Stop reinventing the wheel

Who does not know what is wrong with Pakistan's economy. Almost every student of Pakistan's economy has diagnosed the ailment umpteen times and even suggested a number of cures. The Planning Commission is full of erudite and pedantic papers on the subject, prepared by successive governments, both political and military. A number of five-year and 10-year plans and long-term and short-term economic visions are gathering dust in files in almost all government departments and ministries. We have reinvented the wheel so many times that now no new plan or vision sounds or looks fresh. Most smell too stale to merit even a look.
Who does not know that we have continued to suffer from resource constraints since the very inception of this country? And who does not know how to get rid of this chronic ailment. Who does not know that unless we do something about it we would continue to increase our dependence on foreign 'dole' that comes attached with political strings? And who does not know that for some years now we have been contracting new loans to pay back the interest on the past loans with the principal amount continuing to mount?
Who does not know that we have done nothing so far to increase our tax-to-GDP ratio to a level that would enable the country to get rid of our chronic dole dependence? Who does not know that there are no more than 2 million income taxpayers in this country of almost 200 million people? And who does not know that most of these income taxpayers belong to the salaried classes and that most of the rich indulge in massive tax evasion and avoidance in collusion with the tax collectors. Who does not know that most of the revenue of the state escapes through what has now become a three-cornered game of siphoning that the law-makers, the richer classes and the Federal Bureau of Revenue (FBR) staff have been playing with total impunity all these 71 years. But then who does not know that the entire nation even the poorest of the poor pay consumption taxes in the country?
Who does not know that the FBR is corrupt to the core with exceptions proving the rule? And of course, who does not know that failing to collect the targeted amount, the FBR in the final months of the year orders arbitrary assessments with instructions to appellate officers not to give relief even where justified?
Who does not know that we have failed to enlarge our list of exportable surpluses since perhaps the 1970s, and have lost the market for even these items because of our economically insane policy of keeping the rupee pegged to an over-valued exchange rate, thus subsidising imports, rendering exportable surpluses costlier in the world markets and expanding the trade gap in the process? The All-Pakistan Textile Mills Association, a club of Pakistan's richest tycoons, has locked part of its production facilities because its members find it impossible to part with a portion (in the shape of new taxes) of their unearned billions that they had made in the past to rescue a government.
Perhaps the easiest executive exercise in Pakistan is the preparation of the country's annual budget. The official economic managers do it blindfolded. All that you need to do is resort to back calculation starting with a notional budgetary deficit figure conjured up on your own or advocated as one of the usual loan-related conditionalities by the IMF and arrive at dream figures of income and expenditure.
But then, perhaps even those officials who prepare the budgetary proposals, one is constrained to assume, lack a clear understanding of the problems being faced by Pakistan on the economic front. That is, perhaps, why the remedies that they propose year after year for resolving these problems fail to show an iota of improvement in the situation, which continues to worsen.
For example, taxing the rich and the powerful is rarely attempted despite the fact that successive budgets have been known to have attempted to be balanced by massive internal and external borrowing, adding to the debt burden, which, in turn, adds to the next year's amortisation allocations in the budget. In A Case Study of Pakistan prepared by Dr Hafiz A Pasha a couple of years back, the author contends that the ultimate litmus test for future tax reforms in Pakistan will be taxing more of the rich and the powerful.
Currently, the direct tax-to-GDP ratio is 3.2 per cent. The figure for the same is 11 per cent in Malaysia, eight per cent in Thailand and six per cent in Turkey, India and Indonesia. Pakistan's share of direct taxes in total tax revenues is 33 per cent, as compared to between 45-60 per cent in many Asian countries.
Dr Pasha's study has revealed that only about one-third of the 60,000 companies in operation file returns and among those, less than half declare taxable profits. Also, it is estimated that about three million people in Pakistan earn more than the exempted income - but only one-fourth actually file returns. In effect, one in 260 people file a return in the country as compared to one in 40 in India.
The tax base for corporate income tax, according to Dr Pasha, is eroded by almost half due to exemptions, deductions against labor and charitable contributions, and lower (presumptive) taxation of exports, etc. While many of these are in the nature of fiscal incentives, they have an implied revenue loss of almost Rs 160 billion.
Nobody pays his taxes voluntarily. It is considered extortion by the taxpayers the world over. It is only the fear of being caught and punished that makes one pay taxes honestly. Even in the most civilised countries, rich people enlist the services of the best tax lawyers to manipulate the tax laws so as to have their income tax liabilities reduced to the minimum.
Still, the tax laws in these countries have remained strict enough to coerce the taxpayers into paying enough to fund their socio-economic and defence budgets.
In Pakistan, every time a new government comes in, no matter which - civilian or military - one invariably hears pledges to broaden the tax base and go after tax dodgers with no holds barred. But these pledges turn into regrets within a matter of couple of months with the government accepting to live with the 'realities of life'.
Remember the way Musharraf sent teams of Army personnel to the markets doing roaring businesses to coerce them into paying their dues? But within no time, not only was this campaign abandoned but all those rich rent-seekers that the then NAB Chief Lieutenant-General Amjad had caught and incarcerated were freed and made partners in the loot by the official economic managers. Once the Benazir government had announced its intention to introduce value-added tax for the purpose of documenting the economy. It was a non-starter from the very word go, because on the one hand the tax collectors were not interested in getting the economy documented for obvious reasons and on the other the big and small businesses went all out to get the reform overturned; so much so that the Paris Club meeting of that year had arranged a special private sector session at which the government of the day was warned not to disrupt the norms of free market!
This time again, we are hearing the same noises. The plea as usual is that since the economy is going south, this is not the right time for disrupting the private sector with tax reforms. Instead it should be allowed to continue to fleece the government with renewed vigour so that it succeeds in creating enough wealth as is being desired by Prime Minister Imran Khan so that he is able to fund a welfare state on the lines of Riasat-e-Madina from out of this wealth. But then this route to wealth has already caused massive inequality in the world. Richest 62 people are said to be as wealthy as half of world's population.
Nevertheless, it is the state's responsibility to establish a social-welfare state and not that of the private sector. Therefore, wealth needs to be created in the public sector using policies designed for the purpose and financed with revenues earned through taxing the rich.