Mr prime minister: It’s all up to you…
By Mohsin Jamil Beg
The nation is being crushed by the monstrous inflation machine for a long enough period of time, and is now pinning its hopes on you.
It seems impossible to gauge, if the flood gate of people s expectations, that has remained shut under inner and outer coercions, has exploded.
However, it is laudable of the government to face the challenge valiantly. I am daring to pen down a series of problems smoldering inside the blank inanimate eyes of the poor in particular.
It has been the persistent habit of the erstwhile rulers to enjoy protocol from a battalion of secretaries and parliamentarians. As you have come with the sheer motive of Naya Pakistan, it best if you said goodbye to the old culture.
During your domestic visits you should invite prominent figures of the respective area, who are top tax payers, business people who are creating employment opportunities, and are capable of playing their role in the economic turnaround.
There is a tremendous potential in Pakistan and it needs to be leveraged in the right way. The government should arrange and organize matters related to foreign debt, balance of payments and its fiscal requirements in highly cautious manner. Microeconomic and institutional reforms should be introduced and shored up for economic stability besides making Pakistan stable and capable for competitiveness otherwise the country can confront countless problems in the near future.
According to the accounts statement issued recently by State Bank of Pakistan (SBP), the country’s deficit in the perspective of trade balance runs into 36 to 37 billion. Your first and foremost task is to scale down this deficit. The chart issued by the SBP should be encompassed which reflects imports and exports of the country in an institutionalized way.
In my view, imports should be curtailed to $10 billion in the prevailing situation. In order to help achieve the target, I humbly suggest the following steps:
- Make it clear to the nation in unequivocal terms that round-the-clock supply of electricity gives rise to highly inflated import bill. Therefore, supply of electricity without shutdowns is ruled out.
- Electricity loadshedding should be observed four hours a day to bring down petroleum import bills.
- The import of vehicles above 1300CC should be suspended for one year at least. This way foreign exchange will be saved, and usage of oil will be curtailed.
- Import of tea, wood, textile and cosmetics and other luxury items should be stopped. Every Pakistani must know that imported luxury items cannot become available, as long as the balance of payment does not come out of the trap of deficit.
- Import of medicines, defence and research-related items should be allowed. Since Pakistan is facing crisis on the economic front, therefore, we should not resort to unnecessary expenses unless the situation stabilizes. No new programme should be launched.
- There should be a uniform system of education in the country. The same syllabus should be followed indiscriminately for all segments of society. The government employees and those holding public offices should send their children to government schools. In terms of health facilities this policy should be adhered to.
You have announced to construct five million houses in the next five years. A good idea! But it should be borne in mind that if once the government is involved in construction projects then it paves the way for corruption.
I propose allotment of five-marla plots to those without homes of their own. This will enable them to build homes rather than pursue the project of five million houses. This process has proved productive in the past.
This sector possesses potential for productivity.
The low production capability of Pakistan per acre has not improved since long. It has now touched the lowest mark in the world. According to a recent report released by Pakistan Business Council (PBC) which is policy compiling institution, major part of our national economy relies on the agriculture sector.
It constitutes 19.5 per cent of overall volume of national economy in GDP. Economic growth ranges between 29 to 52 per cent in Pakistan. As per report it is less than the best average with reference to major trade items of the world. Pakistan yields 3.1 tons wheat per acre which constitutes 38 per cent of 8.1 ton wheat yield of France, country of highest production of wheat in the world. Likewise Pakistan produces 2.5 tons cotton yield per acre which constitutes 52 per cent of 4.8 tons per acre yield of cotton in China.
The agriculture sector provides employment to 42 per cent of the manpower. A developing and more appropriate agriculture sector will help uplift lifestyle of people besides improving its competitive capability against industry. Our agriculture sector is highly indispensable sector where over 70 per cent of population of the country is playing its role and feeding the entire population despite the fact that it is leading life below poverty line.
I like to suggest the following measures:
- Agriculture-related machinery/tractors, experts, and spray equipment, manufactured outside or inside the country, should be declared tax free.
- Timely provision of high quality seeds and pesticides.
Loans should be provided at the lowest interest rate possible.
Particularly double taxation system for agriculture should be abolished. Desired production can be acquired in 6 to 8 months due to the aforementioned steps. Food security should be attached high importance.
Luckily we have succeeded in getting the best crop of wheat due to research within 3 to 4 years. However, it did not happened in the case of cotton crop.
The government should mull over it and take steps for the development of cotton yielding-belt stretching from South Punjab to a part of Sindh.
The following measures can be taken on this count:
- Factories spinning new cotton and oil extracting factories should be exempted from tax for five years.
- Loans at low interest rate should be extended to new spinning factories, small industry and oil extracting factories as it has already been done in Pakistan under the name of LLM. Concessional loans must be provided to manufacturing factories, and not for any other purpose.
We can get rid the country of poverty by pursuing this policy and uplift the backward areas besides taking steps for setting up new cotton ginning and spinning factories in Multan and Bahawalpur.
Pakistan has failed to fetch sizeable international investment from countries other than China. On the other hand the investors are scared for want of peaceful environment, business-friendly atmosphere. Deteriorating law and order situation is a major concern. In the face of this environment a good deal of money is siphoned off to offshore accounts. If this problem is not addressed then recession is bound to engulf the already stagnant economy.
The foreign investors are avoiding investing in Pakistan due to its bleak and poor image at the international level. Pakistan ranks at 147 out of the 190 competitive markets in World Bank (WB) business report-2018. Challenging security, old power shortage, hard capital atmosphere are impediments in the way of foreign investors.
Mr. prime minister, your government needs to take extreme steps to ensure political stability in the country besides making the environment attractive for local and international investors.
Improvement is needed in the legal framework for safeguarding legal rights and interests of the investors. Institutions related to business and investment need to improve their performance.
Departments like the Federal Board of Revenue (FBR) and Security Exchange of Pakistan create bottlenecks in Pakistan.
There is a dire need to promote exports. Tax-free incentive for five years will attract new investors in the country. Loans will have to be provided with possible low mark-up. Serious investment should be made in Research and Development (R&D) which serves as the backbone of the national economy.
The stagnancy in industrial production is linked to prices of energy as well. These should be curtailed at the barest-minimum level. The government should frame investment-friendly policies and the rest should be left to the people of Pakistan.
The other source of bringing foreign exchange to Pakistan is the inflow of remittances by our overseas Pakistanis. We should encourage our manpower in foreign markets, particularly the Middle East.
There is a need to identify weaknesses inherited by us in the banking sector, besides launching comprehensive reforms process. We will have to take vitally purposeful steps and ensure level playing field for competiveness in the market. We will have to strengthen governance and monitoring of financial institutions. We will have to adopt market based finance and exchange and credit management to achieve reforms target so that allocation of funds in appropriate manner could be ensured. The non-provision of funds to small industry is another barrier in the way to industrial production because stringent conditions have been slapped by banking sector in this regard.
I propose that the SBP should direct banks to promote financial matters with small industries on easy conditions besides enhancing one part of their funding only for the establishment of new projects.
Taxation is a complicated system in Pakistan. Over 70 extraordinary taxes have been imposed by 37 institutions in the country.
As per the International Development Committee Pakistan is collecting tax beyond average. Only 0.57 per cent or 768,190 persons pay tax in Pakistan.
According to an investigation report 2002, 99 per cent out of 256 persons said, they are facing corruption in matters of tax; 32 per cent people have had to bribe to save their tax; 14 per cent said bogus tax is being levied on them.
FBR is not good for any job. Collecting revenue through direct taxes is its mandate. But it has filed to do so and they shift the burden towards collection of withholding tax where companies are declared withholding agent on the basis of non-considerations. If you see the amount collected by agents other than collective income of FBR then you will find that FBR cannot even meet its expenses with the amount collected through direct taxes.
Ratio of deduction
It is workable that complex measures were implemented for agents, rather than facilitating them. They include imposition of different ratios of withholding tax for different categories of tax payers including goods, services, filers and non-filers. Imposition of withholding tax and different taxes on income like single transfer, income tax withholding, sales tax withholding, interim sales tax withholding.
An organized and systematic tax withholding ratio be introduced to please tax agents.
Sales tax and refund
Unchecked and unrestrained use of withholding tax causes arrogance in the tax system. This is evidence of the fact that reliance is being placed largely on indirect taxes. This has enhanced the conservativeness in tax system and additional burden of taxes has been implemented. The nature of tax is generally conservative. It means tax is imposed on everyone independent of individual income. This is sheer failure of FBR that it cannot achieve the target of collecting direct tax. This way corruption is on the rise.
The tax payers have to show their liquidities in the shape of refund in the prevailing system of sales tax and then they have to go to FBR refund mechanism. Later, the taxpayer has to face departmental inquiries at different levels for long time. A unified tax system should be introduced to avert this situation.
The FBR should work as an institution of the government in the matter of collection of taxes and refund and rebate system should be stopped. Tax system should be based on collection of taxes for once at barest minimum rate. Refund system should be abolished. The tax rate at the prevalent profit is 30 per cent which should be reduced to 20 per cent. I think as much as you do, ease tax system, it will help in collecting maximum tax.
History testifies that arrangement of foreign policy and its workability is inevitable to achieve desired results.
According to my information you are fortunate that three telephone calls were received by you from the Saudi prince. I am not criticizing here but it was a mistake on the part of the past government that a GCC government was not dealt with positively. Due to this attitude the Indians seized the opportunity to set feet in the GCC after 40 years. It is my earnest request that you continue contact with counties like Saudi Arabia, Kuwait and the UAE where we can send more manpower and acquire foreign exchange. To my knowledge Middles East is pinning enormous hopes on you, and Pakistan.
Special incentives should be given to those who bring foreign exchange to Pakistan. Other countries also provide such incentives. You should deliver an address at the national and international level to activate funds.
The government is getting loan from fiscal institutions at higher interest rate. Stern conditionality is also linked to such borrowings. A lot of funds can be collected if we increase one per cent interest rate than the market rate.
This is not out of just you admiration, but it is a recognised fact that you are the best fund raiser in Pakistan. You should appeal to the nation for funding in the shape of donations or long -or short-term loans. I firmly believe that the Pakistani nation will wake up on your call.
I conclude my submissions with the saying of Quaid-i-Azam, “There is no force on the earth which can erase Pakistan from the map of the world.”