Good and bad taxes

And a clueless government

Unconventional taxation is never a good idea, no matter the spin any government puts on it. It is a tacit admission, among other things, of the inability to raise revenue through conventional taxation. Little wonder, therefore, that, more than often, the governments opting for such measures represent the economic South, just like us. And just as much as Nawaz promised expanding the tax net on the campaign trail – not mandatory fixed taxes or suspect tax breaks – the road from here is likely to feature the reverse.

Yet there are progressive and regressive ideas even in the world of indirect taxation. The decision to introduce a two percent tax on a turnover basis on retailers with shops in high end malls and plazas, for example, might not be such a bad idea. Some if not most of these retailers have been, as the old saying goes, eating off the fat of the land for far too long – without paying any taxes of course. And since other attempts and incentives have all but met the same fate, there’s really no harm in trying a bit of arm-twisting now. It would be worth writing home about even if it bags half of the Rs10b the finance ministry expects.

The other smart idea – slapping a 10 percent tax on branded milk and increasing other dairy product taxes to 17 percent – merits a re-think. Not only does it betray a worrying disregard for common people’s concerns, it also smacks of unsatisfactory business acumen. There’s a good chance, according to news reports, of this initiative undoing the Dutch company Friesland Campina’s anticipated 51 percent acquisition of Engro. And since the last few years haven’t exactly recorded stellar foreign investment statistics, such initiatives should be protected and nurtured, not attacked in an irresponsible manner. It is understandable that the government, unable to raise taxes or exports, is caught in an unenviable position. But it must still be careful about its choice of taxes, lest it alienates more people and business prospects.