The taxman come
(This is a weekly article analysing the current state of the world economy and its effects on domestic trade and commerce).
The President of the World Bank came a-visiting very recently. Stoically he went through the routine rituals which all foreign dignitaries must submit to, including the customary visit to an Afghan Refugee Camp. He eulogised Pakistan’s excellent utilisation of World Bank Aid and denied any extraordinary conditions in the grant of further assistance. However, Mr. Barber C Conable is basically a political animal and no pushover. As behoves a guest in the presence of his host, he gently exhorted them to broader the tax base to generate more internal resources for development. In effect, he said, better start milking your sacred cow, the agriculture sector and cut down on subsidising your user-utilities.
As Saturday November 14th was the very last day for the filing of Income Tax Returns, long queues developed at the Income Tax offices as the Corporate sector and salaried class vied with each other to meet the deadline. Fully 85% of the people who should have been filing their tax returns did not show up at the party, 35% of them because they preferred to gamble that they would not be caught up in the tax net and 50% because their wealth is derived from the agriculture sector, which is hardly taxed in any form, if at all. In effect, the country’s machinery survives on, what does manage to get into the revenue coffers is extracted from the NAIVE (and not so NAIVE) who make up the balance 15%. Economic growth is stunted and in the presence of the population explosion, the whole edifice would collapse without the life-sustaining support of the black economy. Preaching on Tax Reforms within the columns of a newspaper will not suffice if the country has to be nourished and developed, the institution of internal revenue must be totally reformed and inculcated with a much broader base. In order to stimulate growth, taxes must be reduced which will not only encourage people to pay the correct amount but also give them more money to spend in the economy locally. The imposition of high taxes is a self-defeating exercise which only serves to motivate corruption at various levels.
Tax laws must be made simple and easy to implement. At the moment the tax slabs are modelled on the Cretan Maze, and in spite of excellent lessons in the newspaper by the help of large scale advertisement, is difficult to understand, let alone negotiate, giving openings for corrupt practices, which are fairly well exploited by the taxmen, with honourable exceptions, of course. The basic premise of this exercise must be to (1) simplify taxation so that even a layman can understand it (2) broaden the tax base in order to get balance 85% to pay taxes (3) lower the tax rate to encourage the payment of taxes and discourage corruption. The whole system of revenue assessment and collection needs to be studied in great detail. In the olden days, the Monarch depended upon his Barons to levy and collect taxes, using his troops only for selected areas under his direct control. The Federal Government may have to similarly dismantle the monolithic structure of the Income Tax Department on the same lines by decentralization. The people can only be encouraged to pay their taxes if they feel it is within their reach. Otherwise they will resort to various subterfuges resulting in a major portion of the national wealth remaining divorced from the development profile of the nation.
Subterfuge is an essential weapon in the hand of the nation’s economic planners. As the US dollar has slid against the other currencies of the world, the Pakistani Rupee has done the same. However, since we are linked to the US dollar, the price of the Pakistani Rupee has remained firm against the US dollar while taking a bath and a plunge against the other currencies such as the English Pound, the West German Mark, the Japanese yen and so on. An effective devaluation of the currency has been achieved without proclaiming it as such. This is a boon of sorts. Since most of our foreign loans are in US dollars, we will not be affected in repayment, however, our exports to the areas of stronger currency aforementioned will be enhanced as they will become much more competitive. However, in terms of net assets, the value of our currency reserves has definitely gone down as the cost of purchases from the same areas have increased by leaps and bounds. Devaluation is somewhat like the blood-letting physicians practiced in ancient times, sometimes with the help of leeches (who still abound aplenty in human form). The loss of blood gave a temporary cure for certain diseases and became a pet medication, but prolonged blood-letting in the face of continuing fever invariably led to the loss of the patient’s life. Therefore, the pace of devaluation, latent or not, has to be kept in effective check or it can cause the economic life of the nation to collapse. In defence of our currency specialists in the State Bank of Pakistan it must be said that in the prevailing circumstance they have done a fair job of maintaining currency stability by preventing suicidal speculations. Indeed they need to be congratulated and exhorted to carry on — carefully.
On the subject of Banks, it is noteworthy to mention the sad incident in which the Muslim Commercial Bank (MCB) Union manhandled the President of MCB in his offices in Karachi in late October. This was a most dastardly act, perpetuated by hooligans garbed under the guise of personnel of the dignified banking profession. It cannot be believed that the MCB Union acted in this manner towards its own Bank President. It did not serve the cause of Unions in general in Pakistan and has been condemned by a wide spectrum of the public as a disgraceful example of a Union running amok compounded by the unreasoning vindictiveness best associated with militant factory unions of the 19th century, who incidentally had plenty of reason to be aggrieved. It has been more horrifying given the persona of the man who was attacked, a God fearing, honest and gentle person, who was more than sympathetic to the correct demands of his staff. That it happened, cast a slur on the maturity of the Union which has not been enhanced by their failure to render an unconditional apology. What is utterly sad is that there has been no cacophony of condemnation from intellectual circles or politicians or other Unions. The incident may be small, it has portents far beyond the confines of MCB. The Bank Unions have demands which may be perfectly justified and they have the constitutional right to voice their demands, and it will serve their cause well if they themselves were to sort out those elements in their midst who have indulged in this wanton, criminal act and brought undying shame to their cause. For one moment even, it is not believable that the mass rank and file of the MCB Union supported this action.
Someone remarked that this may be a pious hope, more like hoping that India will give up its belligerency to really practice what Gandhi (not this one) professed to preach, universal peace and harmony. However, one cannot least hope, Gandhi’s tortured soul notwithstanding!
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