Pakistan Taxation

Democracy has not yet taken root in Pakistan. The military has intervened several times in Pakistan's history and has always remained an important political player even when not in power. A military intervention occurred as recently as 12 October 1999, when elected institutions were suspended. Under the suspended constitution, the parliament consists of 2 houses: a National Assembly elected directly through universal suffrage (voter eligibility begins at 21 years of age), and a Senate elected by the provincial legislatures. The prime minister is the head of government and is elected by and from the National Assembly. The president is the head of state and is chosen by an electoral college consisting of the National Assembly, the Senate, and the provincial assemblies. The constitution requires that the president be a Muslim and provides for a 5-year term. For all practical purposes, the prime minister has to be a Muslim as well.

Each of Pakistan's 4 provinces had its own directly elected provincial assembly, a government headed by a chief minister, and a governor appointed by the president upon recommendation by the prime minister. After 12 October 1999, however, provinces had only governors, with no assemblies or chief ministers. The 217-member National Assembly is elected for a 5-year term and the 87-member Senate for a 6-year term. The National Assembly seats are currently divided, with 8 going to the Federally-Administered Tribal Areas (FATA), 1 to the federal capital of Islamabad, and 10 additional seats reserved for religious minorities. Each of the 4 provinces has 19 senators; there are 8 senators from the FATA and 3 from the federal capital area. Indirect elections for half the members of the Senate are held at 3-year intervals.

The constitution guarantees an independent judiciary. The supreme court is the highest court in the country; high courts in the provincial capitals of Lahore, Karachi, Peshawar, and Quetta stand at the head of the provincial judicial systems. In principle, Pakistan's press publishes freely. However, self-censorship is widely practiced by journalists, and advertising and other tactics are used by the government to influence media content. About 90 percent of Pakistan's paper-reading public reads papers and magazines in the Urdu language which are not noted for their objectivity, fairness, or accuracy. The electronic media are strictly controlled by the state and are notorious for their propaganda against domestic political opposition and India.

Pakistan came into existence in August 1947 with the partition of British India and has had a turbulent political history ever since. The country was designed to be the homeland for Muslims living in British India. The creation of a separate Muslim nation was accomplished largely through the efforts of Mohammed Ali Jinnah, Pakistan's first governor general, who is also remembered as "Quaid-e-Azam" (The Great Leader). Between 1947 and 1948, Pakistan and India fought the first of 3 wars over the Muslim-majority territory of Kashmir, claimed by both states. The conflict ended in a stalemate. Kashmir continues to be a disputed territory and the principal subject of discussion within the Pakistani establishment and media.

Initially, Pakistan consisted of 2 parts: East Pakistan and West Pakistan, separated by 1,610 kilometers (nearly 1,000 miles) of Indian territory. In 1970 general elections resulted in the Awami League sweeping the East Pakistan seats to gain a majority in Pakistan as a whole. The Pakistan People's Party (PPP), founded by Zulfikar Ali Bhutto, won a majority of the seats in West Pakistan. The outcome was a country completely divided, with neither major party having support in the other area. Negotiations to form a coalition government broke down, and a civil war ensued. In 1971, the eastern section declared itself the independent nation of Bangladesh. Leadership of the western part of Pakistan was handed over to Bhutto, who became prime minister and the first civilian chief martial law administrator.

In July 1977, Bhutto was deposed by the chief of army staff, General Zia-ul-Haq, who became president in 1978. (Bhutto was executed in 1979.) Under Zia, the government of Pakistan became increasingly Islamized and benefited from supporting mujahideen (holy warriors) efforts to counter the Soviet invasion of Afghanistan. General elections were held in November 1988 after General Zia died in a plane crash, and the PPP, headed by Benazir Bhutto, daughter of the late prime minister, won a majority of seats in parliament and formed a coalition government. In August 1990, President Ghulam Ishaq Khan exercised his right under the constitution to dissolve the National Assembly, dismiss the prime minister, and call for new elections. In the general election held in October 1990, the Islamic Democratic Alliance won the largest number of seats, and Mian Nawaz Sharif, leader of its largest component party, the Pakistan Muslim League (PML), became prime minister. Nawaz Sharif, the first industrialist to lead Pakistan, continued a trend toward liberalization of the economy and promotion of private sector growth, though largely unsuccessfully.

In 1997, Nawaz Sharif was re-elected prime minister with a substantial majority, but on 12 October 1999 his government was removed in a bloodless military coup. The chief of army staff, General Pervez Musharraf, took over as "chief executive," suspended the constitution, established a military-dominated National Security Council as the country's supreme decision-making body, and named a mostly civilian cabinet. Many western countries, led by the United States—Pakistan's Cold War ally and partner in the jihad (holy war) of the 1980s that expelled the Soviets from neighboring Afghanistan—tolerated the coup, even though it seemed a throwback to a pre-Cold War era. After the nuclear standoff with India over the Kashmir dispute, it seemed favorable to have the army in command rather than have Islamists take over the country from a run-down civilian government.

Upon assuming power, General Musharraf set an ambitious reform agenda, which included fighting corruption, devolving power to the local level, and fighting sectarianism. In May 2000, the supreme court validated the coup, but gave General Musharraf 3 years from 12 October to return to a civilian government. Musharraf agreed to this time frame. Tensions with India, religious sectarianism, corruption, and political uncertainty are among the many challenges his government faces.

Plans have been put forward to implement well-designed and comprehensive civil service reforms. These reforms, as favored by the World Bank, could foster economic growth and sustained poverty reduction by reducing the obstacles to private sector development that the poorly performing public sector now creates. They are also designed to expand access of the poor to good-quality basic social services, and address serious problems of governance, such as corruption. The country's civil service is largely unchanged since the days of British colonial rule and is characterized by rigid, often irrelevant, and unevenly enforced rules and mismanagement. The erosion of real wages even of high-level officials (which is the consequence of high rates of inflation without attendant pay raises in the civil service) add to the factors that have eroded accountability and transparency, and led to widespread corruption. At the same time, the government is burdened by wage costs and rising pension costs, which are making important non-wage expenditures impossible.

An economic team, headed by the finance minister, has identified tax reform as the single most urgent measure needed to hold Pakistan together. Without a rise in tax revenues the state will simply not have the money to tackle any of the major problems facing the country. Economists warn that Pakistan must eventually raise its annual tax collection to 20 percent of GDP, up from a range of 10.7 to 15.5 percent in the past decade, to begin balancing its budget. At the moment, annual tax revenues just about pay for debt servicing and national defense, leaving other crucial areas to be financed through more loans. Only about 1 percent of the country's population of nearly 140 million pay income tax.

Web Sites

 * http://www.worldlii.org/catalog/51310.html
 * http://tahseenbutt.com/income_tax_pakistan.html
 * http://richpaki.tripod.com/taxweb.htm