IEW : Rich man's world — Syed Bakhtiyar Kazmi
Conspicuous by its absence is the reference to the poor, except that from the perspective of the rich, common actually is poor; the trick is to categorise them into slabs and philanthropically tax them accordingly
Money, money, money; Always sunny; In the rich man's world. Lyrics from Abba's hit song of yesteryears. Back then, for our generation, it was just a song; with time it has become crystal clear that this is an absolute truth.
Take the elections, the first pillar of democracy. The common man votes on paper; the rich man votes through nothing, which is a synonym for money. Austerity is a key word in the common man's dictionary; the rich man has a one word economic dictionary: prosperity. When things go south, the common man is forced to pay more taxes; the rich appropriate those very taxes in the form of monopoly rent. The common man suffers load shedding; the rich have no clue what this term means.
From history, when bread gets dearer, the rich eat cake. From recent times, a few years ago, bread, rather roti, was for one rupee, and a telephone call used to cost eight rupees per minute; now a telephone call costs less than one rupee per minute and a roti more than eight rupees. Don't forget the rich man munches his cake as he talks on his smart phone.
For abundant clarity, common man means anybody who is not rich, and the rich need no definition. Suffice it to say, those who need a definition for rich do not belong to that privileged class. Conspicuous by its absence is the reference to the poor, except that from the perspective of the rich, common actually is poor; the trick is to categorise them into slabs and philanthropically tax them accordingly.
The recently announced budget, with this background therefore, did not come as a surprise, although as always it was worrying at every other level, in fact probably more than ever before. The expectations from the common man this time around are gargantuan; not only is he expected to pay for past mistakes and future ambitions of the rulers, he is also being told to lighten the already minuscule load of the rich for the rich are the economic future of the nation. Unfortunately he, the common man, has no choice in the matter. Having always been a proponent of 'Trickledown Economics', incentivising the rich in general appeals to the sensibilities, but the framework evolving over the years takes the paradigm to ridiculous levels.
But let it be clear that the phenomenon of a Rich Man's World is not unique to this government, which, in their defence, hardly had a week to grasp things and, simultaneously, balance the budget.
That taxation and the rich don't go together is a universally acknowledged and observed fact; capitalism, over the centuries, has worked diligently to propose theories why the rich should not be taxed. "There's class warfare, all right. But it's my class, the rich class, that's making war, and we're winning."
"But I think that people at the high end — people like myself — should be paying a lot more in taxes. We have it better than we've ever had it."
"The rich are always going to say that, you know, just give us more money and we'll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on."
"My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice" — Warren Buffett, world's third richest man.
(P.S. Nothing happened after that! They are still trying to coerce multinational companies to avoid tax avoidance and pay their fair share!)
With a view to lay to rest the expected critique of this assertion, consider that the rich own companies and banks, and successive governments in Pakistan have brought down corporate tax rates from as high as 65 percent a few decades ago to now 34 percent and moving towards 30 percent. If things were in such a bad shape, why couldn't the tax rate be increased temporarily on corporations and their pay out? By the way bringing down corporate and banking tax rates is a worldwide phenomenon and a buy-in at national levels globally was beautifully orchestrated by capitalist thought. Even a socialist French government is struggling to tax the rich and consequently haplessly watch as their ratings drop. The theory is that a lower tax rate incentivises the rich to invest more and create employment. Well, it hasn't been happening in Pakistan as well; let's see what one percent more can do?
The rich have currency in Pakistan and abroad. A logical question that an uninformed reader can ask is why can interests on deposits over say Rs 60 million not be taxed at 35 percent? Unfortunately, the theory is that if the government took that particular step, there will be flight of capital, the rich will take their money to safer tax-free havens, and without that money, government will not have enough to borrow and to meet its deficit. Au contraire, the situation is such that nations across the globe compete for the rich man's moola, offering ever higher interest rates. Recall the various reduced taxation schemes to incentivise black money to come home! In any case, money is a rich man's game; common men cannot begin to understand it.
But what is the theory behind not taxing agriculture? The naivety behind this question boggles the mind. The world over the landed aristocracy has convinced their governments that food sustainability is a prime directive and hence, farming has to be protected at all costs. Tariffs on agriculture are arguably the bane of WTO's very existence. Tax agriculture? Au contraire, it is provided subsidised input such as fertiliser and its output is protected by ever increasing subsidies, such as the wheat subsidy in Pakistan. The reader must agree that it will be illogical to give a sector subsidy with one hand and tax it with the other. What if the agriculturist stopped producing altogether? The heavens will fall; the nation will become dependent on imports for its very sustenance!
But why can't investment property held for rent, at the very least, be taxed at rates compatible with salary and small business? Because according to the theory, any form of government interference in the market disincentivises the rich with a consequent adverse supply side impact, which in the long run is detrimental for consumers. If the previous sentence was intelligible or sounded like Greek, welcome to the world of economics. Since the common man does not understand a word of economic theory, all he can do is nod his head in submission. Definitely 300 rich can do a lot more than 3,000, but the formers' money has a grander purpose in life; without money and investment, how will the economy grow?
To conclude, it would be oxymoronic if the rich paid taxes in a rich man's world!
The common man can, however, request the government to recover taxes through a differentiated indirect mode, since an invisible tax does not hurt as much as being taxed even before seeing the money!
To skewer all delusions of grandeur of joining the rich man's club, let's skip golf and go watch The Great Gatsby; what a coincidence indeed!
Cheers!
The writer is a chartered accountant based in Islamabad. He can be reached at syed.bakhtiyarkazmi@gmail.com and on twitter @leaccountan
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