In turn, the provinces have been at loggerheads with each other and
with
the centre over their share. On the contrary, if the state is not overly
centralised
and tax collection is decentralised to the provincial and city levels,
the need
for NFC awards will disappear and be perpetually postponed, but conducting
the
census will be easier.
At present, the central government raises a bulk of the revenues through
excise levies, import duties, income tax and, probably, general sales
tax. On
the other hand the provincial governments receive abiana, malia, property
taxes;
the districts and cities get zila taxes and octroi fees. It is evident
that the central
government collects large portions of the levies while the provinces
contend with
receiving revenues that hardly fulfill the operation and maintenance
needs of the
taxable service -- abiana and malia fall short of expenditures incurred
for the
irrigation system. Therefore, the provinces are eternally dependent
on the central
government for their needs. But this centralised system is inefficient,
has created
unnecessary friction and disempowers communities and individuals.
Pakistan, being a multi-ethnic, multi-nationality nation-state, was
replete with a host of potential inter-province conflicts. Its efforts
to homogenise the
nation through centralisation in every sphere of life has cost it dearly.
The resistance
against imposition of unitary language and other forms of ideology
by other
provinces, specifically East Bengal and Sindh, was unsettling but the
centre's
hegemony over the finances proved to be fatal.
In the ultimate analysis, Sheikh Mujib-ur-Rehman's six-point agenda
was
more of a revolt against the centre's contention to keep a monopoly
over the right
of taxation and its utilisation. The state, wedded to the idea of 'uniformity
through
centralisation', chose to break up the country rather than concede
financial
autonomy.
Ironically, no lesson was learnt. On the contrary, the state expanded
its
role in economic centralisation by nationalising key institutions of
the economy
during the Bhutto era. Ziaul Haq, other than returning some industrial
units back to
their original owners, did not take up decentralisation seriously.
And the
governments succeeding him, including the present one, have not changed
the essential
characteristics of the state either: the right of taxation and its
disbursement is strongly protected by elite of all persuasions if they
hold the reins of
the central government. In recent times, one government's NFC awards
might have been more
equitable than the other one, but no government has addressed the very
fundamental question of poisonous over-centralisation. Historically,
even the
modern rulers, coming to power through the democratic process, have
followed the model of an old feudal or imperialist state.
This legacy had deep roots in the history of the subcontinent. During
the
Mughal period the emperor, known as Zilli-Subhani/Allahi (God's shadow)
kept the
right of taxation in his hands; the local rulers were nothing but intermediaries
to maintain law and order and collect revenues (in kind or cash) from
the subjects. If
the emperor pardoned the subjects of taxes due to a natural disaster
or yielded some
grants (which was rare) for local development, it was considered the
highest act of benevolence
on his part.
The British brought some rationalisation in the taxation system. However,
due to imperialistic exigencies, the overall system remained centralised
and
expenditures on development projects were still conceived as acts of
generosity.
This trend was accentuated in the post-second-world-war era. The new
emerging
nation-states in many cases had little social or physical infrastructure.
In those
conditions, the state was the main conduit for the development process.
Spectacular economic performance of the planned and centralised economies
like the Soviet Union, East Europe and China were also considered to be
the
model for economic growth, even by the mainstream economists.
It is still debatable whether the centralised state was a necessary
evil
in the beginning when a country like Pakistan that had no industry
or
industrialist class. Nevertheless, the demise of the planed states
and prosperity of
decentralised states shows that centralisation has done more harm than
good, at least in the
last quarter century. Not only has it hindered economic growth, it
has also impinged
upon the social development of people, who instead of taking initiative
in their
own hands keep on looking towards the central government for mano-salva
(goodies).
So far, the situation has reached a point where centralisation is coming
in the
way of head-counting, other factors notwithstanding. Therefore, decentralisation,
specifically in taxation, should be implemented sooner than later.
If the government seriously wants to revamp the taxation system, it
should change the basic tenants of governance. Following the model
of many successful
economies (that have stood the test of time) it should disperse the
right
of taxation to the provinces, cities and localities. While for practical
purposes,
the central government should keep the right of taxation on imports
and some other such
categories, income tax should be changed to three or more tiers: federal,
provincial and city governments should have their separate income taxes.
Property
and sales tax should be largely in the hands of the provincial and
city governments
(with some exceptions where federal involvement is inevitable).
This is an oversimplified outline. However, if some system is developed
on these lines, not only will the tax compliance increase (some of
the local taxes
like octroi have 100 per cent compliance), it will also enhance the
devolution of
political power.
If the provincial and city governments are autonomous in revenue
collection and expenditures, their dependence and, hence, friction
with the central
government will subside. This might even end the ethnic divisions.
Further, it will
empower the individual communities and create a new mindset for the
whole country.