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How the world can benefit from Pakistan's tax transparency laws

How the world can benefit from Pakistan’s tax transparency laws

At a time when the world is witnessing a wave of mistrust over the true interests of ruling elites, it may seem strange that Pakistan – a country so often associated with corruption – is in one respect the benchmark for transparency. When it comes to the disclosure of politicians’ tax affairs, the likes of Philip Hammond and Donald Trump have something to learn from my country.

But it wasn’t always this way – and investigative journalism was the catalyst for change. In June 2011, Pakistan’s finance minister told parliament during his budget speech that the country was ranked second from bottom among 154 countries in tax-to-GDP ratio – an important measure of how well a country collects its tax. That he made this speech in parliament was ironic, not only because that forum is the only body able to impose taxes on ordinary people, but also because many of those listening were very likely tax evaders themselves.

In Pakistan, about 70% of tax revenue comes via indirect taxation. Politically, this is considered the most convenient way of collecting money: it shifts the burden on to the growing poorer population who have no say in policy circles. In contrast, the rich are not only rewarded through exemptions and amnesty schemes, they evade taxes even on their income. This culture of impunity runs through parliament too, which is of course made up of the affluent classes.

As a journalist, I felt curious and angry about this contradiction. Unmasking the tax evasion by the rich and the ruling elite was my target, so I decided to investigate the law-makers. When parliamentarians don’t pay their taxes, they are left with no moral authority to tell others to comply with tax laws.

It took me months to obtain the details I needed for my investigation, but the findings were revealing: in 2011, about 70% of law-makers had not filed income tax returns. One in five MPs didn’t even have a tax number, which is required for filing tax returns. Although a follow-up report the next year showed an improvement, the figure was still 50%. And one in 11 MPs was still without a tax number.

Ideally, tax data relating to all citizens, including law-makers, should be made public every year. And after my two reports, this is exactly what now happens in Pakistan. Since 2014, the Pakistan government now lists on its website, in alphabetical order, the total annual tax paid by all companies and individuals. Norway, Sweden and Finland have been doing this for decades.

Publishing tax information has become even more important given the global debate about inequality. In 2013, American billionaire Warren Buffett admitted he was still “paying a lower tax rate than his secretary”. Tax policies worldwide are so often rigged in favour of the high earners. And the recent wave of populism in Europe and America is a no-confidence vote against the ruling elites. There is a widespread perception among the general public that politicians get their vote, then protect the interests of their campaign financiers. That most of the politicians tend to be rich further fuels suspicions about their financial integrity.

It’s high time for them to lead by example and prevent the rise of demagogues. Disclosing their tax bills is the first step they should take to ensure a public stamp of approval. American senator Ron Wyden couldn’t have been more right when he said that tax returns deliver honest answers to key questions about the taxes of a politician. But his remarks were only directed at those in the top office. People have a right to know about the taxes of whoever has been voted into power.

Of course, it’s easier said than done. In 2012, David Cameron said he and his cabinet would be happy to publish their tax returns. But it took him another four years to do it – and only then after he was forced to answer questions about his late father’s offshore investments, as detailed in the Panama Papers. And even that was a one-time disclosure, not an adopted policy.

Now Trump is breaking decades of precedent, set by US presidents of both major parties, by refusing to publish his tax details. And this from a billionaire businessman who has boasted it’s “smart” to avoid tax. What hope for standards of transparency there?

So, should we just sit with our fingers crossed? Silence isn’t an option; struggle is. The media, as a surrogate for the public, is duty-bound to hold them accountable. Nothing is more important than the financial integrity of politicians.

Last week, 20 other leading investigative journalists from around the world and I met in London to discuss ways we can all follow my work in Pakistan. Afterwards, we sent letters to 7,000 politicians from 20 countries, urging them to disclose their tax records. If they do not respond they will be named and shamed.

The campaign launched by Finance Uncovered for tax disclosures will help bring back what politicians have lost – public trust. My reports on the taxes of Pakistani MPs proved this is an issue that resonates with the public, and it is one John McDonnell and Jeremy Corbyn are wise to pick up on.

Last year, multimillionaire Tory MP Jacob Rees-Mogg predicted that politicians will within a few years be forced to disclose their tax affairs to regain public confidence. He was right. But we need to be persistent. The day is not far off when we will witness tax disclosure policies being adopted in country after country.

The Guardian

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