Tax is not a monster

Published: October 17, 2010
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Taxes are becoming a symbol of terror

Taxes are becoming a symbol of terror

While watching a TV program about Pakistan’s economy, something occurred to me:

1) when imposed, taxation is irrational   – but-

2) if properly developed taxes can make a positive impact on economy and society.

Taxes are a product and we are the clients

Due to negative media portrayal, people look upon taxation as a monster. I can’t agree with classical economists, nor with the conventional discipline of tax science. To me, taxation is merely a product of the government. I know the objection can be raised that if tax is a product, we can avoid buying it. I think we need to ignore this aspect, however, and try to make one point: everybody has to buy this product. It is a product that works for the well-being of society and helps governments work towards social and infrastructural development.

That means by ‘selling’ tax, the government can generate revenue that allows it to fund projects for the public good. As I previously stated, tax is a product; therefore it follows that we, the clients, are the kings.

How can the government make this work?

  • They need to be careful not to make the “product” (i.e: tax) too expensive. It is actually revenue that is taxed, not businesses or individuals. The government needs to make sure that they take care of their clients’ revenues, for their own good. It is not advisable for them to develop tax in a way that would harm businesses, or make people poor. The focus should be on increasing prosperity, for their own long-term benefit.
  • In order to a good relationship with their “clients” (i.e: citizens), the government needs to help people earn. This means that they have to market effectively by increasing people’s wealth, so that they are able to afford taxes. No government can be efficient if they simply collect tax, rather than investing in it. Investment in taxes means that it is necessary to multiply the number of clients-those with income and earning. The best would be to invest in establishing businesses that can increase tax revenue in the long run
  • It is always advisable to diversify the tax portfolio, rather than putting pressure on selling tax to just one strata of the economy. Diversification of taxes would be a great step in reducing the economy’s unrest. In countries like Pakistan, agriculture or capital gains are wholly exempt from taxation and only the salaried classes are taxed. This can lead to a point when people would rather ignore taxes than pay them.
  • Those who are responsible for collecting taxes need to behave like salesmen. They need to discuss the means for increasing people’s revenue, so that they are able to pay more taxes. It is advisable for the government to survey tax-buyers to find out means for improving people’s cash flow. To create a tax culture, it is best to convince people that taxes are not there to harm them, but help create a more prosperous society in the long run.
  • New client development is another thing that would help promote taxes. The government has to plan a fixed percentage of tax revenue that will be invested in promoting entrepreneurs and small businesses. When businesses grow, it would automatically increase tax revenue as well.
  • As a business, the government has to care for its own costs. They have to use intelligent means for tax collection and need to be cost efficient. During phases where the government is investing in taxation procedures, it must keep its running costs low.

In countries like Pakistan, taxes are becoming a symbol of terror. This is mainly because of the performance record of the government and their reputation for corruption. It would be best if people could pay taxes knowing that the money will be used for their own benefit.

Generally, the government is thankful if if people pay the taxes that are imposed on them. Taxation should be a process whereby the taxpayer thanks the government for using his money to improve society. A little change of perspective is always required to cultivate an acceptance of something that is considered bad but may actually be very beneficial. If the reality can’t be changed for the time being, then changing perceptions may help create that change.

I think it is time for tax authorities and governments to rework the concept of taxes in Pakistan. They need to build credibility and educate people about how taxes are the way to a bright future, rather than a monstrous thing to be avoided. This would require a massive endeavor from the government.

I know my post of will receive a lot of criticism, but if companies can sell cigarettes that are harmful to consumers, why can’t the government sell tax, which is highly beneficial (if used sincerely). It is a time to design a framework for developing taxes, rather than imposing them by force. The best way is to take the middle path.This will come from brainstorming: our country is unique and therefore needs unique solutions.

saqib.omer.saeed

Saqib Omer Saeed

A financial researcher, analyst and adjunct faculty in CBM, SZABIST, BIZTEK & University of Karachi and blogs at www.bizomer.com

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.

  • Ben

    Unique problems need unique solutions, rightly said. It is a very interesting article. The government has indeed failed in its duty to “sell” the taxes. Read more at: link textRecommend

  • http://blogs.tribune.com.pk/author/18/nadir-eledroos/ Syed Nadir El-Edroos

    Taxation is an important way of holding the government. One of our problems is that state officials are not response to their constituents concenrs as they have no need to justify state allocation of resources as those resources are not generated through taxation by those same constituents.

    We complain how our government bends over backwards to meet the interests of foreign powers. Not surprising when that is where the money is coming from. On the other hand, when a wider section of taxpayers are included into the tax net,they too would then take wider interest in the concerns of the state, and the impact of government expenditure in their surroundings and the wider community.

    For example its shocking that no one is concerned with the size of the national debt or the fact that the biggest chunk of the state budget goes to financing interest payments on foreign debt. Could that be because most tax dodgers know that they wont have to foot the bill. Recommend

  • Shah

    Idealism is dead.Recommend

  • abc

    Sir, if u cud also teach the same way it would be nice. aise tu samajh nahi aata ap kia parhaatae hain.Recommend

  • http://www.bizomer.com Saqib Omer Saeed

    Mr. Ben, Shah Mr. Nadir & abc. Thanks for your comments.

    @ Shah: It is indeed not an idealism. It is logic. Yes for a time being it looks idealism but once idealism become reality people post it as innovation. It is a little historic psychological fact in this world.

    @abc: The big problem is our education system whereby students are not fostered in a way that they can directly plug to the real education but indeed we can not discuss things in more general way in the classroom. We anyways have to study the concepts and the actual music. Even then majority of my students evaluates me for their understanding but few can not understand so it is me and you who have to work it out anyways. Our business education is the key to address whereby we don’t have background study and we expect to absorb all the concepts in three hour session. So whoever needs to be rectified have to!Recommend

  • Zohaib Mehfooz

    sir article was awesome but the poor shud knw that what benefit they’ll get out of buying that govt product i.e tax Recommend

  • Ahsan Rasheed

    Sir, i really liked ur suggestions, i got a new perspective how govt can market their product “tax”, I know taxes are good for a country if used wid the intension to help the country, I wud love to give taxes if the intensions of the govt were to help the country, but being a patriot Pakistani, i wud still try not to give taxes, because i think it will be fool of me if i do dat, I earned it so hard and i know their will be no accountability of what i m giving, i dont know where the govt will spend the money, but one thing i surely know, that it will make my country’s rulers’ life more lavish, it will help them decorate PM and President house more beautifully.
    When we have a leadership which has no concern about Pakistan, why shud i waste my money filling their pockets, i rather try to evade it. Being a patriotic Pakistani i think like dat, i m sure others think the same.
    These suggestions are gud for govts who feel the pain of their ppl. I totally agree wid ur suggestions but to make it happen in Pakistan, it will take time for the ppl to trust in the leadership, and dats going to only happen after v find a sincere leadership, and in the present scenario, i dont see it happening soon in our country.Recommend

  • http://www.bizomer.com Saqib Omer Saeed

    Thanks for your comments Ahsan & Zohaib: You have raised some interesting points.
    Sometimes in the life of nation there is a starting point to glory but this point comes in when the nation take responsibility and think themselves responsible for the state of affairs. I know that we can easily say that our government is not the one who is capable or sincere of doing good things. But can we anticipate the historians to accept our excuse once they shall write the attributes of ours as a nation or country. It is Pakistan whose name is on stake and once the history shall be evolved then there shall be no government or people but Pakistan that shall have black dots. We need to stand up as a responsible people.

    If government is not good so what we are waiting for? Come forward and mobilize to be a government. Our generation is the generation of hope of this country. We can not sit back relax and count on what we don’t have. Yes current system of taxation looks monster whereby the national economy is not a preference in strategy for current government but there must be a starting point of good things and this shall come out from us. I am sorry that regardless of the fact we don’t have the best of governments but see the way our traders sells in the month of Ramadan or even in normal course. The way they take profits in excess of their actual value is another question. It means the problem is not merely a government. It is the whole mindset that needs a speedy rectification. It is a time when we have to say that we are in to make Pakistan a progressive economy. If something is trouble so trouble shoot and manage. No leader shall come for us but those who shall come from our own ranks. So, why we wait for a great leadership to be installed? Why don’t we produce the same if we need it so badly?

    We can not state that we shall not pay taxes if we can, merely because our government is corrupt. If we do so then we shall share the same myth of corruption. I think being a Muslim we always need to think ourselves responsible of our acts. Even if the government is corrupt we have to pay taxes because this at least keeps a responsible citizen alive within us. This responsible citizen shall become the catalyst for change. Yes once we shall mobilize to get a good government so taxes shall be taken as a product that government have to sell with a vision to promote public welfare and if this shall be an objective and strategy then people shall never think tax as a monster. I love to see the way you guys are discussing it. It shows that we are still alive. Our future is in our hands and we shall have to show the world that we think beyond even in the hardest of times and once we shall have things standby for progress then we can do wonders. Recommend

  • http://abeer-g-a.blogspot.com/ Abeer

    perception can only change and credibility of tax paying can only increase, if the tax payment obligation shift towards the elite class here. as u mentioned, diversification is needed. Otherwise it will remain a monster who makes people poor and poorer in the society like us. Surely, tax is a product for development but only if it is considered and invested in the same way by the authorities rather than a tool for squelching common man’s income.

    @ the abc comment
    Your way of teaching is a bit tricky for students to digest at first sir. Specially due to the fast pace and ideological approach and sometimes it felts like we are listening so much hi fi numeric, finance and concepts in one go, that fly over our heads but i must say samajh sb ata hy.chahe dair se aaye.Recommend

  • Rameez Ahmed

    treat to read sir. interesting and thought provoking. I also enjoyed your comments and I appreciate how well you answered comments which are more harsh or odd since I started reading your articles on ET. you are one of the outstanding teachers I have seen with a lot of knowledge. Recommend

  • wahaj ahmed

    in my view it is the need in our system to take necessery measures to increase our tax net especially the direct taxes, as most of us already know that our direct tax to GDP ratio is around 3.5 to 4% of GDP. the basic reason behind this mess is corruption at our grass root level. this creates a feeling of inequality and intense burdens on the shoulders of the middle or saleried class and most of the peoples feel tax as hell on them. i think it is only possible when each and every individual whether rich or poor. who ever he is where ever does he belongs to and whatever he does. he must access him self that is he doing justice to him self and every one ? Once this feeling of self accessment will develop in our nation. then no one will do injustice to any one, and i am sure that every one would generously pay out their taxes them selves because then every one will believe that what ever we are paying in the the form of taxes will definately be used in an effective manner.Recommend

  • parvez

    Too many “ifs” involved in your theory making it a non starter, its good as academic writing.
    People will pay tax the moment they know that their money is for the most part being spent on their welfare and the good of the country.
    In an environment where accountability is zero to expect an equatable tax culture to be established is over ambitious.Recommend

  • http://www.bizomer.com Saqib Omer Saeed

    Thanks Abeer, Rameez Wahaj & Mr. Parvez
    @ Mr. Parvez; It is indeed nice to see your comment. Yes you are right that there are about seven IFs in this post as it is a framework.

    I have even mentioned the state of our country in the post i.e. “In countries like Pakistan, taxes are becoming a symbol of terror. This is mainly because of the performance record of the government and their reputation for corruption. It would be best if people could pay taxes knowing that the money will be used for their own benefit”

    Equitable Tax Culture is the need of our economy and as your mentioned about zero accountability so this is what we have to work out anyways. In my personal view we always need to come-up with solution in a decision tree way. Stopping at certain point is not the solution. It is indeed a tax development approach rather than tax imposition. Even if accountability is 100%, the rational society needs to see marginal or incremental benefits [utility] from new taxes. The taxes share same meaning in developed and underdeveloped countries. Nobody welcome taxes in first go. So this is the way to market tax in general. Yes if we have other problems so we have to resolve them to reach a point from where we can go through. I really appreciate your concern. Thanks for your comment once again. Recommend

  • http://www.bizomer.com Saqib Omer Saeed

    Even it is the same advice to our government from this post that to enlarge tax-net they have to change their approach and strategy. This include cultivating accountability and development approach that people can better count for while they are being asked to pay the taxes by Government Authorities…. Recommend

  • Ali Q

    There is an old saying and it goes like this ,
    ” Fool me once, shame on you; fool me twice, shame on me ”
    Now in Pakistan TAXATION exists but then it still is a monster for all of us .why ? well Do you expect people to follow and be a good citizen and pay their taxes on time when their so called leaders , with their expensive jets , cars and big houses , correction big palaces dont pay a single dime as they all are some home exempt or immune to taxation.
    Now if a leader is suppose to lead by an example , then why don’t we follow the footsteps of our leaders , why should we pay taxes when they don’t.
    if we do pay our taxes , where does the money go then ? we need a system , yes we do , but has anyone ever thought how the present system works ? do we need to change EVERYTHING then ?
    Taxes are good no doubt , but only when the people giving them get results rather then watching their hard earned money going into the pockets of our leaders . Recommend

  • Amar Khan

    It is yet another interesting article from you. really exceptional in ideas and I agree with Ben on his blog that it is not a dry post. You have beautifully communicated that taxes can not be enforced. They need to be structured in a way that can satisfy people demands and their future social and business benefits. Such a nice style to to present Tax Utility concept in easy words. Not at any point I felt that you justify blind taxation but you explore new ways to government to change their tax management. Salesman concept is mind blowing. You can think a little refined on it to develop a model. I hope this could reach the hearing of those who are our tax imposers. Recommend

  • Faisal Amin

    100% agreed, but the problem is not the Tax system rather it is on the implementation, and the will to apply it. Problem again is the Government. I think there should be independent authorities with out the government influential people like PTA, but again that would we formed by the government. Recommend

  • http://www.inspectagadget.net Zohaib Jawed

    Taxes are not Monster, I totally agree with that sir, and its not just the media who’s portraying that. The point is, If I’m paying tax since the last 10 years or so, Do I see any positive impact? Any public Benefit from the money they so called TAX? Are they using it on public goods?? Public benefits or private benefits? And its not even a choice these days for most people thanks to With Holding Tax.
    Frankly speaking They’re imposing money for NOTHING! Taxes ARE FOR NO GOOD over here! There is no proper system! . . Infact forget the system . . People who are running this so called system are corrupt. They get the money pocketed and then claim a blame on people, that they’re Lousy TAX PAYER when they them selves are LOUSY LEADERS!Recommend

  • Ahsan Rasheed

    For me tax is an investment, if i know i will get a return on this investment, i will surely pay taxes. Return in the form of infrastructure, security, etc which i can not afford as an individual.
    I am not earning any SAWAB on tax and i know i will not get any return on the investment, so why pay tax.Recommend

  • http://www.bizomer.com Saqib Omer Saeed

    Thanks Ali, Amar, Faisal, Zohaib & Ahsan:

    @ Zohaib! Thanks for your comments first of all; It was exactly the same that is explained in the main text. Yes government first need to be sincere in development of economy and social welfare. Even if she is not sincere we can not avoid taxes by choice. So better to work for a regime that work things in positive. We can not get things in order in a day but we can atleast think and then strategize for it being a furture leaders of this nation. It is not regarding how bad we have as our rulers but we have to suggest them the right path.

    @ Ahsan: The above post is telling government to enhance credibility so people can think that taxes are not the moster. Even in the post it is well written that the current state of our government is not that good that people would feel happy while paying taxes. Now regarding SAWAB so salaried people have no option to get rid of taxes, you can not cut your petrol bill to gross or GST when you buy something. The businessman can avoid tax but it need a cost [bribery to agents within Tax Departments]. Even once the government take serious action so this shall again give a negative hit. So taxes are not a choice! Even how bad the government is! We need to think practical or the whole nation go for civil disobedience. This is not the scenario at the moment anyways.

    So it is far better for us to push our governments for real taxation reforms. The above posted article is tending towards the same approach Even where we feel that government is not capable for it so we have to mobilize to have good governments in the country. Yes it shall take time but not impossible. Emotions can not make things in these affairs.

    We need to think in a rational way! Indeed it is nice to hear your comments folks because it is the index of livelyhood of our youth. Government need to hear the buzz also as their responsibility is far larger. Recommend

  • parvez

    @Saqib Omer Saeed: Appreciate your attention to my comment. I honestly am quite pessimistic on this subject. As a lay man let me give you an example of my thought process. Taxes are needed to run the country the tax short fall is made up from loans (internal and external). Let us stop all external or internal loan taking. This would cause a shortfall in revenue forcing the government to improve fiscal discipline and also tax revenue.
    Now who in Pakistan can we see as being “big” enough to take such difficult decisions ?
    Sir, the problem lies our stars.Recommend

  • http://www.bizomer.com Saqib Omer Saeed

    Thanks Mr. Parvez: You have raised the genuin point. In fact I always come up with new posts by understanding current scenarios and the comments of my learned readers. I shall definitely cover your points in some later posts. Thanks for enlighten us with your thoughts.Recommend