Serving special-interest groups

Whichever industry can pull strings and lobby the right quarters can get all kinds of concessions and exemptions.

This newspaper reported on April 2 that days after it had announced a rise in sales tax on items such as textiles, carpets, leather, and surgical and sports goods, the government has gone back and withdrawn the increase. The report said that this was done after those associated with these industries — all export-oriented and, hence, major earners of foreign exchange for the economy — lobbied the government to reverse its decision. Regardless of whether the decision to increase the sales tax on these sectors was the correct one in the first place, the fact remains that in reversing its earlier measure, the government seems to be sending a very bad signal to the rest of the economy. And this is that whichever industry can manage to pull strings and lobby the right quarters can get itself all kinds of tax concessions and exemptions. After all, what are ordinary taxpayers to think, since they are going to have to pay a special surcharge on their income to finance last year’s flood relief effort? Why shouldn’t they also get united and demand that the new tax levied on them be withdrawn.

One has to wonder how the minister of finance, who is seen to be a competent and very honest individual, agreed to this, or was the lobbying done perhaps at a higher level? The impression, unfortunately, that one gets as a result of this is that Pakistan’s economic policy making and implementation serves at the pleasure of special-interest groups, and these are usually well-connected and look out only for their own interests. Another example that comes to mind is what happened to the budget last year when it came to light that the armed forces had asked for additional funding to the tune of several billion rupees and this had been approved (a formality, of course) without anyone one making even the slightest whimper. The government had claimed that the increase in the rate of sales tax on these goods would enable it to collect an extra Rs7.5 billion in taxes and it remains to be seen how this will be done. One suspects that, yet again, the additional burden will fall on ordinary Pakistanis.

Published in The Express Tribune, April 4^th,  2011.