacs, contributing 9 per cent to the segment revenue.
The Gross Booking Revenue for FY24 amounted to RS 85,126 million, reflecting a 6 per cent increase.
The Ebitda for FY24 reached RS 2,282 million, marking a substantial 19 per cent growth Y-o-Y, while the PBT grew by 16 per cent Y-o-Y to RS 2,151 million.
Nishant Pitti, CEO and co-founder of Easy Trip Planners expressed his satisfaction with the company’s performance, stating, ‘These initiatives underpins our commitment to strengthening partnerships and enhancing customer satisfaction across the travel and financial services sectors. We look forward to continuing to serve our customers with excellence and expanding our offerings to meet evolving needs in the market.”