The tax test

Another Go-Nawaz-Go front?

Third time as prime minister has mostly been about juggling priorities so far for Nawaz Sharif. It was so with the matter of the thaw with India earlier, and many among his core Deobandi constituency were upset when he finally relented to Zarb-e-Azb. And so it is now with traders; up in arms over the controversial 0.6 percent withholding tax on all banking transactions above Rs50,000, chanting Go-Nawaz-Go as they blocked roads and choked traffic. Dar sb’s offer of negotiations – which means upward or downward adjustment of the floor (minimum taxable value) – is not likely to sell well with the agitators since they are for scrapping this measure altogether, not revising it.

It should be remembered that this particular tax is applicable to those who refuse to pay taxes otherwise, or who are outside the traditional tax net. And it should not be forgotten that expanding tax collection was one of PML-N’s core campaign promises. Yet in the two years of its third term in power, the ruling party has overseen a rather visible dip in tax earnings. Hence the resort to withholding tax of this nature. Critics are right, to an extent, that this measure will discourage banking transactions, pushing people more towards cash transactions. It is also natural for opposition parties to hop on board, especially since it might not be very easy to separate defaulters from payers.

Yet it is now for the ruling party to enforce collection. Those who do not follow rules must be made to pay through other means, and the withholding tax is as apt a measure as any to ensure compliance. On these earnings depend crucial factors like development funding, the size and impact of the deficit, re-investment in export, etc. It cannot be held hostage by traders who are too used to not paying their fair share of taxes. However, while the government goes about taming these traders, it must also make sure that those far closer to it, in the halls of power, also start paying their due taxes. It was because of this refusal to pay, after all, that unorthodox measures had to be resorted to.