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September 17, 2019

How the giant of graft guards the shadow economy


September 17, 2019

LAHORE: All countries suffer economically corresponding to the intensity of their corrupt practices. The International Monetary Fund (IMF) estimates that the tax revenue collection in least corrupt governments is 4 percent of the gross domestic product (GDP), higher than those with highest levels of corruption.

It was also revealed on International Anti-Corruption Day in December 2018 by a United Nations official that the annual costs of international corruption amount to $3.6 trillion in the form of bribes and stolen money. This is equivalent to 4 percent of gross world product. Pakistan unfortunately is bracketed among the 20 most corrupt economies in the world. If we reduce corruption we could add much above 4 percent of GDP in our tax revenues.

The dilemma in Pakistan is that speed money has to be paid for the approval of lawful and unlawful acts. For instance the building departments of municipalities could and usually do certify an unsafe building as safe and compliant after taking bribes.

Such approval put hundreds of lives at risk. But it has been established that even if a builder constructs the building complying with all local and international standards even he will have to grease the palm of the concerned officials to get a formal approval.

Since it happens so often, builders now overlook many costly safety measures because they have to pay bribes anyway. Corruption has thus become a part of life.

Prime Minister’s economic advisor, the other day boasted that corruption was on decline in Pakistan. The reality is corruption at grass-root level is well entrenched and only the rate of bribe has increased.

Moreover, the bureaucratic decision-making limbos are also unduly delaying approvals adding to the injury. This act of doing nothing also falls under corrupt practices.

The corruption at customs continues as usual. Corruption does not mean just bribery, but it is multifaceted. It is not just individual, but an institutional malady too.

Informal economy is the outcome of corrupt practices. The larger the informal economy the higher the corruption level in a country.

An IMF working paper in 2018 estimated the average size of the shadow economy (much of it made up of corrupt payments) averaged 32 percent of the GDP of 158 countries from 1991 to 2015. In case of Pakistan, a World Bank study few years back estimated informal economy was equal in size to the formal economy.

With the passage of time the informal economy has outgrown the documented economy. Even in the formal economy, we have kept the agricultural sector out of tax net. We generate around Rs4,000 billion tax revenue from out of formal documented economy. If the informal economy is also documented the tax revenue could double to Rs8,000 billion.

We would need no loans and funding our development from our resources. To document the economy we have to drastically dent the corruption in the country where the poor have to bribe the office-boys to be able to meet any officer for resolving his rightful issues.

Developed economies are very sensitive on any type of corruption because it in fact is the abuse of entrusted power for private gain. The Knowledge @ Wharton cites a hypothetical example of a manager who hires somebody owing them money on the condition that part of the salary is used to repay the debt. The person hired is fully qualified; nobody else applies for the job; and she performs her tasks well. It states that this is an example of corruption even if the harm may not seem severe or, at least, may be difficult to measure. In writers view, “The manager should lose their job, because they used their power in ways that were not appropriate and would undermine the smooth functioning of an institution, which is based on accountability.”

Institutions in Pakistan are weak because the corruption is a routine practice. To get an electricity connection you have to ‘please’ the officials at different levels or wait for years to get a connection. Same is the case with natural gas connection. The registration of a police report is an uphill task for a person with meager resources.

People with connections and resources can get their passport, Computreised National Identity Card made without any hassle. The poor have to wait in lines for days or spend the night outside those offices to get what they are entitled to, being the citizens of the country, without having to take all those pains that the rich don’t even know about.