Expanding black Economy

THE rate at which the black economy has lately been growing is disquieting and calls for urgent measures to check this rate of expansion. The fact that it is undocumented makes the precise determination of its size extremely difficult and any estimate can be speculative at best. In developing countries, it generally has a preponderant presence. In Pakistan it has been a source of great concern particularly because of its limiting effect on the growth and expansion of the formal economy. Its size has been variously estimated, ranging from 40 per cent to 100 per cent of GDP. The latest estimate by a researcher of the Pakistan Institute of Development Economics (PIDE) puts it at 27.11 per cent of GDP, assuming that in 1980 the black economy did not exist at all — which would mean it grew by 27.11 per cent in 20 years. During the last seven years it is supposed to have grown at an annual rate of 10.6 per cent, having been fed by tax evasion accounting for 3.62 per cent of GDP. Thus, the rate of the black economy’s growth has been much higher than that of the formal economy. These official figures were presented the other day at a seminar in Islamabad where an IMF official was a discussant which makes these figures worthy of serious consideration.

The black economy thrives in a society where transactions are generally made in cash, tax laws are lax and porous with too many exemptions and the enforcement of laws is weak. With the prevalence of all these factors Pakistan presents an ideal environment for the growth of the informal economy. Several attempts were made to limit cash transactions but without much success. Similarly, exemptions in tax laws, especially those which exclude agricultural incomes, remain in place, providing an easy conduit for funnelling funds into the black economy. The tax-free status of farm incomes is used for tax evasion not only by landlords but also by industrialists, businessmen and professionals owning farms of their own or in collusion with feudal lords. The military government’s campaign for the documentation of the economy did not succeed in the face of fierce opposition from the business community. Unregistered businesses and self-employed individuals find it easy to keep themselves out of the tax net. In tax-compliant societies, business and professions cannot be started without having been first registered with the chambers of trade. In Pakistan, there is no such legal requirement.

The main factors that have been feeding the black economy are smuggling, drug trafficking, official corruption, bad governance, etc. With the size of the black economy growing, these illegal activities too have been increasing and their practitioners are getting well-entrenched in society, commanding considerable power and influence — sometimes in defiance of law and state authority. The Afghan jihad in the 1980s had created a similar situation for Pakistan whose ramifications still continue as a running sore for the economy. The consequences of the expanding black economy are highly damaging for the formal economy. As a result of large-scale evasion of taxes, government revenues remain stagnant or shrink as a ratio of GDP, with the result that resources for the development of physical infrastructure and the social sectors are insufficient. This has been happening in Pakistan. Since the 1970s, budgetary allocations for development have been reduced from 40 per cent to less than 20 per cent. In such a situation, tax-paying industries and trading firms are at a disadvantage vis-a-vis their counterparts in the black economy, no wonder investment continues to be shy and job creation negligible.

Police excesses in Jhang

THE action by an SHO in Jhang of beating up 16 citizens in the middle of a busy bazar on the pretext that it was part of a campaign against the sale of pornographic movies needs to be thoroughly condemned. The police official, along with around half a dozen other officials, arrived at the market in an official vehicle. Dressed in plain clothes, the men reportedly dragged out four video shop proprietors, including some of their customers, on to the road. The hands of these men were tied behind their backs and they were made to lie face down on the ground. The SHO then grabbed hold of a billiards stick from a nearby shop and began hitting the men. The police official also roughed up a member of the local chamber of commerce who had rushed to the spot and tried to intervene to stop the bizarre proceeding.

Even if there was a campaign against pornography, that is hardly the reason to publicly humiliate shopkeepers. In fact, those who were beaten up insist that they were not involved in any such thing and said that they had earned the SHO’s wrath because they had not paid him ‘protection’ money. Given the reputation of our police the latter explanation sounds more plausible. The Punjab government would do well to take serious note of the matter and initiate suitable action against the police official and his accomplices. Much has been said and written about police brutality and crudeness in dealing with common citizens, and yet none of the advice and recommendations seem to have been taken seriously. That these incidents happen so often can only mean that official claims about reforms in the police force to purge it of all black sheep and to make it more citizen-friendly, seem hollow. For them to be even partially successful, provincial home departments should ensure that policy decisions to make the police more efficient, disciplined and responsible in conduct and actions are implemented, and that the process filters down to the level of the constable.

Flouting the ban

THE decision last week by the Karachi nazim to ban the entry of heavy vehicles into the metropolitan area during morning and evening rush hours was a positive move for the city. However, heavy goods transport owners seem to have completely ignored the imposition of Section 144 under which the nazim had imposed the ban. Heavy transport vehicles carrying oil, fish and other goods to and from Keamari port and passing through the city during rush hours continue to play havoc with traffic. The worst affected belt is the long corridor from the Jinnah flyover near the wharves to the Quaidabad Chowk in Landhi via Mai Kolachi, Clifton, DHA, Korangi Bypass and Sharea Faisal. The slow-moving and often clumsily driven multi-wheel trailers obstruct the flow of heavy rush hour traffic, causing traffic jams and even fatal accidents. Driving along any portion of the route has become very hazardous, particularly during the evening rush hour, when the roads are chock-a-block with motorists heading home from the industrial areas and the city’s business district.

The nazim’s move came as a long-awaited need, but as in the past, the transporters are openly flouting the law. The need now is to enforce the ban with the resoluteness of purpose called for in this case. That the transporters are known to ignore all such bans imposed from time to time, should not be the reason for the police to ignore the recent prohibition. As things stand, the police are turning a blind eye to the breach of law by the tanker-truck owners who know only too well how to obtain the willing connivance of the law enforcers. It is time the city government, after consultation with the Capital City Police high-ups, imposed a permanent ban on the movement of heavy vehicles through the city during rush hours, and showed firmness in enforcing it. This alone can guarantee the return of some traffic sanity and order in certain busy parts of the city.