Sunday, August 12, 2012

Wealthy Elites, like Children, Are the Same Everywhere

Taxing elites

From the Newspaper | S. Akbar Zaidi | 30th April, 2012
ELITES are taxing in any context and in any environment. In Pakistan, however, their behaviour makes matters doubly worse. 

They are taxing for the sort of values they manifest, always out of line and out of tune with how the rest of the country envisions itself and its future. And also because of their enclave mentalities disconnected to local realities, their globalised mobility with multiple passports and identities, and few deep commitments to Pakistan, except to extract as much personal wealth as possible. Pakistan’s problem is not its middle class, but its elite.

The recent discussion about Pakistan’s middle class in newspapers has been trivialised by the fact that different individuals have spent far too much time counting those who might constitute a category of the middle class. It matters little, at least from a social science and/or political economy perspective, whether they are 40 million or 42 million, whether they drink Coke or Tapal.

What has been lost in the discussion is the politics, social composition, values and ideology of this so-called class. There is ample evidence to support the claim that bigger is not necessarily better. For this reason, one must also emphasise, that there is no ‘single’ middle class, but there are numerous people who constitute differing groups and strata who may belong to this class, broadly, and yet be extremely diverse. In fact, there is no homogenous notion of a middle class in Pakistan, or perhaps anywhere.

The purpose here is not to count how many individuals or families constitute a category called ‘the elite’, or even to define it in any stringent manner. Nor is an argument going to be made about how this category is also not homogenous. The focus is narrower and less ambitious.

It deals with the economic or moneyed or propertied elite, those who ought to, but, for reasons that are explained below, do not need to pay their taxes. This narrow definition of the elite — or the ruling class as it was called some decades ago — excludes many of those who form the elite in Pakistan, but not on the basis of property owned or income received. Clerics, come to mind, and so do many civil servants who are part of the elite primarily because of their location to power and influence, outside the narrower binding constraint of just having wealth.

The question which many economists have been asking of how to raise the tax-to-GDP ratio which has fallen to a mere 8.6 per cent is actually the wrong one. We need to understand why it is that Pakistan’s elite have no interest in raising the tax-to-GDP ratio.

The answer is not as simple or crude as stating that the ruling class — of which this economic and propertied section is an important component — simply refuses to tax itself. While this is certainly true in the Pakistani context, not only is this an insufficient and lazy explanation, the ample evidence of why the elite in other countries do tax themselves, is of more significance. What are the circumstances which make a section of the Pakistani economic elite so different from other countries, and why and how does this elite govern and run such a large country without raising revenue? One reason is that, increasingly, Pakistan’s non-taxpaying elite have disengaged themselves from their need for the state, and are no longer dependent on state resources. The elite have their own schools, hospitals, generators and security. Why should they pay taxes voluntarily to a government whose resources they don’t use? They even contribute to charitable causes and probably even pay zakat to the needy.

Building an international-standard hospital here or a business school there, both of which feed into the enclaved world of the elite, providing essential services primarily to themselves (the elite reproducing themselves) is as far as they are willing to invest. They have no need to invest in public services. Here too, they privatise their contribution to society. If they felt a need to invest in the social capital in Pakistan, they would pay their taxes. The elite live privatised lives.

But they do benefit from the state and extract their private wealth from Pakistan as well, often to deposit it elsewhere. This line of argument would mean that if the state had more resources (taxes) to invest and improve, say, public infrastructure, the elite would benefit even more. However, it seems that without having to contribute very much, the elite make sufficient profits.

Nevertheless, there has to be a tipping point where the elite realise that they need to contribute a greater share in order to continue to retain their privileged position. Clearly, that tipping point, or crisis, has not arrived.

The non-taxpaying elite will only collectively think of saving the system when they see the system collapsing, when it is in a crisis which affects them directly. Until then, to expect those who are Pakistan’s economic and propertied elite, and do not pay taxes, to contribute to increasing the tax-to-GDP ratio, seems improbable. Pakistan’s elite — barring some honourable individual exceptions — is not that forward-looking or vested in Pakistan’s future beyond a certain point.

The need for better public services, hence a better Pakistan, is felt by those who are dependent on the state to provide resources and services, and who are less mobile to move either themselves or their assets abroad. It is the working people of Pakistan, as well as the middle classes, who have to gain political power to force the non-taxpaying elite to do so.

This elite will not voluntarily contribute to public revenue, although given the extent of tax evasion, they need to do so far more than anyone else. The only way one can expect Pakistan’s tax-to-GDP ratio to improve, is through the concerted and collective political action of those who are vested in Pakistan.

The writer is a political economist.

No comments:

Post a Comment

Please feel free to comment or make suggestions