Pakistan’s Elite Pay Few Taxes, Widening Gap: Excellent NYT story

Pakistan’s Elite Pay Few Taxes, Widening Gap
By Sabrina Tavernise, July 18, 2010

ISLAMABAD, Pakistan — Much of Pakistan’s capital city looks like a rich Los Angeles suburb. Shiny sport utility vehicles purr down gated driveways. Elegant multistory homes are tended by servants. Laundry is never hung out to dry.

But behind the opulence lurks a troubling fact. Very few of these households pay income tax. That is mostly because the politicians who make the rules are also the country’s richest citizens, and are skilled at finding ways to exempt themselves.

That would be a problem in any country. But in Pakistan, the lack of a workable tax system feeds something more menacing: a festering inequality in Pakistani society, where the wealth of its most powerful members is never redistributed or put to use for public good. That is creating conditions that have helped spread an insurgency that is tormenting the country and complicating American policy in the region.
It is also a sorry performance for a country that is among the largest recipients of American aid, payments of billions of dollars that prop up the country’s finances and are meant to help its leaders fight the insurgency.
Though the authorities have tried to expand the net in recent years, taxing profits from the stock market and real estate, entire swaths of the economy, like agriculture, a major moneymaker for the elite, remain untaxed.

“This is a system of the elite, by the elite and for the elite,” said Riyaz Hussain Naqvi, a retired government official who worked in tax collection for 38 years. “It is a skewed system in which the poor man subsidizes the rich man.”

The problem starts at the top. The average worth of Pakistani members of Parliament is $900,000, with its richest member topping $37 million, according to a December study by the Pakistan Institute of Legislative Development and Transparency in Islamabad.
While Pakistan’s income from taxes last year was the lowest in the country’s history, according to Zafar ul-Majeed, a senior official in the Federal Board of Revenue, the assets of current members of Parliament nearly doubled from those of members of the previous Parliament, the institute study found.

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