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Thursday December 07, 2023

The growing gulf

September 28, 2023

LAHORE: Pakistan has produced millions of genuine poor in recent decades, while also producing hundreds of illegitimate billionaires who mostly pay no or nominal taxes.

These billionaires are speculators, smugglers, hoarders, and manipulators. You can find billionaires in the property business. Most of the land grabbers are affiliated with the political elite and even some active politicians.

You will find new billionaires in the stock market as well, since the profits in both these sectors can be amassed without paying the amount of tax that other citizens pay on similar income.

In addition, new billionaires can also be found among the wholesalers who resorted to hoarding in the last three decades. Such wholesalers are known to create artificial shortages and price manipulation. They hoard commodities bought on cheaper rates to later make huge profits.

Since these elements have not been confronted, they are now fully entrenched and dictate the system. Decisions taken in the name of a free market economy have mostly harmed the public. Exemptions provided to different sectors have made the free market policy a one-way traffic in Pakistan.

While competing countries protect industries and facilitate exporters, Pakistan government continues to pursue policies at the expense of local industries and exports. Rules are not transparent. Rampant under-invoicing and false declaration of goods to avoid higher duties is allowed freely at nominal rent.

It is indeed a miracle if any commercially imported finished good enters Pakistan at its original global rate. To make matters worse, bureaucracy evaluates the duty on raw materials and finished products at whim. Duty on raw material in most cases is evaluated on its international price, whereas in case of finished goods containing the same raw materials, a different criteria is applied.

In some cases, the under-invoiced value of imported finished product is lower than the cost of the main raw material used in that product. Domestic industry that manufactures the same product using the duty paid raw material is unable to compete with imported commodity.

AS a result, domestic production declines and imports increase. Pakistan loses jobs in the domestic market and jobs are created in countries from where the under-invoiced finished goods are imported.

Land mafia is another example in this regard. The strong pro-land mafia lobby in the ruling elite effectively blocks the proposals to bring land transactions under the tax net.

Lopsided economic progress has historically backfired in states where criminals get protection, where the weak and the poor live without any hope of justice. Economic managers should make the rulers realise the gravity of the situation and bring order in all spheres of life.

We still have some time. Frustration has not yet reached a stage that could turn into anarchy. Pakistan is a land of opportunities. Its strategic location is its actual strength. Governance of the highest order is needed to fully exploit this potential. The country has got resources, expert manpower that needs guidance, and fair play.

On the economic front the rates of meat, vegetables, sugar, cement, steel, natural gas and gasoline are at an all-time high. The state needs to establish its writ and implement a price control mechanism.