Why Nawaz Sharif is Right in Lowering Taxes



  • Pakistan’s economy is currently undergoing a major crisis. Our Global Competitiveness Ranking has slipped from 83 down to 118 in the last 6 years. Our HDI ranking has dipped to 145 out of 187 countries. Our share of global exports is hovering around a measly 0.14% while our deficit has climbed to 8.5% of the GDP. On top of this, according to the Planning Commission of Pakistan, we have about 3.7 Million people entering the job market each year while our economy creates only 700,000 jobs a year. Based on these statistics it is fairly clear how desperately things need to be changed in order for us to sustain ourselves in the future.

    The key here is to jump start the economy and provide incentives to existing businesses to expand and for entrepreneurs to start new venture. That is exactly what Mian Nawaz Sharif addressed during his TV Interview a few days ago. Firstly, cutting corporate tax rates is a proven way to incentivize business growth and expansion as it reduces the cost of doing business. A reduction in corporate taxes would have a positive impact and the resultant growth within the business sectors would create much needed new jobs.

    Secondly, lowering corporate taxes would potentially increase the tax net as well as take away the incentive from businesses to pay bribes. With a simplified flat tax rate, there is an incentive for businesses operating within the informal sector to formalize and become part of the paper economy whereby increasing the overall tax net. Consider cases where machinery or equipment is imported and is stuck at clearing points because the importers are being pushed for bribes instead of being encouraged to pay full taxes. As the current practice goes, instead of paying the full amount to the exchequer a business only pays a part of that amount while spending another chunk on bribes and still avoids paying major part of the duties. Now if this could be stopped by lowering taxes on businesses to an affordable flat rate, how is that a bad idea? In essence what Mian Nawaz Sharif presented is a very potent economic concept that is used worldwide and has proven to help improve the economy.

    With regards to income tax, it needs to be clarified that people earning less than PKR 400,000 a year already do not pay any income tax. So a family earning PKR 40,000 a month pays a tax of just PKR 4000 a year. What Mian Nawaz Sharif had proposed was a uniform income tax that would see the current tax rate being reduced. In a country where one of the biggest tax issues is people not paying it, how is reducing their tax as an incentive to pay a bad idea? It is pertinent to mention here that last time the PML-N was in power; we reduced the income tax rates and reached a Tax to GDP ratio of 13.4% which is 4% more than what it is now. So the notion that reducing income taxes would hurt the poor or in any way harm the economy is simply incorrect. PML-N has always looked out for the weakest and most venerable members of our society by empowering them.

    With regards to the 3Es, it refers to an economic eco system that integrates Education with the Economy which is fueled by Energy. Improved education and technical skills play a role in how competitive we are globally while ensuring our human resource is capable of doing the jobs that our industry creates. The E in economy ensures that there are enough jobs for the millions of Pakistanis that join the job market each year and that we continue growing as a country. And lastly the E for energy matters as it drives our economy which needs consistent energy supply to grow. So given our current state, PML-N believes that 3Es form the corner stone of any future economic development.

    PML-N believes that the way forward is through a strong economy and that is why it has always supported the business community. In PML-N’s first tenure, Pakistan’s GDP growth touched a high of 7.5%, the highest for any civilian government. PML-N in the 90s gave Pakistan consistency, even with the trade sanctions after the Nuclear Tests, PML-N’s government managed growth of over 4% in 1998. In addition to this PML-N oversaw mega projects like the Motorways, Airports and Market Liberalization of the Financial and Telecommunication sectors. These sectors now create a large number of jobs and are crucial pillars of our economic growth. The 3Es is what Pakistan needs now so that our economy grows at a stable rate, while our education system creates skilled and employable human resource that our businesses can employ because they have enough energy to operate.

    Any economist would realize that issues like taxation do not operate in a vacuum; they operate within a system i.e. a functioning economy. PML-N’s aims to address Pakistan’s immediate and long term problems based on a set of principles i.e. the 3Es of which tax reform is one small portion. We intend to build the economy again after the damage it has suffered in the last 5 years. We cannot run an economy by printing money like PPP is doing, because we do not believe in stop gap fixes. PML-N’s vision is to put Pakistan back on track on solid principles where by our human resources feed in to an economy that is growing because its energy needs are met. And that is why the 3Es matter.

    http://strongerpakistan.wordpress.com/2013/01/05/why-nawaz-sharif-is-right-about-lowering-taxes/



  • Very thoughtful article!

    The other thing that PMLN must focus its energies on are the chronic energy shortages in the country. Energy shortages combined with law and order situation is the single most critical factor hindering the economic growth and prosperity of the county.



  • Wow. I don't know if we are talking about pml n or GOP



  • So Hamid Mir Pays Corporate TAX on his Salary?? which NS talked about reducing?

    Income Tax rate on High Income Class is already TOO LOW in Pakistan

    For a Person earning TWO Hundred THrousand (200,000 PKR) per month, the income tax applicable is 18958 which is about 9.47%

    So MR Nawaz Sharif want to reduce Income Tax BURDEN on POOR people earning over 3 LAC per motnh by reducing the Income Tax rate to 10% flat?



  • Can someone explain what were the running economic policies when people celebrated with free sweet the ousting of Nawaz Zarif in 1999.

    It would be useful to know the differences of what Nawaz did then and what is he proposing for the future. I suppose he learned real economics in Jeddah where there are absolutely no taxes. Cronies have short memories.

    Investments did not leave Pakistan because of taxes. It was security and energy and Nawaz has nothing to say about any of those.



  • It is pertinent to mention here that last time the PML-N was in power; we reduced the income tax rates and reached a Tax to GDP ratio of 13.4% which is 4% more than what it is now.

    Although Article mentions the TAX to GDP ratio (13.4%) at the start of NS Government but Conveniently ignored the FACT that it DROPPED to below 13% during his Tenure



  • In Pakistan only 0.4% people pay tax, we need to take this rate to at least 10% in next five years. If we need to lower taxes to get more people in tax net it is not a bad idea. People over 10,000 a month and under 25,000 cannot afford to pay taxes so even 1-2% should not be bad starter. We have to lower tax rates to bring these people in tax net even if they are ready to pay only 1%. A survey suggested that only 3% of Pakistani earn more than 25,000 a month. Even 10% flat rate tax is too high for people earning under 50,000 a month. You know how high is inflation and survival is first issue for the people and to think about county comes very late.



  • @mawan1971

    PErson with Monthly Income of 33,333 (400K Annual) is already expempted form Income Tax and rightly so.

    The Discussion is NOT about people who CANNOT AFFOD to PAY TAX, discussion is about those HIGH INCOME people (a person with 2 LAC salary is subjected to ONLY 9.47% income Tax) for whom Mr. Nawaz Sharif is suggesting to reduce TAX BURDEN.

    So You think we should reduce TAX BURDEN on people earning 300K/400K or upwards? You really think this 12-15% tax these people are subjected to is very high??

    And by the way actual Income Tax rate in Pakistan has been reduced in the last few years, so did it help in broadeneing the TAX base?



  • @anasyounus

    Yes I agree with you top elite class should pay taxes, but question is how much is the percentage of elite class 1% or even less. What about the remaining 99%, why we should spare them and focus 1% to 3% very rich. My brother in developed nations 70-80% people pay taxes and I am talking only 10% to pay taxes a target for next five years. It is very hard to catch very big fishes,even U.S and Canada struggle to get correct tax from very rich people as they are very influential and makes some way to escape from taxes. Increase the number of population %age paying taxes is easier than running after big fishes they have influence in every government and we will remain and stuck at less than 1% paying taxes. Try to catch millionaire and billionaire but this should not be the only task, lower the tax rates to a level that every one can afford tax instead of bribing tax officials.



  • @anasyounus,

    How many Hamid Mir level people are in Jang/Geo Group? Probably less than 1% of their staff?

    Do you know how many "High Income" salaries individuals are in Pakistan overall? This might be just a few thousands of top employees within few top organizations of Pakistan like banks, oil and telecom companies?

    In population of 200 million, if we talk too generously, then I supposed 20,000 employees are with HIGH INCOME, which is around 0.01% of population?

    May be we need to focus on the rest of 99.99% population and make them contribute in their country and reduce indirect taxation from petrol etc. In developed countries, everyone with average salary and even less than average salary pays taxes and contribute.

    With flat rate tax and broadening the tax base, I see more more tax collection. With lower tax percentage, I see more people paying taxes due to hassle of finding any loopholes to avoid taxes.

    Regarding giving relief to ONLY Rich, this is not PMLN policy and PMNL government in Punjab is already taxing the elites on their luxury cars, swimming pools, farm houses etc. These elites are not only salaried individuals, but anyone enjoying posh lifestyle:

    http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/politics/17-Jun-2008/Tax-on-luxury-vehicles

    http://www.thenews.com.pk/Todays-News-2-115132-Farmhouses-swimming-pools-taxed-in-Punjab-budget

    http://www.pakistantoday.com.pk/2011/06/11/news/profit/punjab-imposes-new-taxes-on-the-rich/



  • If the PRODUCERS of 3E Plan are really interested in broadening the TAX BASE and increasing the TAX to GDP ratio thn please tell me what they have done to achieve this in last 5 Years?

    How much increased have we seen in TAX Collection in Punjab?

    Agriculture Income Tax is a Provincial Subject, Agriculture constitute 26% of Pakistan’s GDP of which 65-70% comes from Punjab. How much increase have we seen in Agriculture Income Tax?

    Unfortunately Collection of Agriculture Income TAX has REDUCED in 5 Years from a level that was already shamefully low; total AIT collected in whole of Punjab was 700 Million rupees.

    To give you some perspective, this collection of 700 Million is 0.00037% of our total Tax collection and 0.00096% of total INCOME TAX collection

    Similarly Property Taxation is also provincial subject and approved reformed property tax proposal is pending implementation for 3 Years now, deferred due to political considerations.



  • How many Hamid Mir level people are in Jang/Geo Group? Probably less than 1% of their staff?

    Do you know how many "High Income" salaries individuals are in Pakistan overall? This might be just a few thousands of top employees within few top organizations of Pakistan like banks, oil and telecom companies?

    No matter how few but why would you reduce the TAX on HIGH INCOME people?? The Tax rate on High income people is already very LOW - This is just Madness

    May be we need to focus on the rest of 99.99% population and make them contribute in their country and reduce indirect taxation from petrol etc. In developed countries, everyone with average salary and even less than average salary pays taxes and contribute.

    With flat rate tax and broadening the tax base, I see more more tax collection. With lower tax percentage, I see more people paying taxes due to hassle of finding any loopholes to avoid taxes.

    Brother, I have already given you the example, a 10% flat Tax rate means giving relief to RICH and further BURDENING the Middle and lower income class



  • @rasheed

    You got my point and provided more information thanks for that. I hope brother anasyounus will understand our point of view now.

    @anasyounus

    On agricultural income we don't had any tax collection till now and I know big Jageerdar's are behind that and they are in every government so no one had courage to start this tax. Only MQM supports this move because they have nothing on stake all of their voters or MNA/MPA are from large cities. You can never expect a agricultural tax from PPP as sindh and punjab jageerdars are their main allies (all vote base in punjab and sindh rural areas). If PML(N) and PTI joined their hands together and both support agricultural taxes as well as GST on goods and services these things could be implemented. No political force will take any big steps to reduce its vote bank. We cannot separate politics and economy in Pakistan.



  • Tax on Farm Houses LOL.. Now this is what I Call judging the performance from Ads/Statments and speeches :)

    There was ZERO Collection in Year 2010-11 from TAX on FARM Houses and a mere 2.77 Million (27 Lac) were collected from Whole Punjab in 2012-13



  • Do not give us a bull crap for giving tax subsidies to your own family. Lowering taxes have limits on the growth. Nawaz's master country, the House of Al-Saud, has ZERO tax rate. But in spite of all the oil pumping, last year growth was just 6.8%.

    http://www.indexmundi.com/saudi_arabia/gdp_real_growth_rate.html

    http://www.tradingeconomics.com/saudi-arabia/gdp-growth



  • @mawan1971,

    If and when PTI comes to power, I will expect them to improve Agriculture Income Tax collection and failing to do so I will condemn them far more than I condemn current Governments for not being able to deliver.

    This is what I expect fellow Pakistanis to do rather than covering it up with excuses.

    And as for PTI and PML-N to join hands for AIT, Why? PTI is stopping PML-N from it? PML-N has a government in Punjab for 5 Years and previously they had a 2/3rd majority Government in Centre and Punjab and still they failed to do it.

    So please Excuse me if I don’t see any sense in expecting any better from them



  • @anasyounus,

    I have already shared some links where Punjab government has taxed the rich, which you conveniently ignored.

    In UK, the average annual salary is 24K and tax starts from people with salaries from 8K. Even the ones who are getting average salary are not enjoying luxurious lives and are mostly in debt.

    The HIGH INCOMER salaried individuals are just few thousand in Pakistan and even if you increase their tax to 30% of their salary, it will not change the fate of the country, unless the majority pays taxes.

    Simple maths:

    High Income Salary = Rs. 200,000

    High Income Population = 20,000

    Tax collection @ 30% = Rs. 1.2 Billion

    Low Income Salary = Rs. 25,000

    Low Income Population = 20 Million (10% of population)

    Tax collection @ 10% = Rs. 50 Billion



  • @anasyounus

    I am focusing more on what to do in next five years and I am assuming that PML(N) and PTI will be good forces in parliament after 2013 elections. No one has touched tax reforms in past and why only PML(N) to blame, Musharraf dictator has no worry neither from Jagerdars nor industrialists he was all in all, he can even built Kalabagh Dam, if he has not done any tax reforms what to expect from PPP and PML(N) as they are answerable to their voters. Any single party will not have any burden on his shoulders alone, need to develop consensus among parties and general public. If PML(N) and PTI are agreed on certain reforms rest are small groups except PPP. Let us hope that the new government will collect more taxes and will rely less on IMF loans.



  • Did I really Ignored it? Please Check my posts again.

    And the Article also has a funny thing, it credits CM Punjab of paying 6 Million Tax under this head but according to Punjab Government the total collection under the head is only 2.27 million.

    And please have a look at Tax collected under Luxury cars head, I am sure you will be surprised to know how few Luxury cars Punjabis got in the year.

    Atleast verify the statitics before posting the links/Advertisements



  • Simple maths:

    High Income Salary = Rs. 200,000

    High Income Population = 20,000

    Tax collection @ 30% = Rs. 1.2 Billion

    Low Income Salary = Rs. 25,000

    Low Income Population = 20 Million (10% of population)

    Tax collection @ 10% = Rs. 50 Billion

    Dont you really see the Problem with your Calculation??


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