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October 24, 2019

Economic managers struggle to implement half cooked reforms


October 24, 2019

LAHORE: The economy was already under stress when this regime assumed power, but it has now got out of hand because the government has alienated every segment of society through its half cooked reforms.

Economic managers have to move cautiously in an ailing economy. The first priority should have been to devise a policy that put the country on a sustainable growth path without hurting the interests of the poor.

You cannot introduce painful reforms by taking measures like heavily devaluing rupee that triggered inflation even in economic recession and doubling markup rates.

Resultant chaos created in the prices of daily use items alienated the poor from the government. This provided opportunity to the businessmen to use masses in their interest.

Pakistani businessmen always oppose reforms that hurt their immediate interests. This has been going on for over 30 years.

The current economic team must have learnt its lesson from the history of state dealings with businessmen. The condition of CNIC is being regularly deferred on monthly basis since July. The fixed tax scheme for small traders announced in July has not been implemented.

Because of vested interest, trade and industry has not played its due role in guiding the economy towards a sustainable growth path.

Reforms have always been fiercely resisted by the private sector.

This resistance results in lopsided implementation of the reform process.

In fact, a visiting IMF delegate more than a decade back appealed the Pakistani authorities not to destroy the beauty of value-added tax by asking the traders to pay tax on turnover basis that too as determined by each shopkeeper.

In contrast, the reforms in India were led by the private sector and its willingness to reform facilitated the Indian government in introducing them without any resistance.

In the last 30 years, India has moved from a non-entity in the global economy to the third largest economy of the world. It is destined to overtake United States as the second largest global economy by 2020.

This contrast in the mindset of the businessmen of Pakistan and India has in fact made the difference between the leap taken by the Indian economy over Pakistan.

Indian tax collectors for instance have the authority to check even the residences of the businessmen to find out any hidden wealth.

Pakistani tax authorities cannot even dare to make a list of stocks displayed openly by the shopkeepers.

Indian regulators could confiscate any smuggled item found in the markets.

Pakistani regulators turn their eye the other way as almost all its markets are flooded with smuggled goods.

Under-invoicing in India is not possible as the local industry jealously guards its interests and frustrates all such measures.

The custom authorities in India have no option but to confiscate the under-invoiced goods. In Pakistan even after proven under-invoicing of over 200 percent, the importer is let off by allowing him to pay the duty according to the actually assessed value.

He thus is not a loser even if caught. Perhaps, it is only our good luck that this menace would likely be controlled on the insistence of the Financial Action Task Force.

Government of Pakistan is trying to impose general sales tax on traders since 1987, but all attempts by Nawaz Sharif, Benazir Bhutto, and Pervez Musharaf since then have failed to impose this value-added tax as traders strongly opposed it.

The Indian government introduced value-added tax in most of its states last year and the compliance of the traders has been remarkable.

All the four provincial government under the Shops Acts have legislated that the shopping centers would close after sunset. If this law is implemented, the nation would save 200MW of electricity during the peak demand hours.

This would bring much needed discipline in our culture. The markets in Pakistan open after 12 noon while in other countries the markets open at 9 and close by dusk. The shops in India close according to the schedule mentioned in the law.

The import of banned items in India is not possible. Any item which is banned and is imported would be taken over by the Indian government.

In Pakistan, it is very easy to bring in banned items. The used auto-parts are a glaring example, imports of which are banned since 1950.

These parts are imported dirt cheap from foreign junkyards and are cleared after payment of penalty up to 150 percent (which is practically nominal in view of very low import prices). The rules in Pakistan allow this practice.