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April 25, 2019

Lopsided levies: Spare the rich, spoil the economy

Business

April 25, 2019

LAHORE: Our economic wizards don’t seem to have the guts for taking the difficult path, paved with fair economic principles, because such a line of action goes against the vested interests; however, they are never shy of taking the easy way out, knowing very well that it will bleed masses.

To balance our budget we need additional resources of Rs2,600 billion. This huge amount cannot be generated through indirect taxation that hurts poor more than the influential. This is because the rich know how to recover their money with interest with the indirect taxes from the consumers.

The economic mangers may succeed in imposing new taxes worth Rs600 billion but that would not solve our problem and only reduce the budget deficit to some extent.

Dr. Hafiz A. Pasha, renowned economist and former finance minister, while speaking at a recent pre-budget seminar, disclosed that the elite of the society who were enjoying extraordinary privileges within the legal framework of the country were largely responsible for current chaotic economic situation of the country.

The quantum of the cost of state captured elite is a whopping Rs2,000 billion, which can be used for social protection and wellbeing of the marginal and poor of the country, he added.

He called upon the government for equal tax treatment for all citizens. He emphasised that no special groups including judiciary and army should be given tax exemptions.

This is easier said than done. It is very difficult to withdraw exemptions and concessions granted to the elite. The influential make it sure to make example of those that dare to tinker with their privileges.

Asad Umar is a recent example. His main fault was not the declining economic indicators as he was following the policies of his leader. His crime was to refuse subsidy to the sugar mills on exports. It is indeed worrisome that at a time when the country is starved of billion of rupees the sugar tycoons want subsidy on exports.

The rupee has devalued by 32 percent they still are not competitive in the global market. The vested interests were on one page when it came to increasing the salaries and perks of the lawmakers, ministers, and even former chief ministers of a province. The bill was publicly opposed by the Prime Minister but was not withdrawn even after two months.

It is politically suicidal to hurt the interests of the elite. The elite in fact is capable of staging strikes and dharnas that even the most popular political parties cannot do.

The value-added tax (VAT) for instance would document the businesses of the larger traders and will not have any impact on small traders. The sales made to small traders are without documents as big traders avoid sales tax.

The small traders would have to pay a minor amount on the profit they made on their purchase price but since they do not have receipt of purchase they would have to officially pay the sales tax on sales price.

The big traders provide them support and finances to agitate against the VAT.

The political parties in opposition lend them full support. The economy remains undocumented.

In the same way the agriculture tax, if levied on income, like on industries or salaries, would be applicable on big landlords and not on 87.5 percent farmers having less than 12 acres of land.

The agitators however are small traders fully supported by the big landlords. This is the reason that Dr Pasha said only a broad base political consensus on economy can help the government to get out of the economic quagmire, where all major political parties can agree upon the common reforms agenda.

Dr Shahid Hafeez Kardar, former governor State Bank of Pakistan, at the same seminar said International Monitory Fund (IMF) is the main culprit behind the destruction of our tax and revenue collection system.

Kardar said inequality in the society was mainly because of the structure of the economy, where growth rate was confined to financial sector, IT sector, telecom, and automobile sector and “we ignored large unskilled and poor segment of society”. “Can we avoid IMF or dictate our terms to the lending agency? Or are we in a position to reign in financial sector or automobile giants?” Kardar questioned.

To achieve inclusive and sustainable economic growth we need to empower our women and women should be facilitated with access to financial services, which include credit, and allow them to take independent decisions. Is the society prepared for this change of heart?

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