Delivering a keynote address at a pre-budget seminar organised by a newly-launched English-language Lahore-based daily Pakistan Today Governor State Bank of Pakistan Shahid H. Kardar stated that "the terms of trade have moved in favour of those sectors of the economy which are under [within] the provincial governments' domain - agriculture, services, property, etc."
Seen in conjunction with the 7th National Finance Commission Award, the Governor argued that "key liabilities and responsibilities such as national security, debt servicing, subsidies on electricity, food, etc, have been left with the federal government, while revenue collection resources have been given to the provinces."
These views are supported by the Pakistan Economic Survey 2009-10 which maintained that: "the stronger pace of economic growth in 2009-10 has occurred on the back of several favourable developments, which have included (i) substantial transfer to the rural sector over the past two years via the government's crop support price policies, which, combined with higher worker remittances, have sustained aggregate demand in the economy; (ii) a larger-than-expected cotton output which offset the moderately negative impact on the wheat crop caused by a delay in seasonal rains; and (iii) an ongoing improvement in the external demand for Pakistan's exports mainly textiles." While critics may well argue that apart from the government's crop support price policies, all other factors that have impacted favourably on the increase in farm wealth are related to external factors, notably rainfall as well as a rise in the international demand for our products and therefore, may not be duplicated, yet that in no way undermines the Governor's analysis. One simply cannot dismiss the government's focus on the farm sector, given that it accounts for 21 percent of the GDP, absorbs 45 percent of the total labour force, with 62 percent of the population residing in the rural areas, and in the past three years is a sector that has sustained aggregate demand.
Agriculture has re-emerged as the engine of growth in Pakistan third year running. The reason, security concerns, massive load shedding and the high cost of borrowing have led to a decline in the large scale manufacturing (LSM) output with a consequent impact on its contribution to the country's Gross Domestic Product (GDP) reaching a nadir of negative 8.2 percent in 2008-09. Last year the figure improved by 4.4 percent but economists argue that the improvement must be viewed in the context of the previous year's negative growth. One must, however, urge the government to begin focusing on the LSM to enable higher growth rate for the economy.
Governor Kardar stated "now we have this dilemma after the NFC award - that the resources are with the provinces who do not have the infrastructure to generate more revenue by collecting taxes and the federal government is unable to touch these areas, which have come within the provincial governments' purview." The way out of the dilemma is provided by the constitution of this country's Articles 153-159 pertaining to the Council of Common Interest, whose functions and rules of procedure are defined in Article 154: "the Council shall formulate and regulate policies in relation to matters in Part II of the Federal Legislative List." In short, there is an urgent need for a CCI meeting in which such weighty subjects as the need for the provinces to impose taxes related to farm income, the services sector as well as urban property taxes must be agreed and lack of capacity to collect these taxes must be resolved for the interim period during which time capacity would be proactively developed.
Pakistan needs to improve its tax-to-GDP ratio. Coalition as well as opposition members continue to blame the government for failing to tax the rich and the influential, notably the rich landlords, or reduce corruption/mismanagement within the Federal Board of Revenue and state-owned entities, or indeed to adopt austerity measures; yet it is the need of the hour to also ensure that revenue is raised. Ideally, the centre must sit with the provincial governments within the CCI to ensure that the tax revenue is maximised through reforms designed to render our tax system more equitable and non-anomalous and, at the same time, a reduction in wastage as well as belt-tightening must be visible to the general public. This would go some way in ensuring that Pakistan develops culture of an honest taxpayer - a development that would go hand in hand with a culture of an honest tax collector and an honest government.