Flushing out the corrupt essential for effective growth

LAHORE: Improving the economy has always been an uphill task for each government that assumed power in the last three decades. This government is no exception, as the basic flaws in the economy have not been addressed even now.

We are not a growth-based economy. In fact growth has never been the top priority of any government in Pakistan. Each was interested in increasing revenues by any means. Instead of increasing revenues based on the capacity of the population, each government resorted to regressive taxation.

The concept of consumer tax introduced in the 1980s provided each government to exploit the consumers at will. The consumption tax or the general sales tax in Pakistan is 17 percent. This rate is higher than the rate at which most corporate executives pay their income tax.

In fact, most wealthy importers relax after paying six percent income tax at the import stage (which they incorporate as their cost and recover from the consumers). The consumers in addition also pay 17 percent sales tax on imports as well as domestic products.

If we look at any industry, we find that many deposit almost 20-100 times higher sales tax (collected from consumers) compared with the income tax that they pay. When any economic sector is confronted about the taxes paid by them they quote the sales tax that they collected from the consumers and deposited in the exchequer. The tax directory that the FBR sometimes publishes reveals the meagre amount of income tax paid by some well-known and flourishing enterprises.

Businesses also complain that they collect sales tax on behalf of the state that is not their job. However, this is a global norm. Businesses collect the sales tax and deposit it in the treasury after one month. During this period they enjoy interest free money as working capital.

We will remain a poor economy till we start collecting direct taxes. It is a shame that we collect even the direct taxes indirectly (such as the withholding tax, income tax at import stage and at the time of supplies).

Recently, former chairman of the Federal Board of Revenue Shabbar Zaidi pointed out that the FBR itself collected less than five percent of the total revenue directly, and the rest was collected indirectly from the businesses.

The FBR has strength of 21,000 employees. The system does not need much effort from them. Still these 21,000 individuals fail to add new taxpayers, who continue to flaunt their lavish lifestyles in the face of the authorities.

The tax system is rotten. You cannot expect any government to come out of revenue shortage with the assistance of the present tax collectors. They are a burden on the exchequer.

Majority of these 21,000 employees are living a comfortable life, because instead of increasing the tax base or nabbing the tax evaders, they seek rents from them to let them continue with their unethical practices. Shabbar Zaidi recommended showing the door to more than half of them, but instead he had to go.

This lethargic attitude of the tax regulator encourages corruption. Since the tax collectors were flourishing on bribes and rents they lack the moral courage to nab the government officials living beyond means.

The web has now become so strong that it requires a herculean effort to break it. Corruption has crept into institutions that provide vital services to the public. Taking very strict action against power distribution companies may jeopardise the smooth supply of power.

Action against customs officials may result in piling up of imports and export consignments. There has to be a systematic approach for each institution. There has been no improvement in power theft because it has been institutionalised. The efforts to improve should be implemented carefully.

There are some honest and dedicated employees who could be given the task at two or three grids to clean (at least 10 percent employees are always honest) up the operations. That grid should be purged of all theft.

After three months, the grid should be handed over to the corrupt staff with the warning that any deviation from the standards set would result in immediate termination. This looks to be a very slow process. But purging the core corrupts would result in vast improvement after a while.

Even in corrupt societies the rule is that 10 percent of the employees are corrupt to core and would remain so unless removed through technology. Then 80 percent of the employees are those that would swing either way depending on the circumstances.

If the corrupt go unpunished they would lean towards corruption. But 10 percent of employees remain clean and honest in all circumstances. When corrupt are in power they are sidelined, but when they have an upper hand the corrupt are sidelined and the 80 percent in the middle toe the line of honest employees.

It is unfortunate that we have not taken any serious action against core corrupts. It is because of political compromises or absence of political will.

We will first have to face the reality that corruption is in vogue in all spheres of life. It is not confined to politicians, bureaucracy or the police. We have to purge all the law enforcing agencies and the judiciary of corrupt elements through one transparent process. Only then can we hope of a pleasant change in the fate of our country.