Taxing the wealthy
The country is far from where it needs to be in terms of international financial credibility.
IMF programmes may not be good to enter into because of what they represent, but once we are in, we would be better off seeing it through to the end. ILLUSTRATION: JAMAL KHURSHID
The deal is done: Islamabad has finally agreed to the conditions laid out by the IMF as prerequisites for the bailout programme, including the critical one of removing tax exemptions for some of the wealthiest businesses in the country. This is a welcome development and we are delighted with the result, though we are not happy with the way the country has arrived here.
Entering a bailout programme with the IMF can never be characterised as a good thing: it represents an abject failure of the government’s fiscal policy, which means that the country is far from where it needs to be in terms of international financial credibility. The IMF is supposed to be a lender of last resort. So what does it say about Pakistan’s creditworthiness that we have accessed this “last resort” over a dozen times in the last two decades?
And while we are pleased that the government finally agreed to remove the loopholes in the tax system that allow some of the wealthiest Pakistanis to avoid paying taxes, we find it disappointing that this was something that the government chose to haggle so much about. Finance Minister Ishaq Dar had promised that he would negotiate with the IMF while keeping national interest paramount. Was keeping tax loopholes for the wealthy really the most important “national interest” item worth fighting for? We are glad that the finance minister did not drag out the fight over this for too long, but disappointed that he engaged in it at all.
That being said, however, it appears that, for the most part, the bailout may indeed help stabilise Pakistan’s economy. It will increase foreign exchange reserves and allow the government some breathing room while it goes about its plan to fix the nation’s most pressing crises, especially the shortage of energy. What will matter most over the next few months — as well as in the years to come — is how the Nawaz Administration utilises this stability. IMF programmes may not be good to enter into because of what they represent, but once we are in, we would be better off seeing it through to the end, and not quitting halfway through, like the previous administration did. That decision ended badly, both for the administration and the country. Let us hope we do not repeat the mistake again.
Published in The Express Tribune, July 4th, 2013.
Entering a bailout programme with the IMF can never be characterised as a good thing: it represents an abject failure of the government’s fiscal policy, which means that the country is far from where it needs to be in terms of international financial credibility. The IMF is supposed to be a lender of last resort. So what does it say about Pakistan’s creditworthiness that we have accessed this “last resort” over a dozen times in the last two decades?
And while we are pleased that the government finally agreed to remove the loopholes in the tax system that allow some of the wealthiest Pakistanis to avoid paying taxes, we find it disappointing that this was something that the government chose to haggle so much about. Finance Minister Ishaq Dar had promised that he would negotiate with the IMF while keeping national interest paramount. Was keeping tax loopholes for the wealthy really the most important “national interest” item worth fighting for? We are glad that the finance minister did not drag out the fight over this for too long, but disappointed that he engaged in it at all.
That being said, however, it appears that, for the most part, the bailout may indeed help stabilise Pakistan’s economy. It will increase foreign exchange reserves and allow the government some breathing room while it goes about its plan to fix the nation’s most pressing crises, especially the shortage of energy. What will matter most over the next few months — as well as in the years to come — is how the Nawaz Administration utilises this stability. IMF programmes may not be good to enter into because of what they represent, but once we are in, we would be better off seeing it through to the end, and not quitting halfway through, like the previous administration did. That decision ended badly, both for the administration and the country. Let us hope we do not repeat the mistake again.
Published in The Express Tribune, July 4th, 2013.