Payback time


The word from around the world, governments, donors and allied sources is that Pakistan must dip into its own elite resource base to find adequate funds for rehabilitating its flood losses. We will not ask our taxpayers to dig into their wallets to fund all your rehabilitation efforts, is what a British Minister said at the Pakistan Development Forum in Islamabad last week. All the very senior foreign government functionaries attending this prestigious event unanimously echoed this sentiment.

There is no questioning the fact that our elite, be they businessmen, landowners or agriculturists, are known to avoid paying anywhere near the figure estimated. In some cases, the tax paid is such a paltry sum that it is laughable given the overt lifestyle visible to the general public. I mean certainly drive a Porsche, perhaps even six of the best vehicles but make certain that the tax paid is at least a relevant percentage of the cost of vehicle. Custom Duty or Central Excise Duty (CED) does not constitute Income Tax. Recently, a prominent family released figures of CED paid by their companies as evidence of the enormous taxes paid by them.

In order to meet the additional resources required to meet the estimated flood rehabilitation costs of $10 billion, the government must reform the system to ensure that the new targets are met. The first place to start must be the Federal Board of Revenue. The system is too antiquated and too contaminated to deliver the needs of not only the 21st century but also the added expenditures demanded by the current disaster.

The reform to this institution needs to be radical. The automation and application of modern technology is the need of the hour. No amount of tinkering as in the past will suffice. What is needed is the will to deliver. This is sadly absent.

The unnecessary hullabaloo around the RGST is a resistance that is from within the system. This is apparent from a quick look at those vehemently opposing the levy, one that is more than twenty years old and has become a dinosaur, hence demanding reform. Let us quickly agree that there is no way forward without reform. I am prepared to go the mile and say that difference on modalities can exist but certainly not on the fact that reform is required. Every sane person concerned with the economy is agreed on this. Mr Sartaj Aziz, a former finance minister, said exactly this on television.

The government by this I mean the FBR ought to have made it absolutely clear that the VAT proposed was a levy replacing the GST in vogue and was not an additional burden. This misnomer continued in the minds of the people till very recently. I saw no real attempts to rectify this anomaly. Functionaries got embroiled in televised debates with more vociferous combatants; end result being the public was even more confused. This confusion could not have arisen without sinister motives. In Pakistan, the rich do not want to pay tax and the collectors do not want to collect it. Both have their own motives. It is sad.

Reforms that make economic sense are, more often than not, undermined by politics. Hence, the conclusion the current opposition to the proposed taxes is nothing but political opportunism. The British minister attending the PDF was quite clear, I am a politician and we politicians earn our pay by responding positively to the needs of the day. Finance Minister Hafeez Shaikh said virtually the same on the floor of the Senate, Let politics not be the paramount factor in this decision.

Disposing off the public sector behemoths eating into the heart of the economy is another essential decision urgently required. President Zardaris preference for selling these companies through the stock markets is very positive and benefits will occur to the general public. This is similar to the mode of privatizing Kot Addu, Sui Southern, United and National Banks in the Privatization for the People program initiated during the 2003-2006 period during Hafeez Shaikhs tenure as Privatization Minister.

Thoughts turn to simple measures that will enhance government revenues. All that is required is the will to implement them. Agriculture can be taxed at Mill Head if there is resistance in the fields. Subsidies can be removed from fertilizer. These two measures alone can raise PKR 62 billion in revenue without hardship to the agriculture sector. Widening the base through documentation of the economy itself will yield vast benefits. Considering that 60% of the economy remains outside the documented sector, a small increase of only 25% of this could change the dynamics.

Dr Hafeez Shaikh said that If this means looking straight into the eyes of the big people who are not paying, then so be it, it is Allahs will. The government and people must rise to the occasion and ensure that the dues are duly paid. This is for Pakistan.

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