It’s the Economy
Two hundred days plus into the military regime the prime problem remains the revitalisation of the economy. Miracle men with magic wands and smooth rhetoric notwithstanding, the economy remains sluggish. Granted that the financial haemorrhaging that was the hallmark of the past political governments has been contained, client-patron relationships that have bedevilled Pakistan for over 50 years continues to flourish, one set of patrons have simply been replaced by another, the clients keep ever increasing, to their credit much slower in this regime. Except for one or two dishonourable exceptions, the khakis have remained squeaky clean. Economic initiatives taken have been enough for the manufacturing sector to show some life but nature has played a cruel hand to the agricultural sector, the backbone of the economy. There is a shortage of water in our rivers and severe drought in many parts of Balochistan and Sindh, is a potential disaster staring us in the face. We expected a bumper wheat crop, in the face of fickle nature, if at the least we do not get a reasonable one, we face a very bleak immediate future. To add to additional outlays for oil, add to that for wheat.
The Finance Minister tells us that tax reforms are around the corner and “fruitful discussions” with the IMF have encouraged the IMF to plan about sending the long-awaited tranche of a freshly negotiated package sometime in the future. Mr. Ishaq Dar used to tell us more or less the same thing in the company of the last SBP Governor and the present Secretary General Finance. Our problems stem from failing to collect the quantum of revenues we should and then spending far more frivolously than what we actually collect. Professor Stephen Leacock’s hero used to jump on his horse and gallop off in all directions, our financial sector continues to operate on the same concept, without any real planning or direction, chugging on mainly on the momentum of the yesteryears. Do not look at the booming Stock Markets, they are manipulated at the government’s (and lead stock market players’) will by pumping in money from NIT, ICP, the national commercial banks (NCBs), etc, they do not reflect stark reality. The state of the private banks gives a far more genuine reading of the economy, barring for exceptions on the fingertips of one hand, the rest are in trouble. One expects that by raising the requirements of capital, the State Bank of Pakistan (SBP) will force some mergers and acquisitions among the weaker financial institutions. However that is only a peripheral initiative, what is needed are pragmatic and tangible moves to break out of this logjam.
Collecting more taxes, easier said than done! Year after year we have failed to reach our projected revenues. The simple mathematics is that 1.5 million people cannot continue to be an “Atlas” bearing the burden of 130 million people. For that matter neither can 3.5 million people be but at least the numbers would be better, with the doubling of revenues the deficits would be wiped out. We may even begin to repay some of our increasing national debt. But how do we collect 2.5 million people into the net? Every now and then we hear about tax survey teams that never seem to take off. In the circumstances one cannot be blamed for urging the military hierarchy to remember Capt Liddell Hart and his “Indirect Strategy and Deep Penetration”. Pakistan has 11.6 million houses with electricity, 10 million directly with WAPDA and 1.6 million with KESC. Obviously these are either owned and/or rented by somebody. At least 4.5 houses are constructed of such quality that prima facie the occupants can be assessed as able to pay taxes. From the electricity, telephone, gas and water bills a financial picture can be developed that will produce statistics about the houses which should be surveyed. Moinuddin Khan, former Chairman CBR and an ex-banking colleague of the present Finance Minister, has returned to Pakistan less than a week back after completing his contract in Saudi Arabia. Will Shaukat pick up the telephone and call Moinuddin Khan in Lahore on Tel 6655042 to understand how PROJECT FOXHUNT was conceived and was in the process of being implemented when Moin was sacked as Chairman CBR. The survey teams have to be deployed only for verifying the data compiled and analysed, not act like foxes in a chicken coop, spreading apprehension and disturbance. What one needs is a few computers and persons capable of keying in data, add a bit of sophisticated software to it and well before economic apocalypse puts out the lights one will have 2.5 million (and more) individuals in the tax net. That should add Rs. 200-250 billion more to revenues. National interest requires one to reach out beyond the very limited capabilities of one’s cronies, it requires a sincerity of intent that no amount of smart public relationing can camouflage for an extended period of time.
One should treat Income Tax and Wealth Tax Returns as well as GST very much in a commercial way in the manner Insurance companies deal with clients. Let’s say a car is insured for Rs. 1 million @ 5% premium i.e. the individual pays Rs. 50,000 premium. If the car is stolen then the maximum liability of the insurance company is for Rs. 1 million. Similarly the Wealth Tax return should be made a necessary document when filing an FIR for any loss, similarly the GST payment should act as the indicator for the loss. If a man pays GST for goods worth only Rs. 1 million, he cannot claim a loss in his FIR for more than a million. Similarly no police station in the country should register a loss of more than Rs. 1 million (the threshold for wealth tax) unless the person provides his wealth tax and shows the items lost have been declared by him or her. The insurance companies should also be bound by the wealth tax when taking out policies. How can someone have insurance for more than he has declared in his returns for each item?
And why attack the Baras only? Why not interdict the whole process? The biggest racket in this country is of old clothes, imported mainly from Japan. In Pakistan these are allowed duty free. Containers full of old clothes reach Karachi Port but are cleared in one of the up-country dry ports like Multan, Lahore, etc. They mostly have cartons of old clothes as an outside layer but inside this “protective” layer they have electronics, electrical goods, crockery, cutlery, toys, etc. Since old clothes are duty free these containers are cleared without any government revenues. As for old clothes, people in Pakistan use old clothes far less than in India. Since India has completely banned old clothes, the same shirt for Rs. 5 in Pakistan sells for Rs. 40 in India, almost 60-70% is smuggled there. We are in fact spending our precious foreign exchange to clothe the Indian masses, they are conserving theirs to buy artillery shells to pound us with. So why go for the Baras? If the Finance or Interior Minister or anybody else with the authority (and inclination to do so) is reading this article, please pick up the telephone and freeze all containers of old clothes wherever they are. Then kindly use the Rangers (or the Army) to inspect these containers, the Customs officials being too corrupt to be trusted, with sincere respects for the honest ones (few and far between). Even though these containers are usually “switched” en route to the dry ports, let’s see what turns up!
For rejuvenating the economy we certainly need to get our macro-factors right and swallow some of the bitter pills Dr. IMF dishes out in the prescriptions but at the working end of the scale we need street smart pragmatic suggestions that go right to the heart of the problem — but in an indirect way that does not upset the applecart by unnecessary confrontation that opens up fronts that this military regime needs as much as two left feet. As much as reforms are needed through the broad spectrum of all the institutions in Pakistan, the ultimate truth lies in the fact that its the economy that matters, its the economy that is vital ground!
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