Ali Ashraf Khan
When the time for formulation of budget proposals for 2011-12 was coming close and domestic resources were not matching with those demands, a big team of financial managers left for their Washington Yatra to convince the IMF to release the next tranche which had been withheld since last year, and to meet their near and dear ones living abroad. The President in a surprising move promulgated three ordinances in mid March 2011 to impose 17% Sales tax on agricultural tractors, pesticides, plants, machinery & equipments as well as on import of their spare parts. Secondly, he imposed a 15% surcharge on Income tax for the year 2011, which means that this surcharge will be imposed on all tax deductions from the salaried class, at import stage, profits received from banks investments and dividends, all utility bills including mobile phones including goods falling in the category of advance tax, while zero-ratings were restricted to five sectors of exports including, textile, leather, carpets, surgical and sports goods with reduction in GST rate from 17% to 10% only for these five sectors, and third was to raise Special Excise duty from 1% to 2.5% for the remaining period of the current fiscal year meaning that zero-rated sector of exports will be entitled to a refund of 19.5% at the end.
Already there is huge amount stuck-up in refunds due to very cumbersome procedure leading to corruption. Whereby through such a major development just 75 days before launching of the next budget, the federal government has introduced a Rs120 billion ‘mini-budget’ through presidential ordinances by-passing the parliament, envisaging Rs53 billion of additional taxes on income, imports, agriculture and domestic sales of export-oriented items, after having failed to introduce Reformed General Sales Tax (RGST) through parliament. This action is in violation of the fundamental law of Pakistan as provided in the Pakistani constitution, which is another example of the bad governance of this sitting government and its administration.
As a matter of fact the budget 2010-11 which had been prepared by the same financial managers of the government was not even worth the paper on which it is written. It was either a lie or it has been thrown into the rubbish bin by the rulers who have exceeded their funds by their extravagant lifestyle leading to an increase in trust deficit between the rulers and the nation, by their negligence of tax collection from agricultural sector, by imposing capital gain tax and their by their corruption. Ministers and bureaucrats who do not feel committed to any law of the land even not the traffic signals or speed limits on Pakistani roads why would they accept and respect the budget which is just another law of the land?
Another visible source of money wastage is of course our defense budget that is anyway swallowing most of the money and is always in need of another aircraft or what not in addition to the huge amounts they are consuming on agricultural and urban land allotment at throw-away prices. In order to contain the budget deficit which is out of control none of the perks of defense services or civil bureaucracy and politicians in the corridors of power were taken away; it is much easier to milk the public and especially the salaried people and small businessmen with something called flood tax.
This very same government had assured the people to impose tax on agricultural income but instead of doing that it has imposed tax on agricultural inputs like fertilizers and others, which will surely result into another raise in the production cost. It again makes land improvement for better yields more expensive and impossible for many small farmers and it leaves out taxation of the absentee landlords who live from the produce of the land tax free but never care about land improvement. State Bank Governor Shahid Kardar has expressed his concern about structural shift of incomes towards the untaxed sectors, this shift of income from tax paying sectors will hover to lower levels structurally destined tax-to-GDP ration, which is lowest in the world at just 10%.
The slap on the face of our financial & economic managers received on Thursday in Washington from IMF is not at all shocking for those who know that our these managers are more loyal to these donor agencies from where they have been borrowed to bring down our system to suit the donor agenda. One may recall that in January 2011 the World Bank, Asian Development Bank and Islamic Development Bank had withheld budgetary support to Pakistan and requested the government to provide them a letter of comfort from IMF before they disburse the remaining funds. IMF works according to the mood of US-Pak relationship, when Pakistan was in the center of focus due to removal of a democratically elected government in 1999 by General Musharraf strongest support was extended by US to Pakistan and the IMF showed great generosity by easy facilitation in release of funds to Pakistan. We fail to understand what has gone wrong with PPP that they had presented a very balanced budget in 1974, a performance which they could not achieve again since then.
IMF was first allowed to expand its tentacles in sixties during Ayub Khan era, when Mohammad Shoaib was the Finance Minister & M. M. Ahmed the head of the Planning Commission, both had links with Washington. Now in 2011 our foreign liability again stands at $ 54 Billion. Pakistan had last agreed with IMF in 2008 to raise its GDP to 13% by 2013 and 15% by 2015, which is standing at 2.8% in 2011 due to negative approach in our planning; in fact the PPP government has not been able to formulate an industrial policy during last three years and our engine of growth- the industrial productivity has come to a stand still due to artificial shortage of gas, electricity, water and the deteriorating law & order situation. The second thing agreed with IMF was that Government will stop borrowing from State Bank of Pakistan, which against this commitment has continued at a pace of around Rs. 2 Billion a day, third and last condition agreed with IMF was to impose Value Added Tax (RGST). Our Finance Minister leading the team of top economic and financial managers on the sidelines of the spring meetings of the Breton Woods Institution, and with the IMF & World Bank made a sweeping statement on reaching Washington on Sunday the 17th March that government had strived to bring the budgetary deficit down to 4.5% and to impose further tax reforms but was hindered by a reluctant parliament; the reason for this blame game he must be knowing well as the outcome of this meeting is zero. His earlier statement published in newspapers on 18th April after failing to convince IMF has been denied by our Finance Minister.
We have expressed our views in the past also that Pakistan going into the IMF & World Bank fold was a suicidal attempt but unfortunately our successive Finance Ministers in a democratically elected setup from 2008, including Ishaq Dar, Naveed Qamar, Shokat Tareen, and Hafeez Sheikh have miserably failed to understand the ground reality of our economic situation such as the availability and better utilization of national resources which are more then sufficient if we declare the IMF & World Bank as persona non-grata, it is a known fact that for almost three decades tax collection or recovery issue has not improved due to poor implementation and too much political interference. What sort of results the IMF and other donors want Pakistan to deliver when out of an allocation at the federal level of every Rs. 100 46 % is spent on interest payment to IMF & World Bank and 33% is consumed as expanse on administration or extravaganza of the government remaining 21% can not produce magical result giving satisfaction of Rs. 100 level, so the economic law of diminishing return has started applying fast, why can’t our leaders realize this hard fact to remedy the situation. Another hard fact, which suits the donors and our imported financial & economic managers is to create fear in the Pakistani nation in order to justify borrowing from foreign donors like IMF and other agencies; it is by design to bring Pakistan into their trap and demoralize the nation as to their possibility of survival.
Those clamouring thatPakistan is a failed state due to financial imbalance are the products of Western thinking and approach who believe that without West, we can not move an inch and declare our country as an over-burdened and a deficit economy. Just look at these figures, which are based on true facts and information gathered after reading the newspapers: Our Export income is around $ 22 billion, plus our official remittance from abroad is $ 12 billion, which makes it $ 34 Billion apart from un-official sources of remittance. Our annual imports, which can be reduced if our leaders are sincere in nation building program stands at $ 30 billion leaving a positive balance of $ 4 Billion. How can we go bankrupt or in default? Somebody has to ponder on these facts in their studies. This is not digestible for a student of Economics, who has the following figures on his table then why can’t we close our doors and formulate our own home grown policies and work out our plans by using our own manpower, which has done wonderful in Middle East and USA. What we need is honest and sincere leaders following real austerity so that people from top to bottom start living a simple life style and curtails all unnecessary expenditure and pomp and show, this is the way to progress which our friends inChina andIndia have adhered to achieve success, why can’t we do the same?