Nov 15, 2010

Gilgit Baltistan: ‘No Taxation Without Representation’?

Islamabad proposed the instatement of direct taxation in Gilgit Baltistan, but in an area that is not constitutionally part of Pakistan this raises fierce debate with fears of heightened political dependence.

Below is an article published by The Express Tribune:

All over the world governments tax their citizens and use the collected amount for the betterment of society, through investment in development projects. The government of Pakistan has set an ambitious tax revenue target of Rs1.779 trillion for the fiscal year 2010-11, 19 per cent more than the target for 2009-10.

Everyone pays taxes every day, directly or indirectly.

Consumers in Gilgit-Baltistan (G-B) also pay billions of rupees in indirect taxes every year. Whether the amount is spent on the development of G-B, or other regions for that matter, is a different story altogether.

G-B is not taxed directly by the government because, constitutionally, the people of the region are not a part of the country. Since they are not represented in the national legislative bodies, according to the universal principle of ‘no taxation without representation’, the federal government cannot levy direct taxes in the region.

Despite not collecting direct taxes from the region, the federal government has been paying a fixed amount of money to the G-B government, to meet its recurring expenditures, as well as to cover the cost of development projects.

With a change in the nature of the G-B governance mechanism – as envisaged by the “Self Governance and Empowerment Order 2009” – the need for levying tax in the until-now ‘non-taxed’ region is increasingly being felt and debated.

The G-B Legislative Assembly discussed the need to levy direct taxes in the region. A consensus was not reached but there are signs, however, that point towards a consensus on selective taxation of ‘big businesses’.

Interestingly, the regional office of the Accountant General of Pakistan Revenue (AGPR) deducted 3 per cent taxes from the salaries of G-B government employees.

The uproar against this decision was deafening and within 36 hours AGPR promised to reimburse the amount with the salary for November 2010, terming the deduction to be a ‘computer glitch’.

Whether or not it was a ‘glitch’ may never be known but the decision has further ignited a heated debate across the region; shall the G-B government levy taxes?

The naysayers argue that Islamabad controls the region directly, through the very strong bureaucracy or, indirectly, through the G-B Council, headed by the prime minister himself.

Under this setup, they argue, the tax revenue is likely to remain under the control of the federal government and establishment, one way or the other.

Cabinet members of the G-B Legislative Assembly are already complaining of lack of power and authority, when compared to the bureaucracy.

Another argument put forward by the naysayers is that the region is economically too weak and that taxes are likely to push the impoverished majority further down.

Taxing the people of G-B under a federally-controlled governance structure is bound to further complicate the debate about the constitutional status of the region and its obligations to the state of Pakistan. People would, logically, demand justification for paying taxes to a state that does not offer complete civil and political rights to them.

When asked to offer an alternate mechanism for revenue generation, the opponents of taxation argue that tourism royalty, royalty of the Diamir-Bhasha Dam and Bunji Dam, or the Karakuram Highway, will suffice for the limited financial needs of G-B.

The question that we need to ask ourselves at this point is for how long will G-B be able to sustain itself, and grow, on the royalty of mega projects? Is it strategically feasible? Even if we add the (lethargic) border revenues, or other such future sources, to the list of potential cash generators, will it be enough and long-lasting? Will not our economy be perpetually dependent on a highly treacherous and vulnerable revenue stream? Would not the region’s dependency on Islamabad further increase, instead of gradually lessening, as we aspire?

There seems to be no other alternative to collecting taxes from G-B if we want to see a robust economy and an increasingly self-reliant governance system. Exactly who will be taxed and in what ratio are very important questions that need a region-wide debate, in which all stakeholders need to be informed and brought onboard.

The present government needs to hold meetings in each village and town of the region to get input from the people and also share information about the benefits of paying taxes.

G-B has become used to not paying taxes and it would initially be difficult to persuade the public to pay money to a government that is already burdened by the allegations of massive corruption.