Correcting a parallax error

Our revenue gathering arrangements have an inbuilt system of leaks that result in a major portion of funds that would normally go to the public exchequer being siphoned off into the black economy. This seems to be an irreversible ex-osmosis mainly because of the latent fear omnipresent that the so-called guardians of the white economy may confiscate a fair amount for themselves if discovered. These funds find their way to foreign banks abroad and to real estate within the country, depending upon the level of sophistication. From time to time, various schemes are launched by the Government to encourage black money to be converted into white money without much success with a resultant sea of floating millions thumbing its paper noses at the naive (and the stupid) trapped within the white economy. To confound the perils of the Government further, our revenue collection agencies are themselves thoroughly ridden with members of the black economy who use every new law designed to unearth millions into personal revenue collection subterfuges.

Once upon a time, not so long ago, one was mesmerised by the brilliant records of some of our well-known economists in and out of Government and willing to believe that their patriotism and loyalty would allow their academic knowledge and world experience to contribute to the overall benefit of the nation. We forgot conveniently that most of them owe their loyalties to false gods, one which gives them prestige and money in the first world which not only permits them to look at their Third World brethren with ill-concealed contempt but allows them to pontificate imperiously with a first world slant on the issues involved. The tragedy is that on such people we must depend for fiscal models which will ameliorate our present lot by drawing capital into the white economy from the black. As knowledgeable a person as the Governor of the State Bank of Pakistan, Mr V A Jafarey and formerly Deputy Chairman Planning Commission, has taken the structural weaknesses of the economy to task. In an atmosphere where corruption is rampant and tax evasion endemic, he has emphasised the need to adjust the imbalances in the economy before they become critical, an over-riding concern arises to correct what amounts to more than a human error. But mere platitudes serves no purpose, the executive authority of the Government’s financial genius must be used to put an effective plan into place and then for the sake of the poor people of this country, put it into effect. Such is the power of those who do not pay taxes on their ill-gotten millions that at this point of time we are more likely to agree with Bernard Berenson’s assertion that “Governments last as long as the under-taxed can defend themselves against the over-taxed”, in this case the vast middle class.

The first thing to do is to broaden the tax base. Without the addition of another 500,000 tax payers within the next 2-3 years, the price of development will be too steep for our children to bear well into the 21st century. Some sort of agriculture unit tax has to be imposed to lessen the burden of indirect taxes such as sales taxes and custom duties and that borne by the middle-income tax payers. The tax slabs have to be simplified and lowered considerably. By making the tax slabs simple and lesser in number, it will be easier for the tax payer to calculate the taxes he/she must pay. This will also foreclose the possibilities of misdeamenours which are in existence galore at the present time, available to those in the tax department bent on making their personal fortunes at the expense of the Government. Lowering of the rate of tax will also invite more people to pay their taxes and it would not be worth the while for those normally interested in making under-the-table payments to lessen the tax burden. Somewhere along the line there must be Special Courts which should not only swiftly try tax offenders but also those members of the income tax cadre who help in tax evasion by lining their own pockets at the public expense. Tax offences are not that different from drug offences and must carry the same punishment ratio including capital punishment if necessary. If a businessman involved in evading excise duties on cigarettes knows that not only his entire holding may be subject to confiscation by the State but that he may also end up facing a long jail term, he will be that much less likely to smoke in comfort. For those who helped him in the tax evasion, capital punishment would have acted as a safe deterrent to further malfeasance.

The question arises as to how the Government can coerce the players in the black economy to whiten their holdings. We feel that necessarily the same simple methods may apply. For a payment of 10-15%, the owners of black money and holdings (whoever they may be) should be encouraged to declare their wealth with a law enacted to protect them from punitive action by present and future Governments. The alternative if they do not take this scheme up should be to confiscate everything they own in their name or that of dependants, servants, etc. This would enable maximum induction of money into the economic mainstream. This extra money would be lapped up by investment banks which could form the backbone of an economic revival. All this leads us to the importance of freeing the economy with the investment banks acting as standard bearers of economic change. Underscored is the need to give as many sanctions as possible for new investment banks without recourse to influence or money peddling by aspirants. Bureaucracy’s answer to sanctions is the delayed processing of applications to suit their favourites having the necessary financial (or political clout) whereas the correct method would be to apply the more democratic means of fair competition to separate the major players from the boys. Attrition rather than bureaucratic selection has to be applied to free the economy from the present tutelage. Market forces are a much better criteria than biased selection. The present Government seems to have identified the problems manifest but has singularly lacked the political will to overcome bureaucratic skulduggery at its very best. Will Rogers said it all when he stated that, “the business of government is to keep the government out of business — that is, unless business needs government aid”.

One cannot condemn bureaucracy outright and in general. The broad mass of white collar workers in the government work in isolated departments deliberately created since imperial times to have no concentric or coordinated approach to national problems except that which is the most obvious. This vast pool of manpower is generally honest and devoid of personal purpose other than their own survival on meagre salaries and perquisites. There is no bureaucratic Mafia but a consensus system does exist that owes no allegiance to any political government except that of lip-service. This system is led by no single bureaucrat or any council of any kind but at the higher level it is a club that bands together out of the sheer necessity of survival of its collective authority. One of the exercises of this authority is to delay all decisions and act in concert with each other. This delay gives a bureaucrat tremendous power over a hapless population and he wields this with merciless abandon knowing that the only effective check on him is a fellow soul-mate. In the words of Lawrence J.Peter, “Bureaucracy defends the status quo long past the time when the quo has lost its status”. Whereas this is bad enough when handling day-to-day problems (which are put off year to year), this approach is fatal in the fast moving world of today’s economics. A sharper contrast cannot be stated than the Futures Markets where one cannot take one’s eyes of the computer screens because of the rapid changes in the prices and the normal routine in the Government’s prime commercial concern, the Trading Corporation of Pakistan (TCP), where you can go through weeks and months (with breaks for lunches, long weekends, out-of-station visits etc) before a decision on a tender for any commodity is taken. This particular example brings into sharp focus the difference when you are playing the market for your own money or the public money.
What are a few hundred millions of public money to a bureaucrat cast into the world of commerce. He just has to make sure the notations on his files are good enough to escape an investigator’s enquiries i.e. if the investigator who usually belongs to the club and can be influenced, bothers to look at all. Short of financial murder the bureaucrats are immune to any situation, and that too they can normally escape more often than not. The long and short of it is that bureaucracy should have as least a role as possible in policing the investment banks and this should be left to senior banking professionals in the field committed to a free economy. Pakistan’s banking professionals are known the world over and what they can give to the financial sector no bureaucrat can ever emulate. Even the sanctioning process has to be kept from the bureaucracy for fear of the notes they are likely to write to influence decisions to favour one over the other, remembering that Honore de Balzac, almost 150 years ago, said that “Bureaucracy is a giant mechanism operated by pygmies”.

The solution of investment banks to garner local resources, particularly from the black economy is the one most likely to succeed and it must be given a fair chance, for the sake of the economic well-being of the nation. The only controls necessary should be the safeguarding of individual investments which can be done by insuring deposits very much as it is done at the Federal level in the United States. Checks and balances in a competitive system need no elucidation and the education process of the general public may be painful but the professional investment houses will stay alive in the end because of market forces and investor confidence as much as the quacks will fall by the wayside for lack of confidence. Let us free the economy and correct the Parallax Error before the error becomes a rule of law.

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