The importance of Karachi

Published: October 12, 2015
SHARES
Email
The claim that Karachi generates 65-70% of the revenue needs to be corrected. PHOTO: REUTERS

The claim that Karachi generates 65-70% of the revenue needs to be corrected. PHOTO: REUTERS

KARACHI: 

Some debates continue forever with statistical evidence and philosophical arguments driving the dispute forward in perpetuity.

One of those is Karachi’s input to the country’s overall tax revenue. Even on its face, the need to isolate Karachi merits discussion. But that’s what people do when they come out with all guns blazing in hailing the metropolis as the saviour.

One might even concede to their overzealous nature. Karachi, the business hub and former capital, attracts millions to its workforce and generates a lot of economic activity. But is it true that it drives the entire country? Many claim that.

“It is quite irresponsible for you to state this … journalists don’t want to read, they say whatever they want. They need to be held accountable,” was a political economist’s comment to an article that claimed “Karachi generates 65% of Pakistan’s revenue, and if the metropo lis’ security situation improves, there can be better economic prospects for everyone”.

The statement, not driven by an academic study, was a mere repetition of the popular opinion.

PTI, MQM and PPP have all mentioned the populist view.

None of them have, however, mentioned the source of this figure nor has anyone felt the need to question this ‘sacred percentage’.

But exploring facts comes close to answering the question.

Revenue collected from the country includes three Large Tax Units (LTUs) in Karachi, Lahore and Islamabad, 18 Regional Tax Offices (RTOs), including Karachi RTO–I, II, III, Lahore, Peshawar, Rawalpindi and Quetta, among others. States earn their revenue mainly through direct, indirect taxes and income from public corporations.

Read: The irony: Cost to collect tax higher than tax collection

In Pakistan, provincial budgets and provision of public goods in the provinces are dependent on transfers by the federal government.

The provinces are also obliged to collect taxes, ie capital value tax on immoveable properties, property taxes, stamp duties, motor vehicle levies, land revenue and agriculture income tax, but their collection is minimal. Reports suggest provinces, overall, contribute about 7% of tax and 9% of non-tax revenues of the country.

While there is no scepticism on Karachi’s improving security situation favouring the economy, economists argue that rather than generation, the city ‘dominates’ the country’s revenue-collection statistics.

The distinguishing factor

Much of the country’s economic, manufacturing, services and other value addition takes place in Karachi.

But what is the difference between revenue generation and collection? According to an article by State Bank of Pakistan’s deputy governor Mohammad Ashraf Janjua, we should know two terms: impact and incidence. Those who pay tax, but pass on the final burden to others are bearing the impact of a tax, those who bear the final burden are bearing the ‘incidence’. Thus, if machinery is unloaded in Karachi (tax is paid here), but is being used in Punjab, the tax is collected from Sindh, but generated by Punjab.

“It has the advantage of being a port city, as well as housing head offices of major financial institutions,” economist Kaiser Bengali, who is also adviser to Balochistan chief minister, told The Express Tribune. “Most companies have their head offices in Karachi where they pay their income tax but earn their income from the entire country.”

Asim Bashir Khan, in Akbar Zaidi’s Issues in Pakistan’s Economy, says Karachi ranks on top on the basis of average overall tax collection between 2000 and 2012 — it has an average of 62.4% followed by Lahore 13.63%, Rawalpindi 8.33%, Multan at 5.50% and Peshawar at 3.3%.

The average of direct tax collection is almost the same, with Sindh being the highest with 64.97%, Punjab with 30.93%, Khyber Pakhtunkhwa with 3.24% and Balochistan with 0.86%. Karachi dominates with an average 61.49%, followed by Lahore, Rawalpindi, Multan and Peshawar with 17.33%, 4.30%, 3.65% and 3.03%, respectively.

Province-wise average revenue collection calculated by Asim Bashir Khan. DESIGN: NABEEL AHMED

Indirect tax collection statistics are also similar as direct taxes with Karachi dominating with an average 62.79%, followed by Lahore, Rawalpindi, Multan and Peshawar.

“On average, the two most developed provinces of Pakistan – Sindh and Punjab – make significant contributions; but this is strictly due to its monopoly over port resources, which facilitate superiority in collection of indirect taxes such as custom sales tax and FED on imports,” writes Khan. “Sindh’s share in collection of custom duty was 84.21%, followed by Punjab with 12.43%, K-P with 2.3%, and Balochistan with 1.05%.”

Read: Oversight committee formed to implement tax reforms

But does Karachi have an edge just because of revenue from customs or profits declared by financial institutions or the metropolis contribute to the national treasury in other ways too?

The indirect input

“Millions of migrants from other provinces flock to Karachi to earn their living. Billions are remitted to their families based outside Karachi. These remittances make the difference between a family’s survival and a life of despondency due to no earning opportunities available to the migrants in their localities or cities,” says former Karachi Chamber of Commerce and Industry president Majyd Aziz. “All this is tax-free for migrants, but these remittances spur up economic activity in areas outside Karachi.”

Aziz argues Karachi’s potential is way beyond the current oft-repeated figures.

“Goods destined for the northern areas traverse through Karachi’s roads and use other facilities and utilities. What if a substantial toll tax is levied on every truck moving out of Karachi? This would bring in billions to Karachi’s coffers, which could be spent on improving the physical infrastructure,” he says.

According to FBR data (as of December 9, 2014), 881,262 tax returns were filed across the country. Karachi leads this list as well — and by a wide margin.

Zaidi, in his book, says that in terms of direct taxes, Karachi contributes more than 35% of all of Pakistan’s taxes. Similarly, he adds, if one looks at the sales tax collected, which is consumption tax, it gives an indication of the nature of economic activity, and of the consumer market in Karachi as compared to the rest of Pakistan.

We can safely conclude the amount taxed through Karachi includes both collection and generation. Those referring to Karachi’s contribution, either in naivety or deliberately, refer to collection and they are right.

Karachi, the industrial hub, does contribute the most to tax collection. But the word should not be generate because, while it generates much, it collects far more than that.

The writer is a staff correspondent

Published in The Express Tribune, October 12th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (24)

  • Umar Azam
    Oct 12, 2015 - 10:44AM

    Karachi has 45000 registered small and large industries which is more than the total number of industries in whole Pakistan.. These generate revenue and contribute directly to national exchequer.. and it is widely known fact the the agriculturist and industrialist in Punjab successfully evade taxes because of political backing.Recommend

  • IBN E ASHFAQUE
    Oct 12, 2015 - 11:01AM

    Karachi is the golden goose that lays the golden eggs. That is why it will never be allowed to manage its affairs by its own representatives. This is tyranny via democracy.Recommend

  • softimage
    Oct 12, 2015 - 12:46PM

    Karachi is the financial hub and generates maximum revenue you have very rightly pointed out that most of the companies have head office here in karachi but they earn from all over Pakistan yes they earn all over Pakistan but pay tax only on what they earn from karachi. We must not forget that tax payers are few lacs only. Has any NGO or govt. Deptt or anybody for that matter has come up with figures for those who DO NOT pay tax.Recommend

  • Mujtaba
    Oct 12, 2015 - 12:58PM

    Umar and Ibn e Ashfaque have advocated the case of Karachi in the as real terms as possible.Recommend

  • Irshad Khan
    Oct 12, 2015 - 1:09PM

    Most of amount in saving schemes, Prize bonds and share business is from Karachi. Recommend

  • musa
    Oct 12, 2015 - 1:23PM

    @ibn e ashfaque i think you failed to read the article. please read Karachi is no “golden goose”. it generates most of the tax in terms of duties due to its port. not because of its industries. it collects alot but generates less. let’s not be fooled by political propaganda of some karachi political parties. Recommend

  • Ummar
    Oct 12, 2015 - 1:39PM

    @umar azam
    These 45000 industries of Karachi generate 85% of revenues from sales from outside of Karachi.
    Economic hubs everywhere “Collect” a lot more than they generate.
    Same as Mumbai Delhi and kolkuta in India. Or Shanghai beiging and guangzho in China.Recommend

  • Sardar
    Oct 12, 2015 - 2:20PM

    @umar
    Bro Punjab alone has more than 67000 industriesRecommend

  • Sajad
    Oct 12, 2015 - 3:17PM

    It would be more helpful to see some figures rather a few un-reconcileable percentages to make a dubious point. I will be more than happy to see one of our city, in our country, that’s “larger than life”. One city has more productive economic activity than the rest of the country like all the Wheat sugar & flour; cement & construction; cotton & textile; fuits & vegetables; Meat, Dairy & poultry etc etc is produced/sold in or through Sindh & Karachi. Please surprise me.Recommend

  • Irshad Khan
    Oct 12, 2015 - 4:33PM

    Karachites feed and give emloyment to millions people from North but still they are target of hatred and badly abused.Recommend

  • pakiboy
    Oct 12, 2015 - 4:41PM

    natural resources r the right of the people they belong to .. so it karachi is a port and it earns due to that and companies open offices here.. then the earning from that is the earning of the city .. why not other provinces and cities cache on their resources .. why not KPK build dams and sell electricity to others .. why not punjab grow agriculture as it is an agriculture province after all .. and sell it to others .. why not baluchistan cache in its mineral resources and sell it to others .. ! ..

    this is really a bias article if u say that generating revenue is not of karachi .. when state minister of power and water (abid sher ali) constantly remind sindh and karachi of punjab and wpada giving 650 MW power to karachi ..
    why the rates of electricity is highest in karachi ! ..

    so it is better to concentrate on developing opportunities every where rather then waste time on criticizing like this ..Recommend

  • Shaukat ali
    Oct 12, 2015 - 4:52PM

    One of the most painfully boring articles to read and in the end didn’t say much anyways. We love Karachi, regardless. It’s the only true people city in Pakistan, where you can dream of making a living. Obviously it depends on where you start from. Rest of big cities are overburdened by the weight of their own bureaucracy and you’re status is depended more on who’s connected to who. Btw I’m from rawalpindi.Recommend

  • Humza
    Oct 12, 2015 - 7:46PM

    @Irshad Khan: We love Karachi but the emergence of Gwader as a functioning Port will challenge its supremacy now. Will tax collected at Gwader mean that Gwader generates more than other parts of the country who pay it? Try to understand collecting tax and generating tax.Recommend

  • Sohaib
    Oct 12, 2015 - 8:24PM

    1st Islamabad 2nd Lahore 3rd Muree sorry karachi is nowhere in my list :PRecommend

  • saud
    Oct 13, 2015 - 11:03AM

    It’s very simple to separate figures of Generation vs collection. Group tax collected by the registered head office of the entity paying the tax. If tax is collected at karachi port but the importing company is based in Lahore then put that amount in Lahore’s account. That should give a reasonable geographical assessment of the tax base.Recommend

  • Fahad
    Oct 13, 2015 - 2:01PM

    Weather Karachi generates more or collects more, reality is nothing is being spent on it.

    We need Karachi province governed and run by the people of Karachi. We dont want useless and uneducated interior Sindh people to govern affairs of most educated people of the country.

    Best solution for authorities wanting to finish MQM is to give due right of Karachiites back to them and I assure you nobody will then vote for MQM!Recommend

  • IBN E ASHFAQUE
    Oct 13, 2015 - 3:30PM

    @musa: Karachi is the main port of Pakistan……that is part of the significance. A government that cannot build and operate a power plant (Nandipur) can only suck taxes from Karachi for their merriment…….Musa karachi can generate more revenues for the whole of Pakistan if its representatives are allowed to manage its affairs. This will be a win-win for all in Pakistan……..The way to progress is to be inclusive and share and grow……..not try to be exclusive…….and control and disenfranchise the people of Karachi……May Allah guide us all. Recommend

  • Napier Mole
    Oct 13, 2015 - 4:34PM

    The comments to this article amply exposes the mindset of Karachi’s detractors. I would like to remind them that in the 1960s Karachi was being predicted to be included among the great cities of the world. Had a metropolitan government been formed in the 1970s in Karachi when it was first proposed and had deliberate spanners not thrown in the rapidly moving wheels of Karachi’s upswing, that prediction may have very well come true. As late as 1985 Karachi used to boast of the most modern airport in the region in contrast to the dusty airfields of Dubai. It is since 1980s onwards that the decline of Karachi started.

    The detractors of Karachi would jump to link 1980s to the emergence of mqm but they repeat a trite argument. MQM was an effect, not the cause. It is, of course, a different matter that mqm veered off course. It should have and should now stick its focus to urban areas of Sindh only and provide it with civic government commensurate with international best practices. If it has to struggle and if it has to militate, it should be with the sole goal of getting full fledged metropolitan government in Karachi and full fledged civic powers in other urban areas, as per international practice, and then deliver. This is a non-confrontational, non ethnic goal which should not ruffled any feathers – except for those eagles of prey who eye Karachi with loot only.Recommend

  • IBN E ASHFAQUE
    Oct 13, 2015 - 6:13PM

    @Sardar: You are right Punjab has more industries than Karachi but they do not pay taxes…..Recommend

  • Irshad Khan
    Oct 13, 2015 - 7:02PM

    Karachi city is being destroyed, by all means, since last seven years. Its roads are full of debris, waiste and sewerage and also without street lights and water supply. Where the huge budget of Karachi`s Municipal corporation and other departments is spent, no-body knows while it is all raised from Karachites.

    Adminisration and law enforcing is not now in the hands of Karachites. There are several mafias in the city, a few namely, drug mafia, Arms selling mafia, Water selling mafia, land grabbing mafia, robbers mafia, security agencies mafia, beggars mafia, 3rd gender mafia etc. etc. and 99% are not Karachites but remain well protected.Recommend

  • Mohammed Shuaib Sheikh
    Oct 20, 2015 - 2:25AM

    @pakiboy: Why not process customs/duties/charges on imports/exports in major cities rather than in Karachi. It will make life easy for importers and exporters as they will not have to travel to Karachi or hire agents in Karachi at a higher cost.Recommend

  • Nov 30, 2015 - 5:55AM

    Another hater for Karachi.Recommend

  • malik59
    Jan 30, 2016 - 7:21PM

    Tax base is 8.5 % of GDP … 3.2 % is Direct Tax collection 5.3 Indirect Tax collection [ fbr year book 2012-13 ]

    no one gives figures , why..? political tardy %ages …!!

    by the way ..one should look at the top 200 Tax payers List recently published , its enough to debunk a few Myths.. Recommend

  • Hassan
    Feb 1, 2016 - 3:27PM

    @musa: u need to read again it says ”Karachi, the industrial hub, does contribute the most to tax collection. But the word should not be generate because, while it generates much, it collects far more than that.” where did u get the word less. it generates more than the rest of provinces..got it. first of all u cannot contribute enough and telling us that they too are not earning. working to improve ur part.Recommend

More in Business