Budget & Ashrafiya


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Pakistan is controlled and ruled by ashrafiya (elites)—comprising indomitable military complex, civil bureaucracy, higher judiciary, landed upper crust and cronies, industrialist-turned politicians, religious and spiritual leaders (sic), media tycoons and their all-knowing (sic) anchors, and unscrupulous and powerful traders

Flouting the rule of law with shameless impunity is the hallmark of ashrafiya. The spoiled brats of ashrafiya join different nefarious circles, even organised mafia groups, for all kinds of unlawful and undesirable activities—for them vulgar ostentation of money and power is essential to prove that they are closely associated with the most powerful of the State. In the good old days, ashrafiya was respected as a class of nobles and highly revered. In post-colonial Pakistan, the term represents the money-power-hungry classes posing as if the country is their personal jagir (property) and all their acts above law are justified, as their inherent right.   

The Finance Bill 2024, presented by banker-turned Federal Finance Minister for Finance & Revenue, Muhammad Aurangzeb, amid traditional pandemonium in the Parliament on June 12, 2024, confirms how new unprecedented benefits have been secured by the ashrafiya and tax concessions already available to it are retained, while the common citizens are further overburdened with regressive taxes and salaried employees to pay more personal income tax. 

Not a single tax exemption available to the rich and mighty in the Second Schedule to the Income Tax Ordinance, 2001 was proposed to bridge the fiscal deficit of over Rs. 8500 billion. On the contrary, the shameless borrowing from banks and elsewhere is to continue to push the nation in dark ‘debt prison’.  

There is no inclination whatsoever in the budget 2024 to make Pakistan a self-reliant economy. On the contrary it aims at securing further expensive loans, while the accumulative debt burden has already reached an alarming and unsustainable level. This budget, as all earlier of successive governments, favours the rich and taxes the poor to the extent of extinction

The economy of ashrafiya-controlled-Pakistan, thus, serves the interests of the privileged classes. The ruling classes, representing only 1% of entire population, own 95% of national resources. They exploit labour of landless tillers, poor urban workers and white-coloured to amass more and more wealth. Additionally, they create artificial and frequent price hikes of essential items to snatch back whatever little is earned or saved by 98% ordinary people. 

The evolution of this kind of State (The Land of the Pure) is elaborated in detail by former Governor of State Bank, Dr. Ishrat Hussain, in his book Pakistan: Economy of an Elitist State

According to Farzana Noshab, an economist working with Asian Development Bank, “this work provides an exhaustive insight into the dynamics of Pakistan’s economy for a fifty-year period (1947-1997). A vast array of policies under successive regimes has been analysed ¨C¨C ranging from production structures mainly of the agricultural and industrial sectors; developments in macro-economic policies; trade, debt and investment; human capital and physical capital. It traces the consequences of various policies followed by successive military, non-military, appointed and nominated, socialist and democratic regimes. The author contends that irrespective of their ideological inclination, the stranglehold of a small elite group on the affairs of the state has remained a consistent feature”.

In his book, Dr. Ishrat has observed that in sharp contrast to the East Asian model of ‘shared growth’, based on rapid economic development coupled with a rapid reduction in poverty and more equitable distribution of the benefits of development in Pakistan, the elitist model confers political and economic powers to a small coterie of elite (parasites). While commenting upon Dr. Ishrat’s work, Dr. Khalil Ahmad, a political economist, in his recent book, Pakistan Main Riasti Ashrafia ka Urooj (Rise of State Elitism in Pakistan), published in February 2012, has also concluded that Pakistan is presently owned and exploited by  ‘state elites’ whereas it should belong to all.

There are no two opinions that the ruling trio—mighty military complex and its civilian cronies, corrupt politicians and unscrupulous businessmen—imposes its will on members of parliament in all matters. The entire budget making process is an epitome of apathy of parliamentarians towards the masses of this country, who vote them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services—housing, transport, education and health, to say the least. Even the Standing Committees on Finance of both the Houses are never informed what policies and tax measures would be contained in the budget. The newly-elected Senator, Muhammad Aurangzeb even did not bother to give them any briefing before the presentation of his maiden budget.

The worthy members of the National Assembly (MNAs) never bother to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor of this Land of the Pure. Time and again, it has been emphasised that democracy is not electioneering per se. Establishment of a responsible government caring for the needs of its people is a prerequisite for true democratic dispensation which is only possible if the Parliament performs its Constitutional role, implements flawless process of accountability and ensures good governance. Theoretically, the Cabinet is answerable to the Parliament! But the stark reality is that MNAs merely run after ministers for personal favours and gains

In the coming days, the coalition government will get the Finance Bill 2024 passed in utter haste ignoring suggestions and amendments by experts, Opposition and Senate, disregarding all norms of parliamentary process and transparency, as it always happens. The treasury benches in Parliament will once again prove nothing more than rubber stamps as far as formulation of budget and approving of tax measures by the Federal Board of Revenue (FBR), on the dictates of the International Monetary Fund (IMF), are concerned. 

In every civilised and democratic society, it is the sole prerogative of elected members to initiate the process of law-making and devising of national policies after taking public input. It is the prime rule of a democratic process that no law or policy should be made unless a thorough debate is held in the parliament. In Pakistan, the rulers, military and civilian alike, always try to bypass parliamentary processes and then complain about lack of “democratic behaviour and culture” on the part of the opposition. Every year, budget-making exercise is entrusted to bureaucrats sitting in the Ministry of Finance and FBR while the Parliament conveniently restricts its role to a silent approver

Due to non-participation of public representatives in budget-making, the financial managers and tax collectors have persistently failed to overcome fiscal deficit and remove fiscal imbalances as their tax policies are narrowly based on collecting taxes at source, without bringing mighty sections of society within the tax net or collecting what is actually due from them. 

Sole stress on indirect taxation [even under the garb of income taxation through presumptive tax regime on a number of transactions] without evaluating its impact on the economy and life of the poor masses is a serious cause for concern. According to official figures, the contribution of income tax [although major portion of it is now composed of indirect levies or expenditure taxes) as percentage of GDP is continuously declining; it was merely 1.9% in 2010-11,  2.2% in 2009-10, 2.6% in 2008-09, 2.9% in 2007-08, 3.0% in 2006-07, on average 3.% from 2005-2006 to 2021-22, whereas in 2022-23 it was 3.15% [YEARBOOKS 2010-11 to 2022-23 of FBR and Economic Surveys].  

In the face of declining direct tax-to-GDP ratio, Muhammad Aurangzeb and FBR stalwarts are making tall claims about “impressive” (sic) 32% increase in taxes that was directly the result of high inflation and rise in imports of petroleum products—the contribution of POL products alone stood at 43% in the fiscal year 2022-23. 

A brazen misrepresentation of figures is committed by the Ministry of Finance and FBR in Economic Survey and Budget documents. In fact, FBR has conveniently ignored the quantum of taxes collected at source on goods, contracts, supplies and rent, which being full and final discharge, are in substance indirect levies, even in some cases, encroachment on the rights of provinces

Reliance on indirect taxes that constitute 75% of total collection proves beyond any doubt that the tax system is emphatically contributing to rising poverty as people who earn enormous income and possess immense wealth are not being subjected to income taxation in Pakistan. Thus the very purpose of redistribution of wealth as the main object of taxation is being defeated and nullified.  

It is pertinent to mention that in 2023, the government of Sweden collected taxes at 53% of GDP, almost twice as high as the total tax revenue of America and Japan, with both collecting around 25% of GDP. In the Euro area, tax revenue, on average, reaches 40% of GDP. In contrast we have collected taxes at 8.4 % of GDP. 

The present tax policies of the government are detrimental for the economy, social justice, business and industry. Those who possess more economic power (income and wealth) should contribute more to the public exchequer and vice versa. The ability-to-pay principle is regarded as the most equitable and just method of taxation and emphasised upon primarily for its redistributive role. In Pakistan, our rulers have completely deviated from this principle, which is in fact, a constitutional obligation of the government. 

The existing tax system protects the establishment and exploitative elements that have complete monopoly over economic resources. There is no political will to tax the privileged classes.  Pakistan has been facing a variety of crises specifically in areas of: resources for its developmental policies, meeting trade deficits, fiscal deficits and balance of payments, in addition to numerous others. One of the factors responsible for the present situation is the accelerating speed with which black money is being generated

FBR is directly responsible for this phenomenon as its mafia-like operations has helped the people to avoid tax on incomes by paying it “due share”. Through the infamous system of SROs [Statutory Regulatory Orders], FBR’s top officials provide “legal” ways and means to mighty sections of the society (ashrafiya) to amass huge wealth that is now threatening the State’s very survival.  

It is worth mentioning that before presenting the Finance Bill, 2012, FBR issued notification 569(I)/2012 on  26 May 2012 saying that government officials in Grade 20-22 would pay just 5% tax on compulsory monetized transport allowance. This benefit of reduced rate taxation, blatantly bypassing the Parliament, portrays how bureaucrats hoodwink the nation and cause exchequer loss of revenue through SROs. Needless to say it is discriminatory and violative of Article 25 of the Constitution as private sectors employees for the same allowance are subjected to normal rate of taxation. 

The above notification is still operating, but the IMF is keeping mum over it, though it has been forcing the government to withdraw exemptions of sales tax available to medicines and items of daily use, including stationary items and books of students. 

Reduction of duties for cartels possessing enormous money has been extended by using executive authority in the form of SROs. Pakistan is a unique country where the executive authority can conveniently undo laws made by the Parliament under so-called delegated powers which gross violation of Article 162 of the Constitution of Pakistan, which reads as under:

“162. Prior sanction of President required to Bills affecting taxation in which Provinces are interested: – No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”

Article 162 debars even the National Assembly to grant exemptions without the prior approval of the President but interestingly, this power has been delegated unconstitutionally to an executive authority by the Parliament. How can Parliament delegate a power which it cannot exercise itself without the prior sanction of the President? By delegating powers under tax codes, the Legislature has violated Article 162 of the Constitution.

It has been repeatedly pointed out this brazen violation of the Constitution requesting the Supreme Court to take suo moto action under Article 189 of the Constitution. It is sad to note that till today such pleadings have fallen on deaf ears. It has been a legitimate expectation that Bar Councils, taxpayers, tax advisers, civil society, and businessmen would raise their voices on this issue, but till today there is complete silence from their side. 

No wonder any dictator—military or civilian—can play havoc with the supreme law of land, knowing that those who claim to be champions of rule of law keep mum when it suits them. These scribes have been the lone fighters against this flagrant violation of the Constitution in tax matters that has serious ramifications for the federation as a whole. History will never forgive those who have deprived the smaller provinces from exercising their constitutional right of fair and equitable fiscal jurisdiction.

The common man is subjected to exorbitant sales tax and federal excise duty on certain items as well as income tax collection at source (tax incidence is over 35% on finished imported goods after applicable customs duty, sales tax, federal excise, mandatory value addition and income tax) on essential commodities [even salt sold under brand names is subjected to 18% sales tax] but the mighty sections of society such as generals, high-raking bureaucrats, judges getting plots from the State are  not paying any wealth tax/income tax on their colossal assets/incomes. The same is the case with big industrialists and landed classes that get concessions and exemption through SROs  

It is tragic that in a country where billions of rupees are being made in speculative transactions at stock exchanges and in the real estate sector, tax-to-GDP ratio is one of the lowest in the world [consistently below 12% for the last 10 years] and the government is least bothered to tax undocumented economy and benami (name-lender) transactions, rather generously give amnesties to tax evaders and looters of national wealth. The mighty sections of society are widely engaged in these transactions while rulers of the day, getting due share from them, are not at all inclined to tax them. The  tax policies of successive governments have been violative of Constitutional provisions that require the State to provide social justice to all. 

The existing tax system protects the ashrafiya and exploitative elements that have monopoly over economic resources—those who own 95% of national resources are paying less than 2% of overall tax collection. This shows why there is no political will to tax the privileged classes.  Unfair taxation and inequitable distribution of resources is the root cause of our multiple socio-economic ills. State policies induce massive tax evasion, like section 111(4) of the Income Tax Ordinance, 2001, which in the past remained a lethal tool for whitening of untaxed money, such was the Protection of Economics Reforms Act, 1992

Determination of a tax base capable of measuring an individual’s ability-to-pay is a major problem of our tax system. This rule is incorporated in the form of progressive rate schedule for personal income tax, estate duty, and property tax worldwide. In Pakistan we have moved from this positive policy to unequal sacrificial rule where the mighty civil and military bureaucrats (now an integral part of our landed aristocracy by earning State lands as meritorious awards and rewards), rich industrialists and greedy businessmen are paying meagre personal taxes whereas the poor people are compelled to pay sales tax of 18%. The incidence of regressive taxes on the poor is making their lives a misery beyond imagination.

Pakistan at the moment has about 100 million unique non-corporate mobile users who pay both advance adjustable income tax and sales tax on services but only about 3 million individuals file income tax returns. Majority of mobile users may not have taxable income yet they are burdened with undue liability. On the contrary, many rich people just pay a fraction of income tax (withheld at source) on their actual taxable incomes without bothering to file their income tax returns—in Pakistan less than 250,000 non-salaried return filers admitted that their annual income was more than Rs. one million in tax year 2023!

If out of total current population of 245 million, we have 20 million individuals having taxable income of Rs 1.5 million (a very conservative estimate), total income tax collection from them at the rates proposed for tax year 2025 by the Finance Act, 2024 would be Rs. 7000 billion. If we add income tax collected from corporate bodies, other non-individual taxpayers and individuals having income between Rs 600,000 to Rs 150,000, the gross figure would be nearly Rs 10,000 billion.

Our income tax collection in the coming fiscal year should be around Rs. 10 trillion. If there are 20 million individuals having annual taxable income of Rs 1.5 million (a very conservative estimate), total income tax collection will not be less than Rs. 7000 billion. If we add income tax from corporate bodies, other non-individual taxpayers and individuals (having income between Rs. 600,000 to Rs. 1,000,000), the gross figure is going to be a whopping Rs. 10 trillion! FBR collected only Rs. 3086 billion as income tax during fiscal year (FY) 2022-23

Another shocking fact is the dismal performance of FBR’s field officials in collecting income tax in FY 2022-23 through their own efforts (4.66 percent!). They managed out of total collection of Rs. 3086 billion under the head income tax, just Rs. 144.308 billion (out of current demand) and Rs. 2.85 billion (out of arrears). This confirms the sorry state of affairs prevailing in FBR where officers are getting double salary, bonuses and honorariums! 

Out of total income tax collection of Rs. 3086 billion, FBR received Rs. 1874.29 billion (60.74%) from withholding tax agents. In this area as well, massive corruption is prevailing with the connivance of tax officials—some withholding tax agents collect/deduct taxes but do not deposit in the government treasury, or the payer and the payee join hands to deprive the exchequer of billions of rupees with the connivance of corrupt tax officials. The real potential of withholding taxes, based on estimates of total GDP for FY 2022-23, was not less than Rs. 5500 billion.  

Similarly, due to rampant corruption in sales tax, federal excise and custom duties, the total collection in FY 2022-23 was much below the actual potential. In the last fiscal year [FY 2022-23], FBR collected Rs. 2591 billion under the head sales tax, Rs 370 billion under federal excise duty and Rs. 932 billion under custom duties. Total indirect collection of Rs. 3893 billion was distressingly low. Sales tax collection alone should have been Rs. 7000 billion and total indirect taxes at Rs. 9000 billion

Weak enforcement that includes incompetence and corruption is the real malady of our tax system. Tax codes are mindlessly amended each year through Finance Bills and Law Amendment Acts, and in between, by way of SROs. The solution lies in complete re-engineering of the system [roadmap is given in ‘Towards flat, low-rate broad and predictable taxes’, revised and expanded edition 2020, PRIME, Islamabad], being deferred year after year in the name of short-term compulsions! 

If tax gap is bridged, the total revenue collection of Pakistan would be Rs 20 trillion (Rs 11,000 billion direct taxes and Rs 9000 billion indirect taxes) which would change the entire fiscal scene. We would have enough money for current expenditure, development and public welfare outlays— the government would retire debts in just a few years and we can easily become a self-reliant nation free from political subjugation. However, this dream for Pakistan can never be realised unless the mighty sections of society (ashrafiya) are taxed according to their ability to pay. 

Tax policy must be used as a tool for rapid industrialization and creation of job opportunities. It is imperative to tax the unproductive sectors to divert money to productive sectors and ensure a redistributive charter of tax system—taxing the rich for the benefit of the poor. At present, we are taxing the poor for the benefit of the rich. This trend must be reversed before it is too late.  


Huzaim Bukhari and Dr. Ikramul Haq
Huzaim Bukhari and Dr. Ikramul Haq
Ms. Huzaima Bukhari, MA, LLB, Advocate High Court, Visiting Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram and Huzaima Ikram & Ijaz, leading law firms of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, ML/CFT related laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has coauthored with Dr. Ikramul Haq many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis). She regularly writes columns/articles/papers for Pakistani newspapers and international journals. She has so far contributed over 2000 articles and research papers on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad. X: (formerly Twitter): @Huzaimabukhari ______________________________________________________________________________ Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He holds LLD in tax laws with specialization in transfer pricing. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis). He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal). He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad. X: (formerly Twitter): DrIkramulHaq _______________________________________________________________ The recent publication, coauthored with Abdul Rauf Shakoori is Pakistan Tackling FATF: Challenges & Solutions available at: https://www.amazon.com/dp/B08RXH8W46 and https://aacp.com.pk/product/pakistan-tackling-fatf-challenges-solutions/ The writers, tax lawyers and partners in HUZAIMA & IKRAM, are Adjunct Professors at Lahore University of Management Sciences (LUMS).


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