Provinces equally responsible for economic reforms: Sheikh

Federal Finance Minister Abdul Hafeez Sheikh said on Sunday that Pakistan was going through a big transition and provincial governments equally shared the responsibility for the success of economic reforms and improvement in governance with the federal government during the next fiscal year. Sheikh was delivering the keynote address to an audience of prominent businessmen and economic experts at the pre-budget seminar titled “How to Fix the Economy”, arranged by Pakistan Today here on Sunday.
The seminar was also addressed by Planning Commission Deputy Chairman Dr Nadeemul Haque, State Bank of Pakistan Governor Shahid H Kardar, former finance ministers Shaukat Tarin, Dr Salman Shah and Sartaj Aziz, former federal ministers Humayun Akhtar Khan and Jehangir Khan Tarin, Muslim Commercial Bank and Nishat Group Chairman Mian Muhammad Mansha and Pakistan Today Editor Arif Nizami. The panelists stressed on discarding clichéd ways to revive the economy and advised focus on taking the tough but essential decisions of taxing all types of incomes, privatising hemorrhaging public sector enterprises, a uniform tariff for natural gas, resolution of the energy crisis and providing a conducive environment for businesses.
Replying to various objections of the panelists, the finance minister said the federal government alone could not be held responsible for the crisis, as it must be realised there were five governments in the country. Provincial governments had a major role in implementing the economic reforms as well as improvement in governance, as they were given an additional Rs 300 billion under the National Finance Commission Award during the current fiscal year. “Spending on improving social sectors and governance is primarily their responsibility,” said Sheikh. About the next budget, he said focus was on equitable taxation while going after tax evaders and under-filers. The existing taxpayers would not be burdened, he said.
He said notices were issued to 55,000 out of the 700,000 new taxpayers identified, who lived in expensive houses, had multiple bank accounts and spent more than 60 days in international travel, but did not have National Tax Numbers. Pointing out the causes of low economic growth in the last several years, he said that the country was in a war-like situation ever since its creation, with an inefficient but dominant state apparatus in commercial activities, businesses had showing reluctance to trade with the world or invite foreign investors, the elite not paying taxes and nobody ever questioning the appointment of bureaucrats to head public sector enterprises or raising their voice against the size of the government and cabinets. He said all transitions of governments in the last 62 years were violent and caused disruption in the economy as well as society.
However, he said, despite these odds, the current government had shown the resolve to take difficult decisions even though it learnt new lessons for being a coalition government. It was not easy to increase the power tariff and to remove tax exemptions of powerful lobbies, he said. For increasing revenues, he said, the Federal Board of Revenue (FBR) chairman was given complete autonomy and he reshuffled more than 100 top tax officials and customs officers. Just a few changes at FBR revealed that more than 4,000 companies were evading Rs 7.5 billion in taxes, and they were issued notices and Rs 1.5 billion were recovered while others had pledged payment if they were not prosecuted, he said. “We did not prosecute them because we wanted our signal to be understood by all,” he added. On the agricultural income tax, he said that the federal government could only collect it if provincial governments allowed it, or if a change in the constitution was made.
However, he observed that the agricultural income tax was already implemented in the provinces and they should be pressed to increase the rates and improve collection. On finding a growth path, he said that the government had assigned the task to Planning Commission Deputy Chairman Dr Nadeemul Haque and he had been given a free hand. The approval for the new growth plan would be taken from the prime minister-led National Economic Council before its implementation from next fiscal year. Setting broad parameters for discussion, Pakistan Today Editor Arif Nizami, in his welcome address, highlighted a number of economic problems that were impeding economic growth in the country. Nizami pointed out that the country had alarmingly high circular debt, an energy crisis, high cost of doing business and the lowest tax-to-Gross Domestic Product (GDP) ratio and growth rate in the region.
He said only the present government could not be blamed for all the economic ills, and the previous regime was also responsible. He said inflation in the country might just be in tune with global inflation, but structural and social issues had a great role to play in the country’s problems. “As a nation, we are loath to pay taxes and we have come to expect for the government to pay up a subsidy on just about everything,” he said. Nizami said that Pakistan had been stuck in a circle of stagflation, but that did not mean the government should jettison all proactive measures and let things be. He said the present circumstances indicated that at least some of the Millennium Development Goals (MDG) would not be achieved in the lifetime of the present generation. He said that development required money and the government did not have too much of it. “We have one of the lowest tax-to-GDP ratios in the world yet we insist on unsustainable subsidies as well.
The answer is tough decisions,” he said. “It is only a democratic government that can effectively sell tough decisions to the populace. The elixir of democracy is elegant in that even though populist sloganeering might land one in power, the burden of governance sobers up the most cavalier of rabble-rousers. It is then up to these grown-ups to tell the electorate how bad things are and what needs to be done,” Nizami added.