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Economic Challenges and the Taxation Dilemma in Pakistan..


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This summer, Pakistan saw a troubling rise in the number of suicides committed by people who used electricity and were caught in the maze of unpaid electricity bills. A regrettable increase in self-inflicted fatalities among those unable to pay their debts resulted from the crisis’s peak materializing in August, concurrent with a significant increase in electricity prices. An array of additional levies has added to the nation’s mounting electricity bill crisis, which was already made worse by the unprecedented rise in inflation rates. These additions have resulted in financial obligations that far outweigh the actual cost of consuming electricity. These additional charges include a variety of tax levy types, including income and sales taxes, levies related to state-run radio and television broadcasting organizations, and a fuel price adjustment. A significant number of small and medium-sized businesses are being forced to close their doors as a result of the significant financial losses incurred as a result of the exorbitant electricity bills, while households have been severely restricted in their financial allocations as a result of these taxation measures. This unfavorable economic situation has cast doubt on these businesses’ viability, raising questions about the nation’s overall economic health.

Meanwhile, there is a noticeable agitation regarding the expansion of Pakistan’s monetary inflow, given the country’s growing fiscal imbalance. The level of the nation’s debt has already grown to the point where the servicing of debt obligations consumes about 50% of the country’s gross domestic product (GDP), making the decision to take on additional debt a very difficult one. The large group of tax-paying citizens who are conspicuously noncompliant is the glaring mystery that hangs over everything. Although the general public pays various taxes as required, the argument made here is unmistakably directed at direct levies, most notably the income tax.

This conundrum leads to an inevitable question: What sustains a sizable portion of the populace’s ongoing resistance to paying their taxes? The lack of efficient government communication is a compounding factor causing this recalcitrance. Giving up one’s hard-earned money out of a sense of altruism is still a difficult task, so the government has a duty to articulate the many advantages of a high-tax system and the real improvements it will bring to the lives of average citizens.

Additionally, many political figures earn sizable side incomes from their employment, real estate holdings, and other sources of income. The apparent belief that wage earners are easy pickings for revenue collection exacerbates the lack of tax coverage. Due to their political affiliations, a number of business sectors escape their fair share of fiscal responsibilities, while the salaried masses, who repatriate their wages on a monthly basis, bear a disproportionate fiscal burden. The challenging task of overhauling the tax system and fostering public confidence in it represents a steep uphill climb.

The fact that raising taxes is unpopular by nature cannot be changed. However, in Pakistan, the wealthy class routinely ignores its financial obligations, forcing the government to rely on foreign aid. The lack of a strong tax structure in Pakistan has a more negative effect: it exacerbates socioeconomic disparities, meaning that the nation’s elites’ excess is unaffected and outside the purview of public welfare. The elite have, in fact, orchestrated a fiscal structure resembling a flimsy Ponzi scheme, complete with the appearance of sustainability but resting on an unsustainable trajectory that is prone to abrupt collapse.

Meanwhile, the poor, future generations, and the economic sectors that are productive all bear the costs associated with maintaining this fiscal paradigm. The burden of fiscal imposition is disproportionately placed on the shoulders of the poor through a variety of indirect levies, even though less than 1% of the country’s 241 million citizens pay their direct income tax liabilities. The Pakistani military establishment, which wields considerable influence, has the power to resolve this dilemma of financial commitment. Even though Pakistan struggles with institutional fragility, the military establishment continues to be the center of whatever remnants of state efficacy exist there. It is the entity with the most methodical structure and the ability to engage in extensive strategic discussion. Thus, it begs the question of why the Pakistani military has not given the need for tax reform the prominence it deserves, even during periods when it directly held power.

The military establishment enjoys a wide range of privileges in addition to the state’s significant financial endowment, which manifests as a sizeable allocation within the national budget and the granting of tax incentives to businesses with connections to the military. These include a tendency toward priority access to commercial and development domains intended for residential or alternative use, which is noteworthy. Despite that, as part of their compensation while on active duty, military personnel receive residential parcels and commercial real estate holdings. These corporate sinecures naturally lead to their post-retirement compensation, which is made up of sizeable pensions and lavish corporate sinecures, and which represents the zenith of their wealth and power after illustrious careers.

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