Political consensus a must for reforms: experts

LAHORE: Political consensus is a must for reforms in Pakistan, as opposition parties always hinder government efforts to implement reforms in true spirit, experts said on Thursday.
This has been proved during the 1990’s when every government that assumed power felt the need to impose value-added tax, but each time the traders opposing this tax were supported by the opposition party that tried to impose it while in power, the experts said.
They regretted in the absence of a consensus the traders now are exempted from the value-added tax and pay paltry turnover tax of less than one percent as their final tax liability. This includes both income and sales tax, they said. Moreover, the experts said the annual turnover declared by the traders is accepted and no documentary proof is required.
Tax compliance in Pakistan is very low, said Asif Ali Shahid, an economist.
Less than one million people are registered under the tax regime, which is only 0.6 percent of the population, he said, adding, the tendency to oppose any economic sector reform is playing havoc with the economy.
Parties across the political spectrum agreed on several political and autonomy issues by bringing in the 18th Amendment, but they are poles apart on the economic issues, said Shahid.
“If we look at the economic agenda of all political parties there is a consensus that revenues should be increased, all of them want to improve governance, eliminate corruption and reduce poverty.”
However, he said they are not on one page on the transparent and fair measures needed to achieve these aims. The political forces having strong urban following do not want to introduce VAT because traders that form the main segment of their constituency strongly oppose it, he said.
Similarly, he said, the parties with strong rural following oppose the meaningful implementation of agricultural tax.
He said there is a lack of consensus on the accountability law, as a fair and transparent law would hurt corrupt elements on both sides of the political divide.
Dr Shahid Zia, a senior analyst, said it had always been difficult to introduce reforms in multicultural, multilingual societies such as Pakistan.
In order to move ahead, one has to make compromises, he said, adding, for instance, in order to develop Gwadar the people of Balochistan have to be satisfied and compromises made to ensure that the project is expedited.
“You will not face any problem if you develop Chittagong Port in Bangladesh, as it is a unicultural and unilingual country.”
He said speedy development of Gwadar would open numerous trade opportunities for the country. Similarly, Kalabagh Dam cannot be built without consensus from all the four provinces, he said.
The revenue collection remains top most problem in the country, but for the federal government income tax is the only avenue of tax collection, as sales tax on services are under the domain of the federal government.
He said increasing income tax is linked to documentation of economy for which a political consensus is needed.
Dr Zia said provinces have not exploited the huge potential of services tax, as most of the service sectors such as doctors, beauticians, lawyer, hair dressers and most of the restaurants are operating outside the tax net.
The provinces are not pushed as well to collect more revenue, as they get ample amount as their share from the federal taxes to operate on surpluses, he said.
Faisal Qamar, another economist, said there are certain areas in the tax regime where political consensus is not required. Under-invoicing and smuggling is depriving the country of at least Rs300 billion in revenues, he said.
High duties whether import duty or sales tax encourage smuggling and under-invoicing, said Qamar, adding, it has been evaluated through various studies that the cost of under-invoicing and smuggling is of 15 percent of the average price of the product.
He said if the government ensures that the cumulative duty and sales tax on any product would not be more than 15 percent these two menaces would be adequately addressed and the surge in revenues would be enormous.