Money from our foreign friends


Editorial April 20, 2010

It is time for the government to finally realise the truism that defines weltpolitik: there are no friends in international relations, only interests.

So when a group of countries calling itself the “Friends of Democratic Pakistan” promises money, perhaps the government will not be so naive as to include those pie-in-the-sky pledges in its budget calculations. It is not entirely the fault of the international donor community.

After all, governments across the world are stretched to their financial limits and one should not expect people to donate to a government that, despite its democratic credentials, leaves much to be desired in terms of its fiscal propriety. The government, however, must wean itself off the drug that it has been inhaling since independence.

This is the original sin of Pakistan: the elite chose not to tax the people, either through exemptions or through lax enforcement, so that they would not have to give them representation in government. “No taxation without representation,” said the tea party protesters all those centuries ago in Boston.

That maxim works the other way around too: “no taxation, no need for representation.” Unfortunately for Pakistan, we are not blessed with the abundant natural resources of the Persian Gulf and thus need to find other ways to fill our coffers. However, that should not mean that we beg and borrow from the international community into donating and lending to us.

What we need to do is to generate revenue from within because aid inflows can dry up without notice. The government needs to expand its own tax base, widen the tax net and bring income from agriculture under the tax net. It also needs to start providing the services for which citizens pay taxes.

The latter point is particularly crucial because a singular lack of basic services is often used by citizens to not pay their taxes at all. At the same time, Pakistanis need to understand that a functioning tax system which is the basis of any system of governance will work only if they pay their taxes regularly.

The same people who are quick to evade taxes are the ones often at the forefront in denouncing foreign influence and aid the ruckus created by the Kerry-Lugar bill being a case in point. When the bill was passed, many arm-chair ‘intellectuals’ and so-called analysts were quick to criticise it because they said it compromised Pakistan’s sovereignty.

They completely missed the point that the money was coming in the form of a grant and did not have to be repaid, and that we were free not to take it (instead of complaining about it). However, the last option was something these naysayers were not even willing to contemplate, though it fit in just right with their ideological standpoint.

Financial independence means less strings attached to those holding a larger purse. It is a lesson best learned in adolescence, but better for Pakistan to learn it now than never.

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COMMENTS (1)

Meekal Ahmed | 11 years ago | Reply Very good, Sir. You have touched on all the right points and I could not agree with you more. From 13.7% of GDP as I recall in BB's time our tax/GDP ratio has declined steadily and then remained constant at around 9.5% or so. This year it is expected to fall to a resounding 8.8% of GDP. This is not the way to run an economy. Every budget, including the one round the corner, has/will talk about 'broadening the tax base'. Yet nothing happens. The principle is simple: income earned in any economic activity should be taxed and there should only be a very small number of product-specific exemptions and concessions in the tax structure. On your other point, I do not have the exact figures but Pakistan today, 62 years on, is more dependent on aid (or foreign/external savings more broadly) than before. Not only that, the aid has been poorly spent as manifest in our frequent requests to the Paris Club to reschedule or write-off our external loans. Foreign Direct Investment needs to supplant aid over time. Other successful developing countries have done this. On a final point, I am not sure the US aid you speak of is a grant. The aid may have a grant-like component to it, meaning it may be concessional, but it does add to our external debt profile and is supposed to be paid back.
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