Reimagine, not derail, Pakistan

A recent tweet by veteran journalist Abbas Nasir points towards a tendency that refuses to go away. He says: “Ever since Miftah Ismail started to raise questions about the NFC award, the glue that binds the federation together, I am a bit concerned about where he will take us.” Technocrats have a problem. They think they have the economic solutions but the politicians do not have the will to execute. A technocratic setup backed up by brute authority to implement long-delayed, hard decisions is seen as the way forward. Miftah Ismail, one had thought, was a technocrat who had been groomed enough in politics to appreciate that economic solutions have to be negotiated between the stakeholders for their long-term sustainability. But his utterances on the 7^th NFC and provincial autonomy raise doubts about real intentions behind the Reimagine Pakistan agenda. If reimagining means reopening the settled issues rather than resolving the neglected issues, the agenda might derail Pakistan. Within two decades of the country’s emergence, the failure to negotiate in the political arena resulted in the 1971 catastrophe. Political engagement in 1973 and in 2010 has ensured five decades of stability.

Like Imran Khan and his handlers, Miftah thinks that the federal fiscal woes are the result of the larger share of resources passed on to the provinces under the 7^th NFC. Far from it. The federal government had committed to increase the tax to GDP ratio to 15% at the time of signing up on the 7^th NFC. It miserably failed to do that. Tax to GDP ratio of federally collected taxes has actually declined from 9.7% in FY2010 to 9.2% in FY22. On the other hand, the provincial taxes have increased from 0.3% to 0.9% of GDP. The overall tax to GDP ratio remains low at 10.1%. Federal spending only declined from 13.6% of GDP in FY10 to 13.1% in FY22. In keeping with the significant reduction in the number of federal subjects following the 18^th amendment, the reduction in the federal spending should have been much more.

It is true that the provinces are not fully exploiting the potential of their own sources of revenue. The increase noted above has come mainly from the GST on services, a new source due to the 18 amendment. Agricultural income falling in their domain remains massively undertaxed. The collection is no more than a few billion rupees. Property tax, which is the third largest tax in other countries, yields just a little more than the agricultural income. Property tax truly belongs to the local governments. Despite Article 140A included under the 18^th Amendment to ensure elected local governments for effective service delivery, the provincial governments have shied from transferring power and responsibility to them.

Miftah is right in saying that “I want true federalism & powers devolved to local levels, so that power isn’t concentrated in provincial capitals either. But where I want provinces to have authority, I want them to have responsibility to raise a larger part of their own revenues.” But they have nothing to do with a crisis created by the federal government’s gross economic mismanagement. In fact, they suffer as a result of the budgetary surpluses forced on them by the federal government. In the present crisis, the immediate action for the federal government is to reduce expenditures and tax expenditures. But it has chosen the tax side and the measures taken are the usual pack of imposing pricking pain on the existing tax payers. Reimagining tax structure including a single tax authority should address Miftah’s concern.

Published in The Express Tribune, March 10^th, 2023.

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