Collective failure and elephant in the room

Unpredictability of FBR and its propensity to revise taxation rates almost every year has literally killed business


Imtiaz Gul September 05, 2022
The writer heads the independent Centre for Research and Security Studies, Islamabad and is the author of ‘Pakistan: Pivot of Hizbut Tahrir’s Global Caliphate’

Can someone recall whether meetings successive civilian and military chiefs and big businessmen and industrialists ever yielded results that would favour the economy in general? Not sure, for one big reason; nobody really wants to call out the elephant in the room i.e. the Federal Board of Revenue (FBR). Neither businessmen/ industrialists nor finance experts dare to “foul-mouth” the FBR — an institution based on extractive and manipulative taxation regime. It employs a massive 21,500 staff (as of 2019) only for about 15 per cent of direct taxes.

Isn’t it a collective failure of all economist and finance experts that they failed in identifying the FBR as the single largest factor responsible for low tax collection and little foreign investment in Pakistan?

Pliant and corrupt officials — often in a race to impress political bosses — keep reinventing the wheel i.e. subject the registered tax-payers to more rigorous taxing. They have no qualms at all in the fact that the same extracted mindset has been unable to generate proportionate increase in revenues. At the same time it has discouraged or driven away existing or potential new investors but not guaranteeing stable taxation rates for a certain period of time, say at least ten years.

This is what a number of foreign diplomats singled out as the primary reason for foreign investors’ reluctance in risking their money in Pakistan. Only a fool will bring money to a market where certainty is missing. Unpredictability of the FBR and its propensity to revise taxation rates almost every year — to show growth in revenues — has literally killed business and deprived Pakistan of numerous foreign investments.

Ambassadors from Scandinavia, the Netherlands, Germany and several other countries struggle to woo their investors into Pakistan but the non-committal FBR comes their way. It is viewed as a predator, always on the prowl for imposing new taxes or continually changing tax rates.

I know several European companies that came with enthusiasm to Pakistan but then they either did not initiate the business at all or wrapped up the venture prematurely because of an inconsistent and non-committal FBR.

What happened to PIA? Did the fundamentals of PIA’s management and operations change? Thanks to Ghulam Sarwar Khan, the former aviation minister, PIA remains banned from Europe. Despite international audits and near clearance on technical and operational counts, it cannot fly into Europe because of an EU resolution that is essentially political in nature. Reason: the ludicrous demand by the Tehreek-e-Labaik Pakistan (TLP) to expel the French ambassador for caricatures that some insignificant French artist had drawn.

Because most outsiders are meanwhile convinced that outfits like TLP are used as instruments of domestic politics, they imposed the crushing ban on PIA flights. Consequently, the airline continues to bleed and feed a workforce that is demotivated or incompetent, partially also because of politically appointees.

Air Marshal Arshad Malik served as PIA’s Chief Executive Officer for three years. He claimed to have brought down the per aircraft employees ratio to 260, which was 550 in 2017. This came about through forced and voluntary restructuring; around 1,900 PIA employees opted for voluntary separation, 837 faced termination due to fake degrees and 1,000 ghost employees were shown the door. Besides, the management also initiated action against 1,100 for violating rules and discipline and committing corruption.

As a whole, he said during one of his last press encounters, PIA would save around Rs8 billion but what is that amount worth if the PIA has been paying nearly half a million dollars every month to the owners of two aircraft that the PIA had leased? Both had been stranded at Jakarta/Kuala Lumpur.

Fundamentals hardly changed under Arshad Malik; the propensity to corrupt practices and the trade union mindset continued to dog reform. PIA’s debt and liabilities ballooned to Rs400 billion. Agreed that Covid-induced disruptions caused considerable damage but the PIA had been in the red even before Covid. Chronic malpractices, low inefficiency, poor on-board service, political interference and politicisation within its various tiers have been some of the major reasons why the airline continuously lost its share in traffic — despite nearly 9 million Pakistanis abroad. Most of them prefer direct flights but poor service and indifferent and at times rude staff behaviour are some of the reasons why most of Pakistanis opt for other carriers.

The Pakistan State Oil — which commands close to 54 per cent of the market share — is another example of inefficiency. It lords over immense resources but hardly performs the way such a resourceful entity should. Its management executives and top tier cadres make substantial livelihood from their jobs but they have hardly been put to scrutiny. And all of them are hostage to a secretary/member of the Petroleum Ministry.

Appointments here are often whimsical and political in nature, whereas the complexity of the oil and gas sector requires skillful subject experts.

Bottomline: The 19th century planning and management regime is largely redundant in view of the challenges the bleeding state enterprises in Pakistan face today. All notions of a turn-around through revamping and restructuring are meaningless as long as bureaucrats call the shots. Most of them tend to pander to political bosses and serve self-interests than those of the state. Businesses must be driven by demand along with non-intrusive monitoring by state institutions. Drastic and bold measures are needed to fix bleeding state enterprises. Governments world over have taken themselves out of businesses. Even in a single-party country such as China, state corporations are run on performance audit and not on brute nepotism.

 

Published in The Express Tribune, September 5th, 2022.

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