Financial Transparency Coalition

International Monetary Fund/Flickr*

In the past year, US Secretary of State, Hillary Clinton, and British Prime Minister David Cameron have been fairly vocal about Pakistan not taxing its elites, while the US and UK give  aid to the country.

Of course, in a fragile state like Pakistan, statements by the UK and US governments on tax are no doubt motivated by the potential for tax reform to build a strong and responsive state – which is less likely to be a security concern internationally.

But Finance Minister, Dr Abdul Hafeez Shaikh, has joined the call for the rich, legislators and media ‘moguls’ to carry out their national duty by paying taxes as per their income and capacity. In doing so we he vowed to expand the tax-net and go after the tax dodgers.

The Pakistan Observer noted that:

“Tax-to-GDP ratio in Pakistan is shamefully low but ironically those who do not pay their taxes and are known to be involved in tax evasion are in the forefront of the criticism of the Government vis-à-vis expenditure on social sector like health, education and clean drinking water.”

Like in many countries, rich and poor, taxing the rich is a problem:

“Finance Minister Hafeez Shaikh is a strong proponent of taxing all classes and especially privileged ones but regrettably these classes have powerful representation in assemblies and decision-making circles and have thwarted proposals aimed at taxing their fatty incomes.”

And business came in for criticism:

“It is also strange that majority of industrial and business class even do not deposit the taxes they collect from consumers, which also speaks volumes about inefficiency and inefficacy of our tax-collection mechanism and system.”

In an attempt to shift the debate somewhat, Dr Hafeez Shaikh made clear that tax involves a social contract which promotes rather than undermines sovereignty.

“While it is duty of the state to ensure enabling environment for flourishing of their businesses, it is also their duty to contribute their share to the national kitty so that the country could stand on its own feet, throwing away the yoke of foreign loans that impinge upon our sovereignty.”

Such a clarion call to the patriotic act of paying tax is welcome. Only with a broadly based tax system can a legitimate state be built; a state which can provide security, services and education for its people. And, of course, the elites must be part of this bargaining process.

*Image License: Some Rights Reserved by The International Monetary Fund