Cash for Vote

There has been a definite enthusiasm for seeing Pakistan progress economically, politically and socially. And while a number of
aspects of the government need revamping, what definitely needs to change is peoples' outlook on their contribution to the
country. We clamor for better education, health care and infrastructure. We want equity in distribution of wealth, low inflation,
and stable currency. Finally, we want a secure, crime-free and violence-free society.

Yes, this is something we all aspire for and more. But what this all translates into is give, give and give me more. What this does
not talk about is how any of it can be achieved. There are always tradeoffs. There was an interesting article in one of the leading
financial newspapers, evaluating the impact of tax rates in various countries around the world. The gist of the article was
that businesses do not look just at taxes but also at the services that are provided in return for those taxes. But don’t we all. As
individuals, our marginal tax rates in the western countries are much higher than the ones levied in the developing countries.
Today, in Pakistan the income tax rates on salaried workers and companies are much lower than those on their counterparts in
other parts of the world. Yet there is a continuous migration out of the country. The key reason is the perception that services received in
return for the low taxes are inadequate.

Of course, this is only one part of the story. Pakistan may lose people due to the perception of poor quality of life, but the emotional
attachment to one's homeland is difficult to break. Once we are in a foreign country we realize that the services that we get
are not with cost and we as taxpayers/citizens pay that cost. It does not matter whether we are citizens of Canada and live
in the United States or any other country, Revenue Canada (tax department) will take a share of our earnings. We may be
citizens of United States and live in Canada, and Uncle Sam will have its cut of the earnings. Mind you there are tax laws to
rationalize the amount of taxes taken, but you cannot earn an unlimited amount of money without coughing up the tax department’s
share.

Let’s look at the United States. If you are a citizen / green card holder and decide that you would like to work in the Middle East
because there are no taxes, you will be in for a shock if you earn more than US$70,000 because Uncle Sam will be at your
doorsteps to ask for its share.

If you are Canadian and move to the United States and do not completely cut your ties with the country (which means no ownership of
homes, cars, savings, checking, or investment accounts, credit cards, telephones - mobile or otherwise, insurance, etc.) you will
have to pay taxes on your worldwide income (you may, of course, deduct the taxes you may have paid elsewhere).

Turn to a developing country, like the Philippines. Rules for its citizens are the same. You may work anywhere in the world but if you want
to use the Philippines’ passport you better make sure that you have filed your tax returns and have your assessment.

But Pakistan seems to be a country where complete sectors of the economies are exempt from filing taxes. Agriculturists,
expatriates (overseas Pakistanis), companies in tax free zones, etc.

Now does that mean that developed countries gives no tax breaks? No, not at all. But they also do not give unlimited breaks.
If a particular sector needs to be supported, they may claim an accelerated deduction or credits of a particular amount. Beyond
that you are still taxed. If you are in the high tech area developing software, you will get special research and development credits
that you can apply towards your income from any sources. However, you do not get complete freedom from any amounts of
income generated from that business. In Pakistan, it does not matter if you earn Rs. 10,000 from agriculture or Rs. 1 million, as
long as you claim it is agricultural income you do not have to pay a single paisa. The same is the case with expatriates. When
working abroad, a sizable number of them have no option but to maintain their citizenship as Pakistanis (all Middle Eastern
countries and certain Pacific and European countries do not award citizenships), while other expatriate do not like the hassle of applying for visas for visiting Pakistan. But when it come to paying their share of taxes, nobody is beating the path
to Pakistan Revenue Service.

Why is that, why don’t we pay our fair share of taxes. Well for one, the law does not require us to pay taxes, as it does not for
agriculturists. But then why does the law grant these two sectors special exemption. That takes us back into history. The
expatriates were, until 1985, allowed to bring in funds legally only by surrendering foreign exchange to the State Bank of Pakistan.
But after Mahboob-ul-Haq circumvented that provision by allowing them to invest in FEBCs and sell them to Pakistanis’ who
would be allowed to remit their dollars anywhere in the world, Pakistan lost a captive market for foreign exchange. This was
one of the leading reasons for falling expatriate foreign exchange remittance to Pakistan after 1985.

What about agriculturists. Well, all governments in Pakistan wanted to please the lower income population of Pakistan and one
way was to ensure that the daily food items were available at reasonable prices. This led to having price control and government
acquisition of food grains and cereals at controlled prices. This left the agriculturists with lower profit margins, so they were
allowed not to pay taxes.

Subsequently, foreign agencies have forced Pakistan to move towards market economies which meant forsaking government
acquisition and distribution of agricultural goods. The subsidies have also been reduced to the farmers. But there have been no
moves to levy taxes.

So what needs to be done? Well, I don’t know what is going to happen in the agricultural sector but what I would like to propose has
to do with the expatriate sector. The government should propose a bill in the parliament that offers passports and voting rights (for
national and provincial assemblies) in lieu of taxes.

Those citizens that are in the Middle East will have no choice but to pay taxes. However, those in North America may weigh the
benefit of paying taxes with the rights they lose by not paying taxes. Mind you the tax structure must be rational. If the burden is
excessive, the citizens will just end up giving up their passports, or in the case of workers in the Middle East, make their way back to
Pakistan. But a rational structure will enable Pakistan to tap into a resource base that could be used to repay its foreign debts and improve
foreign affairs services, amongst other things.

Compliance can be monitored at the time of passport renewal or voting and can be verified either through assessments received by
individuals from foreign tax departments or contracts filed with foreign labour ministries (Middle Eastern).

The government should also set up special seats in the assemblies to represent these expatriates, e.g., 2 national assembly
representatives from Gulf, South East Asia and Australia, 2 members from North America and 1 from Europe.

Finally, the best thing that can happen from all this is that we will not have politicians holding millions of dollars abroad without
paying taxes on its income by just claiming that these are tax exempt investments under the Pakistani law.