Pakistanis are one of the most heavily taxed nations in the world -- The News [Political Economy], October 10, 2010.

Pakistan’s telecom sector is the second highest taxed in the world [19.5 per cent GST, 14 per cent advance income tax, corporate tax of 32 per cent etc] which discourages investors, resulting in lower third generation and fourth generation penetration, not to mention a dramatic drop in foreign direct investment -- study by World Bank.

The yearning for "more and more taxes" by successive governments -- civilian and military alike -- has become a source of irritation for the citizens. They argue as why to pay taxes when in return they do not even get basic amenities of life.

In a true social democracy people pay taxes as their collective responsibility while the state looks after their needs. Pakistanis are subjected to exorbitant taxes as the country is caught in debt enslavement. The major reason for tax defiant behaviour is lack of trust in the government -- abuse of taxpayers’ money for personal comforts and luxuries by the rulers. The state has failed to protect the life and property of the people, what to talk of providing them basic needs e.g. health, education and civic amenities.

The populist argument against paying taxes is ‘why we should pay when the government cannot even ensure safety of our lives.’ This scenario and narrative is paving the way for radicalisation of society. Our so-called experts have never thought of analysing this as a significant internal security threat.

Over-taxation to the extent of expropriation is Pakistan’s real dilemma. Collection of unjust taxes is no answer to resolving existing maladies, rather they add to them. Rise in internal and external debts is a security threat as economic destabilisation can lead to dismemberment of the state -- as was proved in the case of erstwhile USSR. We cannot overcome challenges on political fronts, including the menaces of terrorism and militancy, unless we restructure our economy for social democracy. For this we need an all-out reforms in all institutions as elaborated by Dr Nadeem Ul Haque, former Vice-Chancellor of Pakistan Institute of Development Economics (PIDE) and ex-Deputy Chairman of Planning Commission, in Change the Sherriff  [The News, February 16, 2015] as under:

"…… people in Pakistan are asking what their taxes are used for. ‘I get no public service, yet I pay high taxes. Why?’ This is a frequent lament. People are intuitively in line with enlightenment thinking. Surprisingly donor philosophy remains anti-enlightenment, forcing all Pakistanis to pay more regardless of the quality and quantity of public service. Remember there is no applause when the Sheriff of Nottingham raises his tax collection because everyone knows he is collecting for his own welfare. Our poor governance and failed public service delivery mechanisms are well-known. Should we give such a system more revenues? Surprisingly that has become the mantra. What did the system do well when they had more money in their hands? They engaged in poor quality projects that did not deliver social returns. They also engaged in self-dealing -- maximising their own perks, plots and welfare schemes. They created unnecessary and unprofitable public sector enterprises."

In Reform or face fundamental ascendency, Dr. Nadeem rightly suggested that "the state must first provide the social contract i.e. good law and order and security of life. It must dismantle the rent seeking that protects the rich….. Rent seeking relies on three main components: state subsidies, licensing and regulation; special perks and privileges for ministers and army and civil service employees and land distribution system that allows the poor man’s land to be acquired for the elite especially the army and civil service".

Dr Nadeem has made a very valid point that "about 60 million uneducated children will enter our labour force over the next decade. All of us should focus our attention to jobs and growth if we are to have any peace here. Yet our policymakers are tailing donors into thinking that all economics revolves around increasing tax/GDP. As if tax alone will solve all our problems."

Level of taxation in a country is traditionally judged in terms of the ratio, which taxes bear to some measure of national income. This ratio is called tax-GDP ratio and the change in it is determined by variations in both the numerator (total tax revenue) and the denominator (national income). The study of tax-GDP ratio is considered important because trends in taxation in a country or group of countries are analysed mainly in terms of this ratio, and the composition of tax revenues.

Are inter-country comparisons of taxation levels meaningful? Some fiscal experts have sharply criticised these attempts. According to critics, the economic, political, and institutional characteristics of individual countries are so different that neither theoretical nor empirical studies provide useful information of policy relevance. Tax-GDP ratios do not consider the fact that some countries are more favourably placed to levy and collect taxes than others.

For example, Lotz and Morssan analysed a sample of 72 developed and developing countries to examine the relationship between tax ratio variations and differences in per capita income and degree of openness. The sample included a wide spectrum of dissimilar economies ranging from Nepal to Singapore. It is prima facie erroneous to compare Nepal’s high rural and agricultural economy with a high commercial and industrial city-state of Singapore. Generally the tax revenue to GDP ratio in developed counties has been high and in the less developed countries low.

In Change the Sherriff Dr. Nadeem argued that "donors point to selected countries with a higher tax-to-GDP ratio without establishing a basis for a comparison. Are they implying all countries should have the same ratio? Examine the advanced countries: the US with 27 per cent, the UK with 39 per cent, Sweden with 46 per cent, and Germany with 41 per cent. Does this mean the US should increase taxes to 46 per cent? Yet the US wants to lower taxes. Let us face it: there is no theory that tells us that all tax-to-GDP ratios should be the same. Those who use this argument on the media should be reminded of this simple truth."

The root cause of our economic woes is the outlandish living style of the elites off taxpayers’ money. Look at the residences of judges, generals and high-ranking civil officials with an army of servants and fleets of cars. Wasteful spending on elites and disinclination to tax the rich is playing havoc with the economy. Behind the present chaotic socio-economic and political situation in Pakistan, amongst other factors, is fiscal indiscipline.

The present crisis testifies to the failure of power-hungry and money-greedy elites. When millions are devoid of basic necessities of life, state oligarchy is not ready to surrender extraordinary perks and privileges enjoyed by them at the cost of taxpayers’ money. How can rulers and bureaucrats living in fortified containments, completely oblivious of the ordinary people’s plight, feel the pinch of life’s hardships?

A democratic tax system is one under which tax payments are based on the amount of benefits received from government services -- the Scandinavian social democracy model is a good example to quote. In social democracies, the cost of government services are apportioned amongst individuals according to the relative benefits they enjoy. In economic terms, this is called "benefit principle" that presupposes determination of the incidence of public expenditure before deciding distribution of tax burden.

Tax policy should be aimed at achieving the cherished goal of distributive justice. The government should launch programmes, financed mainly through taxes, to solve the twin problems of unemployment and poverty. These welfare-oriented schemes may also include subsidised/free medical and educational facilities, low-cost housing, and drinking water facilities in rural areas, land improvement schemes, and employment guarantee programmes.

Once people see the tangible benefits of the taxes paid, there will be better response to tax compliance. Taxes cannot be collected through harsh measures and irrational policies. The government must demonstrate by its action to the taxpayers that money collected from them is being spent for collective welfare.