Activist Judge Torpedoes Tax Collection Project in Pakistan
pay little or no tax, Ali Arshad Hakeem became "a hated man" in just seven months after his appointment as FBR chairman, according to a report in the UK's Telegraph newspaper. Coming from IT and business management background Hakeem put in place a database designed to monitor the spending habits of millions of people, and calculate how much tax they owed. At the click of a mouse, he could look up details of the elite's holiday habits, electricity bills and bank accounts, complete with photos, addresses and vehicle details, said the newspaper.
By linking government databases on cars, imports, exports and sales tax among others, he built a powerful tool for the Federal Board of Revenue (FBR) that could identify individuals and companies which were not paying their fair share. For income tax, his team fed 1,700 factors into a model which calculated how much was owed.
Pakistan tax-gdp is among the lowest and its tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
Hakeem's efforts to change the situation and collect from the rich and powerful came to a grinding halt last month when Justice Siddiqui suspended Mr Hakeem for alleged violations of appointment rules.
Other damaging examples of economic judicial activism include cancellation of Pakistan Steel Mills privatization, annulling of Reko Diq mining contract and voiding of rental power deals with foreign investors.
Since the cancellation of Pakistan Steel Mills privatization deal in 2006, PSMC has suffered huge losses that cost the taxpayers tens of billions of rupees--Rs 26.5 billion in 2009, Rs 11.5 billion in 2010, Rs 11.4 billion in 2011 and Rs 21 billion in 2012. Had Prime Minister Shaukat Aziz's government been allowed to proceed with privatization in 2006, the PSMC would have been a significant contributor to the national exchequer rather than a huge drain on the public treasury. The money saved could have been used to fund education, healthcare, energy and infrastructure projects in the country.
Similarly, the Supreme Court has intervened and scared away foreign investors by its decisions in Reko Diq and Karkey rental power company. Had Reko Diq been allowed to continue, it would have represented a huge $3.3 billion foreign investment in Pakistan's Balochistan region.
Umar Cheema, a journalist and author of the report that showed how few politicians pay tax, told Telegraph's Rob Crilly that anyone attempting reform risked being brought down. "He made people realize the FBR was doing something under his watch, even though he was not there for very long" he said.
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