‘Provinces don’t exploit revenue potential’

LAHORE: Provinces don’t exploit their revenue generation potential after receiving funds from the federal divisible pool, an ex-governor State Bank of Pakistan (SBP) said on Friday.
Dr Ishrat Hussain, addressing the members of Lahore Economic Journalists Association, provinces have 60 percent share in the resources. With 40 percent, the federal government has to earmark huge amounts for debt servicing, defence sector, subsidies and lose-making enterprises, he added. Provinces are complacent as they have surplus even after financing the development programs.
“There exist opportunities for new taxes,” said Dr Hussain, adding the property tax rate in Karachi was, for instance, evaluated in 1990’s. At the current value, the tax can increase many times and meet the entire development and social sector needs of the mega city. This is true for all other urban centres of Pakistan.
Informal economy pays no taxes, while documented sector has to pay corporate and sales taxes. “We are increasing the burden of taxes on the compliant sectors without making efforts to bring the informal sector into the tax net,” said Dr Hussain, citing the Federal Board of Revenue that there should be 3.2 million taxpayers in Pakistan instead of presently one million.
Ex-governor SBP said the tax laws are so cumbersome that they provide opportunity for corruption. “In the current technological era, everything should be computerised,” he said, adding that the technology should facilitate the taxpayer to know the liabilities in the cases pending for years. There is a need of administrative policy reforms in the tax regime.
“The way forward for the federal government should be to launch development projects in partnership with private sector that could provide 66 percent of the equity,” he said. India has successfully completed many mega development projects in collaboration with private sector. These include Delhi Metro and Hyderabad airport. “We have similar successful examples in Sialkot where private sectors built dry port and airport.”
Dr Hussain said there are structural problems in the economy. Saving and investment rates are very low. With saving rate of 14 percent of GDP and investment rate of 13 percent of GDP, no country has ever sustained a higher growth rate. Saving rates in India and Bangladesh are 35 and 30 percent. The 60 million middle class of Pakistan should go for saving instead of living beyond their means. Savings come from affluent middle class and not from the poor that barely survive on their incomes.
“As far as the economic policy of the country is concerned, all the three main political parties are on the same page as far as their manifestos are concerned,” he said. The parties in opposition oppose those very policies that they implemented during their tenure. “This creates uncertainty as businessmen invest when they have confidence on the consistency of the policies,” he added. Investment is a long-term phenomenon and they (businessmen) cannot risk their money when changes occur after every election.