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November 10, 2019

Wrong focus


November 10, 2019

Dr Farrukh Saleem

Focus number 1: tax collection. In the simplest of terms, tax is a consequence of economic activity – more economic activity in the private sector, more taxes for the government. Tax collection as a focus is therefore the wrong focus. The focus ought to be economic activity.

Next. Our taxation policy lacks equity. We need to answer three questions. One, who will pay taxes? Two, how much will they pay? Three, how will the taxes be spent? Equity demands that rich Pakistanis should bear a heavier burden of tax and poor Pakistanis a lesser burden. What we have right now is the exact opposite. In other words, taxation must be in “relation to the ability of the tax payers”.

How will taxes be spent? Do we pay taxes so that the government can finance Rs2.1 trillion worth of losses in Pakistan Steel, Pakistan International Airlines, Pakistan Railways and the other 200 so-called PSEs? How will taxes be spent? Do we pay taxes so that the government can fill Rs1.7 trillion worth of losses in the power sector?

Focus number 2: the rear-view mirror. The current focus is the past – who stole how much. The government has a total focus on the rear-view mirror. This almost total focus will result in an accident. The government must make a distinction between ‘anti-corruption’ and ‘economic policy’. All we have is ‘anti-corruption’ and little or no ‘economic policy’. Plus, anti-corruption is not an event it is a process. The government must put an end to the absurdity of ‘$200 billion coming back and that being our economic policy’.

Yes, we must create a well-financed, well-trained and an independent anti-corruption agency. To be certain, NAB is anything but an anti-corruption agency. NAB lacks training, capacity and independence – which are the primary prerequisites of an anti-corruption agency.

Focus number 3: foreign investors. The focus ought to be domestic investors because domestic investors routinely invest some Rs5,000 billion a year every year as oppose to a couple of hundred billion rupees coming from abroad. We must incentivise domestic investors; foreign investors will come as a consequence.

Focus number 4: hot money. The government has doubled the rate of interest in about a year just to attract a few billion dollars worth of ‘hot money’ from short-term dollar-investors seeking short-term high returns. To be certain, hot money runs away faster than it rushes in. The cost of trying to attract hot money is for all to see – bankrupt small and medium enterprises, high cost of doing business and the resulting unemployment.

Focus number 5: import curtailment. The focus ought to be on export enhancement. Here’s why: we import around $30 billion worth of oil, coal, LNG and machinery; $4 billion worth of essential food items and $3 billion worth of iron and steel.

There’s only so much import curtailment that we can do. Where we have really failed is our export sector. Roughly five year ago, Bangladesh and Pakistan each exported goods and services worth $25 billion. Over the past five years, Bangladesh has gone from $25 billion to over $40 billion (and we are below what we exported five years ago). If we had taken our exports to around $40 billion – with $24 billion in remittances – our foreign accounts would have been more than balanced.

The writer is a columnist based in Islamabad.

Email: [email protected]

Twitter: @saleemfarrukh

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