The week in focus

The government is planning to slap a two per cent flood tax on all imports and up to a 10 per cent surcharge on incomes exceeding Rs300,000 per annum, raising many eyebrows.  It hopes that the additional taxes, that are an added burden on ordinary citizens, will generate revenues of around Rs150 billion. This amount can be utilised for rehabilitation of flood-hit people and reconstruction of lost infrastructure.

However, the question that rattles everyone is whether the amount collected will be put to use for the intended purpose or will the money be diverted to non-productive activities such as lavish parties and foreign trips. Before that, we can also ask why those already paying taxes are being weighed down further while others who enjoy exemptions are not being brought under the net.

According to estimates, only two million people, out of a population of 160 million, pay taxes and that is the reason Pakistan’s tax-to-Gross Domestic Product (GDP) ratio of 9.3 per cent is the lowest in the region.

There is a pressing need to slash non-development expenditures, like foreign trips undertaken by government officials, and curb corruption within the government. In the latest example of wastage of public resources, an official posted at Pakistan’s consulate in Manchester, UK spent £6,000 on attaining membership of a golf club in 2007. This occurred during the tenure of the previous government when the then commerce minister permitted the official to use the state’s money for personal entertainment.

The minister himself admitted that he had given the nod because he was authorised under the law to do so. Who allowed him to use the government’s meagre resources for an individual’s satisfaction?

According to reports, many foreign donors are providing relief goods and cash through non-governmental organisations and welfare bodies, relying more on them instead of the government because of the latter’s tainted image.

Of the economy

However, it cannot be denied that the floods have dealt a major blow to the economy. The government claims that the raging waters have caused a loss of $43 billion to the economy, affected 20 million people and submerged around one-fifth of the country. As a result of the deluge, GDP growth may fall to 2.5 per cent from the target of 4.5 per cent, the budget deficit may rise to six or seven per cent from the targeted four per cent and inflation may surge to between 15 and 20 per cent compared with the target of 9.5 per cent.

The enormous task ahead is to rebuild the agriculture-based economy on a fast track following the extensive damage to crops of cotton, rice and sugarcane. Taking more loans will only mount pressure in coming years and the country may not be able to service these loans, raising the possibility of default.

At the end of last fiscal year, the country’s foreign debt stood at $55.63 billion. In the same year, $5.6 billion were paid in debt servicing.

A prudent economic policy is the need of the day. Moreover, the law and order situation needs to be improved and incentives provided to encourage domestic and foreign investors to pour money for the expansion of existing and installation of new industries. It is a pity that though loans, which are a burden on the country, are provided generously but productive and high-return investments are nowhere on the horizon.

the writer is incharge Business desk for the Express tribune

Published in The Express Tribune, September 6^th, 2010.