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Opinion

June 1, 2015

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The answer is sovereignty

Economic policymaking at both the macro and micro levels must hold national sovereignty as its fundamental premise. The role of the World Bank and international financial institutions (IFIs) in Pakistan’s economic landscape must also be realigned to promote socio-economic solidarity and self-sufficiency.
Unfortunately, to date, the country’s sovereignty has been compromised due to inappropriate policies as well as reliance on foreign aid, loans and credits. Parliamentary democracy and reliance on local resources are essential for Pakistan’s economic sustainability.
One of the main reasons Pakistan is so dependent on foreign aid and loans is the low collection of revenue. Tax evasion is rampant mainly because of sales tax evasion. Excise and taxation is another source where evasion is rampant. Strangely, it is also alleged that exports are over-invoiced and over invoiced element is routed back through remittances in order to claim exemption of taxes. It is also a fact that this tax evasion – in whatsoever case – is impossible without the connivance of our tax officials. Taxpayers also have no respect for tax collectors and do not trust the government for fair use of taxes so collected.
Pakistanis are also charitable people – in fact, among one of the most charitable nations in the world. Yet, curiously, they are reluctant to pay taxes. This is a serious challenge which the government needs to overcome. The trust deficit between the government and the taxpayer has to be eliminated so that taxpayers pay what they owe and do so with a feeling that their tax rupees will contribute towards achieving economic independence and sustainability.
The remedy thus lies in documenting the economy. The World Bank recently estimated loss of revenue at 56 percent in Pakistan. According to an FBR report, however, the informal economy is 79 percent of the documented economy. Thus just 21 percent of the economy pays taxes – annual revenues – of a mere Rs2

trillion only. If the remaining 79 percent hidden income is explored and documented, additional revenues of about Rs8 trillion would be sufficient enough to do away with the begging bowl of foreign aid.
For this revamping the customs and sales tax arms of the tax machinery is essential. Strong administration, competitive salaries and incentives for competent and honest tax officials is also necessary to avoid tax connivance – which deprives the trade and industry of fair competition and the country of valuable revenues.
The country also suffers from low foreign investment – now also local investment – due to little protection of such investments. The fact is that as soon as an investment is made, it is put to competition through a liberal import policy which is in turn under-invoiced. Why should foreign investors invest, or for that matter now local investors also, who are already shying away due to the law and order situation, abrupt change of policies with the change of government or personnel in the ministry.
In neighbouring India no product that is produced within the country can be imported. This protection is provided through trade and non-trade barriers – such as emission control standards known as Bharat I and Bharat II. Malaysia went a step further and refused to accept foreign aid, loans and credits. As a result, Malaysia is now a highly competitive and healthy economy. It has attracted foreign investors – prosperity cannot be ensured without investment, production and export. This alone ensures employment and helps earn foreign exchange.
There is also the question of concentration of powers of the three branches of the state: legislature, executive and judiciary. Parliamentarians are required to be concerned with the legislation-making process; the executive is entrusted with policymaking and providing job opportunities while administration of justice is the primary function of the judiciary.
Our bureaucracy continues to be recruited on integrity and a strong value system. They are generally from the middle class and recruited on a competitive basis. They work under politicians who maltreat them. Our civil servants need to be shielded from politicisation. Tere has been law and practice that if a secretary differs from a minister the case should be referred to the prime minister. This should be invoked seriously with due safeguards.
Policymakers, academics and all those interested in seeing Pakistan’s developing economy emerge as prosperous and self-reliant must rely on such measures in the interest of the solidarity of the country.
The writer is the chairman of the Atlas group of companies. Email: [email protected]
Website: www.atlas.com.pk

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