Determination needed, not rhetoric

LAHORE: Our planners are having nightmares in convincing the International Monetary Fund (IMF) to soften its conditions, but they done nothing at home to save and generate resources that simply need a resolute and fair governance structure.

Every time the country faces an economic crisis, those at the helm of affairs blame the previous government and ask the masses to get ready for sacrifices. The real culprits who bring the country to the brink of disaster, are spared every time.

The inability of the state to fully document the economy is one factor that is promoting black money. Agriculture tax is not a big issue.

Institute of Chartered Accountants of Pakistan carried a study a decade back that revealed that the maximum potential of agricultural tax is only Rs60-80 billion (it might have doubled now), but it is still a nominal amount when compared with our revenue shortfall. The actual evasion occurs after the agricultural commodities land in the hands of middlemen who deal in hundreds of billions of rupees, but pay no taxes.

Under-invoicing is a major source of tax evasion. It is now common knowledge that under-invoicing is a norm in Pakistan.

Products are imported at around 10 percent of the actual value.

Assuming that out of total $80 billion imports, 25 percent or $20 billion of the imports are under-invoiced, the importers are in fact depriving the exchequer of trillions of rupee in duties and taxes on under-invoiced products worth $20 billion.

The duties, sales tax and other import levies on $20 billion under-invoiced taxable imports at actual rates would be over Rs6 trillion, even if we levy only 15 percent average import duty and 17 percent sales tax on these imports.

Planners fail to realise that if under-invoicing is curbed, our import bill will come down because importers would not be able to market such products after paying the actual import duties.

Still, the tax revenue collection from truncated imports would be much higher than the current import revenues.

If these measures are taken, domestic production would as well. Those industries that cut back their production because of under-invoiced goods, will get back to business. This will also create new jobs.

Moreover, it will also incentivise investors to put their money in new ventures without the threat of their products facing under-invoiced imports.

In the last 10 months, there has been no let-up in under-invoicing or on rampant power theft in the country. This speaks volumes about the low governance in the country.

We have to concentrate on governance and wooing the multilateral agencies simultaneously if we are serious in coming out of the current mess that is threatening our sovereignty.

Without waiting for the IMF’s decision, we must announce strict austerity measures that curb the perks and privileges of all high officials and persons drawing hefty amounts monthly from the national exchequer

This time around, the economic situation is precarious. Even if we make all the right decisions and get donor support as well, the masses will be living a hard life for the next two to three years.

The state must operate transparently and fairly during this period to ensure that the gains thus attained are sustainable. This time around, the government has to make decisions that target the influential segments of the society that do not pay their taxes.

Only then will we create resources for the welfare of our people. Let us not forget the under-filing of production by the manufacturers.

It occurs because of the inability to create fear of audit by the Federal Board of Revenue (FBR). Fair and transparent audit is the best deterrent against tax evaders. Tax audit in fact should function independently without the oversight of the FBR.