Pakistan:Budget: a disappointment

Daily Times

Farooq Sumar

It is clear that all solutions to our grave problems cannot flow from the new government’s first budget and neither did we expect that to happen. However, we expected the first budget to draw a clear road map that would first of all give the people the confidence that the government is fully cognizant of all the issues, and secondly, it is taking the initial steps needed to address them. These are the toughest times this country has ever faced. Economic failure stares us in the face; energy shortages cripple our present and future; hardly anybody pays taxes; crime and violence and breakdown of rule of law threatens us with anarchy; the complete failure of the education system has created generations of ignorance; a group of fundamentalist militants openly want to annihilate our constitution through terror. I am sorry to say this is not the time for a traditional, insipid and unimaginative budget that is purely figure work making minor adjustments with one percent increase here or two percent decrease there. Besides addressing the allocation to the energy sector there is nothing else to meet the situation we face. Without a ruthless policy of zero tolerance on crime and violence of all kinds, without urgently addressing the need for a new education policy to upgrade quality and provide education to all, without meeting the energy shortages and without the relentless pursuit of tax evaders, there is no possibility of a sustainable economic recovery. Unfortunately, other than measures to alleviate energy shortages, the other three major issues have either been totally neglected or treated cosmetically. Can any number of steps to fix the economy succeed without the elimination of crime and violence and the breakdown of law and order? The bodies and bombs and their perpetrators must go before the economy can really revive. Do you not know that the police and Rangers particularly, and some other security agencies are greatly compromised and corrupt, and therefore have to be completely revamped? Instead of going for highways at present, funds should have been allocated to begin the revamping of these agencies under a proper plan. There cannot be meaningful investment, both foreign or domestic, without peace in the country, and let it be known that Punjab cannot be the only wheel of the economy and make it run. Half the problem of our economic malaise is the very poor standard of education and the large number of illiterate youth. Graduates are not capable of doing more than clerical work. How can the sophisticated requirements of the modern world be met? How long can corporations and industries run with uneducated or semi-educated staff? Inefficiency, poor quality, high wastages, and damage to equipment are common woes. Foreign investment bypasses Pakistan so often because it lacks an educated workforce. Until our educational system does not come at par with most Asian countries and the majority is not educated, economic prosperity will only remain a dream. What our finance minister has done is he has put a few more morsels in the lap of the HEC. The HEC is part of the old failed system of education; it has delivered nothing meaningful and practical. Our standards are the same and our quality of education has not improved; why waste money here? We need to create a whole new structure from top to bottom and to start work on that, funds needed to be earmarked and plans drawn up. The people expect the federal government to take the lead, and regardless of education being a provincial subject, some legislation and changes are an absolute must in order to create a new structure for the whole country. Quality education for all is the country’s lifeline and no stone can remain unturned in order to achieve it. Change the laws, amend the constitution if you have to, and use the stick and carrot with the provinces to implement a national education policy; after all, they receive huge amounts from the divisible pool from the federal government. The same should also be done for law and order. The tax-to-GDP ratio has fallen to the precarious level of nine percent when Sri Lanka is at 17 percent, India at 19 and China at 21! Agricultural tax is a mere Rs one billion! Imagine this paltry contribution from the sector that constitutes 22 percent of the GDP. The whole retail sector of the country pays Rs 15 crores! There is no capital gains tax on real estate due to powerful lobbies. The services sector is around 50 percent of the economy but pays only 18 percent tax. Instead of taking effective steps to plug these leakages and go for stringent measures while using the existing data bases to document and increase the tax net, the finance minister has made shy attempts to fight a monster with kid gloves. This timid approach is contrary to the PML-N manifesto. Some measures that could have been taken are that all transactions over Rs 10,000 be by crossed cheques; all electronic transfers should require NTN numbers of the sender and the recipient; electronic transfers without NTN numbers be taxed five percent at source; evolve a formula with each province on agritax collection in accordance with its proportion and deduct any shortfalls from their share of receipts; and impose a small capital gains tax of five percent on real estate. Over 600,000 holders of NTN numbers do not file returns (according to NADRA); many of them we know are parliamentarians and were ministers of the outgoing cabinet. Also, what is stopping the finance minister from initiating action against these 600,000? The tax collection system as a whole is full of potholes, and some serious attention needs to be paid to it. If taxation is not just and equitable there will always be justification for evasion. If this government really means to serve the national interest above all else then there cannot be any sacred cows or valued constituents to protect. If the government is not steadfast on this principle, it has only to look back at the dismal failure of the Zardari set-up. The finance minister has informed us that there are only 3,114 persons with an income of over Rs seven million. Surely nobody including himself believes this; the figure is much larger and it is his job to find it. When the declared income of a company or an individual is just the tip of the iceberg, do you think the reduction of tax by one percent or its increase by five percent will have any impact? Besides multinationals, banks and a very few local companies, everybody else evades tax; we know that our undocumented economy is much larger. Instead of such decorative measures, go for the real thing, Sir! Like all previous governments we have again gone for indirect taxation by tinkering with the Sales Tax, thereby increasing the burden on the poor, which is already too heavy. Our focus should be direct taxation, particularly plugging the loopholes and improving the collection system. This, unfortunately, has not been pursued wholeheartedly. Former Finance Minister Shaukat Tareen was discussing subsidies and pointed out that these should be targeted subsidies for the lowest strata. What he means is that at present some part of the subsidy is also available to higher levels of consumers of electricity, etc. This subsidy should be removed and all of it be given to the lowest strata in order to really help those who need it most. I wonder why this is not being initiated. This is certainly not the time to invest Rs 75 billion on highways as we have seen there are other priorities of a much more urgent nature that require these funds. The Metro Bus scheme or the circular railway for Karachi or some other transport scheme can wait for a couple of years. We need to fix the fundamentals first: become a more law abiding society with security for our people, start the process of gradually wiping out illiteracy, improve our tax regime and provide consistent policies; this will lead to both foreign and domestic investment.