Since most of our rich do not fall in the category of true entrepreneurs, they have, therefore, consistently failed to understand that by not paying their national dues, and at the same time, by indulging in pilferage of utilities like power, gas and water, they are only jeopardising the chances of their own growth and risking self-destruction in due course of time, if by that time, their shenanigans have not destroyed the very country that has offered them such vast opportunities to write so many rags-to-riches stories. Interestingly, most of these rags-to-riches stories are not the usual tales of trials and tribulations, or accounts of high risks and high profits or mental epics of when and where to invest. Almost all such stories in Pakistan are more or less anecdotes of having the right connections, nepotism and favouritism and of out and out corruption, promoting rent-seeking.
We started with permits and licences. The well-connected made millions by simply selling the official paper. Next came, vertical and horizontal monopolies flowing out of the private banking sector concentrated in the hands of a few families. This was preceded immediately by the bounties generated by the Pakistan Industrial Development Corporation, which used to set up industries in lucrative sectors, make them profitable and then sell them at throwaway prices to the well-connected. Around this time, state-run banks were providing 75 per cent of the equity for investment to people with the right connections. Even before the launch of the unit, the sponsors would retrieve their part of the equity by floating shares and then buying them back after manipulating the market to depress their prices to next to nothing. And even before the first batch of goods went out of their factories, they would have pocketed huge profits by over-invoicing imported machinery. And many would make millions routinely by siphoning off investments in the loan-burdened units and declaring them bankrupt.
Even the nationalisation phase of the 1970s did not curb their rent-seeking habits. While nationalisation soon turned into bureaucratisation, the incoming military regime of General Ziaul Haq returned many of the nationalised units back to their owners almost for nothing. In some cases, the buyers were allowed to borrow from nationalised banks without any collateral to buy nationalised units. And when the denationalisation spree was launched in the 1990s, highly profitable public-sector units were sold for a pittance and since then, the amount of tax these units used to pay has gone down considerably.
Every time an attempt is made to make them pay their dues, the big business would get the urban-based media to focus on exemptions allowed on income from agriculture, while at the same time, it would use this very concession to increase its own quantum of tax avoidance. In fact, the two — the big business and the agriculturists — have contributed equally to keep our tax-to-GDP ratio so low. Between the two, they have cornered our entire economy and using this clout, they have bought off both the establishment and the political parties. So, whether you have a military regime or an elected civilian government, the two moneybags would continue to call all the economic shots and that is the reason why our tax-to-GDP ratio continues to remain so pathetic and we continue to need the IMF’s oxygen tent to escape default.
Published in The Express Tribune, July 3rd, 2013.
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COMMENTS (14)
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@Polpot: the article is on a different issue.dont bring in unreted matters in your comments. in case you dont undertand englishh..why not stay away.author has touched a very basic point of economics and you only keep harping on non sense matters totally irrelevant.
ONLY POOR PEOPLE PAY TAXES; ZARDARI AND NAWAZ ARE RICHEST AND HOLDING TOP POSITIONS. WHY GO TO IMF ONCE THEY HAVE MONEY? AFTER ALL THEY ARE DEMOCRATIC LEADERS.
Simply beautiful this story of greed and lust.
A very honest and incisive take on our rich elite, nearly all of whom have minted money through, as the writer states, "right connections, nepotism and favouritism and of out and out corruption, promoting rent-seeking." Most of these chosen few love the likes of Ayub Khan and Musharraf and despise the idea of the ordinary man having any say in running the country.
Also, there are two faces of the coin. One is increasing tax revenue in real terms and increase tax-2-GDP ration, second is better governance at public institutions so that instances of leakages of income are plugged, service delivery is improved, and government becomes leaner overtime. Duplicity of depatmental roles and responsibilities are eradicated, in short structural reforms of service delivery modules and procedure and structural re engineering is undertaken.
Thats the kind of honest article that makes you say the nail has been hit on the head!!!! And interestingly while we are at "rent seeking economic attitudes", i fail to understand one good reason, even one good dishonest reason that can atleast seems deceptively honest, by not taxing the middleman and the mandiman by the current government. Because maybe the ruling party's composition is partly trade union's & middle & mandiman set along the Grand Trunk Road.
Can someone come up with what to do now?
No point in crying over spilt milk.
Exports are the only solution to correct BOP crises
To broaden tax base the national identification card should be made the national tax number and a database of all expenditure by individual collected and based on this data and definite information tax payers identified and their income voluntarily returned be reconciled to expenditure incurred. This will increase direct taxes on income which are not inflationary and also broaden tax base. In most countries this model is followed .
Agriculture under provincial law is taxed at the higher of net income and produce index for different areas. The aforesaid data base will ensure collection of such tax at the net income bases.
Laws do not need to be changed the business process for revenue collection has to be changed. If such data bases are to be selectively applied then leave things as they are. They must be applied across every sector without any fear of favour .
This writer is convinced that the 35 percent deficit on revenue of Government of Pakistan at Federal and provincial level can be bridged in this way. But if the increased revenues are to be misappropriated then let the black economy prosper at least it is safe from the robber barons in government from judiciary civil military bureaucracy and the politicos.
Where are the group known as Friends of Democratic Pakistan when you need them? ++++++++++++++++++++++++++++++++++++++++++++++ Annoucments of Billions in aid and loans seem to have melted away.
Remember that in Pakistan ONLY THE LITTLE PEOPLE PAY TAXES, and the resulting BEGGING BOWL always appears to have leaks going into the right pockets!