Transparency in tax policy who really pays price?

Taxation is essential for running a country. Governments need revenue to provide security, education, healthcare, infrastructure, social protection and other public services. However, taxation must be based on fairness, affordability and the economic capacity of citizens. In Pakistan, an important question deserves serious national attention. Are we taxing people according to their ability to pay, or simply according to their need to survive? An ordinary Pakistani citizen pays taxes at almost every stage of daily life. These include direct taxes on income and indirect taxes incorporated into the prices of food items, medicines, electricity, gas, fuel, mobile phone top-ups, transportation and other essential goods and services. The difficulty is that indirect taxes do not distinguish between rich and poor. A person earning Rs30,000 per month and another earning Rs10 million per month may pay the same tax on a matchbox, a packet of tea or a basic household necessity. Is this equitable taxation? The answer is emphatic NO. A taxation system should not become an additional burden on those who are already struggling to meet their basic needs.

Indirect taxation is particularly difficult for low-income households because it is imposed on consumption rather than on the financial capacity of the consumer. Consider two citizens. Citizen A earns Rs30,000 per month and spends almost his entire income on household necessities. Citizen B earns Rs10 million per month and spends only a small proportion of his income on essential goods both may pay the same applicable sales tax on an identical item. However, that tax represents a much greater sacrifice for Citizen A.

This is the fundamental weakness of a taxation system that relies excessively on indirect taxes. Research by the Pakistan Institute of Development Economics has found that the incidence of General Sales Tax in Pakistan is regressive, with poorer households bearing a relatively greater burden in relation to their expenditure. The World Bank has also examined the adverse distributional effects of indirect taxation on household welfare.

The issue is therefore not merely an emotional argument. It has an economic and social foundation. The government should undertake a comprehensive review of indirect taxes imposed on essential household consumption. Items requiring special consideration include. Basic food commodities and cooking essentials, matchboxes, soap, detergents and other household necessities, essential medicines and medical supplies, school books, stationery and basic educational materials, public transportation and essential mobility electricity and gas consumed by low-income households and basic mobile phone services used by ordinary citizens. The objective should be to reduce or eliminate taxes on genuinely essential consumption for lower-income households. This does not necessarily mean exempting every product or service. It means identifying a carefully defined basket of necessities and designing a tax structure that protects those who can least afford additional costs.

The taxation of vehicles provides another example that deserves examination. For a lower-middle-income family, a motorcycle is often not a luxury. It is an essential means of transportation for earning a livelihood, taking children to school and managing everyday responsibilities. If an ordinary motorcycle attracts the standard sales tax rate (18%) while selected electric vehicles receive a substantially reduced rate (1%) the government must explain the economic and social justification for this difference. There may be legitimate environmental and industrial reasons for encouraging electric vehicles. However, incentives should not disproportionately benefit affluent purchasers while ordinary motorcycle users continue to face a heavy tax burden. The government should consider:

a. Reduced taxation on low-cost motorcycles used for daily transportation.

b. Targeted incentives for affordable electric motorcycles and rickshaws.

c. Tax concessions based on vehicle price, battery capacity and the income group benefiting from the incentive.

d. Greater scrutiny of tax concessions on expensive vehicles and luxury consumption.

e. Transparent publication of the beneficiaries and fiscal cost of vehicle-related tax incentives.

Environmental policy and social justice should complement each other rather than work at cross-purposes. Perhaps the most distressing aspect of the existing economic situation is the cost of healthcare. An ordinary citizen who falls ill is already facing an unexpected financial crisis. If medicines and medical supplies become unaffordable, the consequences can be devastating. A person earning Rs30,000 or Rs40,000 a month cannot reasonably be expected to meet substantial medical expenses after paying for food, rent, utilities and transportation. The government must ensure that essential medicines are genuinely affordable. One important clarification is necessary, under the current Sales Tax Act schedule, registered drugs are subject to a reduced rate of 1% under specified conditions, rather than a blanket 18% rate. Other pharmaceutical-related supplies and healthcare products may have different tax treatments. The government should publish a clear, product-wise explanation of these taxes and the additional costs ultimately borne by patients. The ability to afford treatment should not depend on whether a person is rich or poor. There is another serious contradiction in the public healthcare system. Some government hospitals are advertised as providing free treatment. However, patients are frequently handed prescriptions or lists of medicines that they must purchase from outside pharmacies. For a financially comfortable family, this may be manageable. For a poor household, it can mean abandoning treatment altogether. A hospital cannot reasonably claim to provide free healthcare if patients cannot afford the prescribed medicines. The government should introduce a system under which essential medicines are available within government hospitals patients are not routinely compelled to purchase medicines from outside. The minimum wage debate must also be reconsidered in the context of actual household expenditure. The question is not simply what minimum wage the government can announce. The question is whether a family can survive on that amount. In present economic circumstances, even an income of Rs100,000 per month may prove insufficient for a modest family in an expensive urban area, depending on housing, family size, education, healthcare and transportation costs. The government should therefore commission an independent living-wage assessment based on:

a. Food and nutritional requirements.

b. Housing and rent.

c. Electricity, gas and water.

d. Education expenses.

e. Transportation.

f. Healthcare and medicines.

g. Clothing and other basic necessities.

Minimum wages should be reviewed periodically against inflation and the actual cost of living. A wage announcement without an economic assessment does not necessarily improve the quality of life of workers. Reducing indirect taxes on essential goods does not mean abandoning government revenue requirements. The government must identify alternative and sustainable sources of revenue. A fairer taxation structure should focus on higher income individuals. Ensure that people with substantial incomes contribute according to their actual financial capacity. Improve documentation of income and reduce opportunities for tax avoidance. Strengthen the taxation of high-value property holdings, multiple properties and unproductive wealth, while protecting modest residential property ownership. Review taxation on luxury vehicles, expensive imported goods, high-end consumer products and other discretionary expenditure. Ensure effective implementation of appropriate taxation on large agricultural incomes and other sectors with substantial earning capacity, while protecting small farmers. Use modern technology, banking records and transparent enforcement to bring more economic activity into the documented tax system. Conduct an independent annual review of tax exemptions, concessions and preferential rates. Every concession must have a clear economic or social justification. The principle must be simple: those who have greater financial capacity should make a proportionately greater contribution.

One practical solution is to introduce a National Essential Consumption Relief Programme

instead of giving indiscriminate subsidies to everyone, the government should identify eligible households through reliable poverty and income data. Such a programmer could include:

1. Reduced or zero sales tax on a defined basket of essential goods.

2. Direct financial assistance to low-income households.

3. Targeted electricity and gas relief.

4. Subsidized essential medicines.

5. Reduced taxation on basic transportation.

6. Automatic annual adjustment of relief according to inflation.

Existing social protection infrastructure, including the Benazir Income Support Program, could help identify eligible beneficiaries, subject to safeguards and improved coverage. The word transparency in taxation should have practical meaning.Fuel and utilities deserve particular attention because they affect almost every aspect of household expenditure.An increase in fuel taxation does not affect only vehicle owners. It also increases transportation costs, freight charges, food distribution expenses and the prices of everyday commodities. Similarly, electricity and gas bills can consume a substantial portion of the income of lower-middle-income households. Mobile phone taxation also deserves review. For many ordinary citizens, mobile connectivity is no longer a luxury. It is essential for employment, education, banking, communication and access to government services. The government should consider targeted relief on basic mobile usage and essential utility consumption rather than providing indiscriminate benefits to all consumers. Perhaps the most serious aspect of this discussion is the human cost of economic hardship. When families cannot afford food, rent, school fees, electricity bills or medicines, financial pressure can become overwhelming. Reports of individuals and families dying by suicide amid severe financial distress should be treated as a grave social warning. Each such incident deserves investigation, compassion and an appropriate public response. Economic hardship may be one contributing factor, but individual tragedies can have multiple causes. The government must recognize that economic policy is not merely about fiscal targets, revenue collection or economic indicators. It is ultimately about human lives. A society in which ordinary citizens lose hope of providing food, education and medical treatment for their families is facing a serious social challenge and when it is coupled with unemployment it ends up in suicide including a qualified doctor with his entire family. Alongside economic reforms, accessible mental-health services, crisis support and community assistance are also necessary. No family should feel that financial difficulties leave it without any avenue of help. Pakistan needs revenue. There can be no disagreement on that point. However, revenue collection must be based on fairness, transparency and the capacity to pay. A poor citizen should not have to pay the same proportion of his limited income in indirect taxes as a wealthy individual merely because both purchase the same essential commodity. The government must move towards a taxation system in which essential consumption is protected, luxury consumption is appropriately taxed, wealth and high incomes contribute fairly, and public services deliver tangible benefits. The objective should not be to exempt everyone from taxation. It should be to ensure that taxation does not push vulnerable citizens further into poverty. The government should remember that a citizen who cannot afford medicines, adequate food, education or basic transportation is not in a position to contribute meaningfully to national economic development. A fair taxation policy is not a favor to the poor. It is a responsibility of the state. The ultimate test of any economic policy should not be how much revenue it generates, but whether it improves the lives of the people from whom that revenue is collected. Pakistan needs a transparent, progressive and people-centered taxation system one that protects the poor, recognizes the contribution of the middle class and ensures that those with greater financial capacity contribute their fair share. The principle must be clear. Tax according to the ability to pay, not merely according to the necessity to spend. The strongest message of this article is that the poor should not be expected to finance the state through taxes on their basic necessities while people with greater financial capacity have opportunities to benefit from preferential tax treatment.