The hands-on approach: Eliminate the middle-man aka the bureaucracy

Business community still have time to cajole, coax or maybe even bribe the govt into making changes in the final draft

KARACHI:

The association for clerks working in government departments is not happy. Teachers working in government schools, colleges and universities are not happy. The auto industry cannot be very happy either. Once the new energy policy comes out, I am quite sure the compressed natural gas (CNG) industry, the textile industry and related sectors will also be very unhappy.

But they need not worry, because they have time. The federal budget has been presented, but it has not been ratified yet. There is time for them to cajole, coax, threaten or maybe even try to bribe the Pakistan Muslim League – Nawaz (PML-N) regime into making changes in the final draft, before it is ratified by the parliament.

So it still boils down to the same thing. It is of course important to ensure that the measures that have been announced are rational, realistic and workable, but some things can already be predicted. For example, the government is serious and will succeed in auctioning the 3G licence, maybe even as soon as within this calendar year. The reason is simple. The telecom sector is one of the most vibrant right now and this is the time for them to make the greatest gains they can with regards to consumer growth.

The telecom sector is a huge tax generator, a leading provider of jobs and also one of the most proactive sectors as far as FDI is concerned. So bringing in 3G ensures that this sector becomes even bigger. Tax returns will grow as well as the size of the gross domestic product (GDP). The potential gains over the next five years are so high, they literally dwarf the initial gain of approximately Rs75 billion that the government expects from the auction.

But this is the easy part. A lot of the other things that the government needs to do are much harder. For example reforms. The government has already put into motion the replacement of the top hierarchy in the power sector with professional management. Finance Minister Ishaq Dar has also already hinted that there will be a phased increase in the power tariff, at a pace that will put minimum burden on the people. The finance minister has also hinted that the CNG sector cannot continue to eat into our gas reserves and captive power requirements will have to wait its turn.

Power reforms are very important, but just as important are reforms in another problem area for the government. The government has set a very high tax generation target of about Rs2.5 trillion. Even with the increase in sales tax, increase in tax on non-corporate entities and increase in some slabs of income tax, this will not be achieved.

Not until the government brings sweeping reforms in the Federal Board of Revenue and changes the SRO culture, and plugs the leaks in the system. An exercise similar to the revamp of the power sector needs to be launched here as well.

Actually it would not be a bad idea if the government minimised the role of the bureaucracy in general and its ministers employed a more hands-on approach, kind of like Shahbaz Sharif did in Punjab. In fact, this does seem to be the case, as was evident by the fact that Ishaq Dar read out most of the taxation proposals himself and cancelled the FBR tax briefing at the last minute. The message was quite clear, “I am in charge, you deal with me now.” I think that is the way to go. But it will not be easy. Keep watching this space!

Published in The Express Tribune, June 17^th, 2013.

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