As grave a problem


The finance ministry’s slow dance with the IMF has nothing to do with the Osama episode. Our troubled relationship with the Fund, rather, stems from structural problems in economic policy. On a level, though, the terrorism fiasco and economic conundrum are related: the way the state cannot maintain its monopoly over violence, as the presence of terrorist networks within the country proves time and again, the state has also been extremely unsuccessful in being able to effectively tax its people. These problems are similar in how fundamental they are. These shortcomings are not becoming of stable nation-states.
On both these fronts, all that the world asks us to do is to follow our own explicitly stated national policy. Much before the government entered into the current loan program with the IMF, the civil financial establishment had declared its interest in restructuring our system of taxation. In particular, there had been talk since long of slicing up our indirect taxes and shifting their burden away from the retail side. This taxing of different stages of value addition would be an elegant way of documenting incomes properly for purposes of direct taxation. The same applies for subsidies. The mass media and the opposition might focus on the IMF’s insistence on phasing these out but the financial bureaucracy had been pleading the case of targeted subsidies since quite some time now, to which the government finally agreed to much before our IMF loan program.
That taxation is not an executive decision but a legislative one complicates matters for a shaky government. The finance minister and his team, who are in Dubai to meet up with IMF representatives about the next tranche of our loan, have told them they will not, as a government, guarantee any development on the RGST front. The bill can be rejected by parliament in which case, there is a Plan B. The Fund would be well within its rights to be skeptical.
It is hoped that, despite the machinations of Big Business, the bill is passed by parliament in this budget. Much like our war against terror, we’ll be doing this for our own good.