THE pre-budget season is rife with speculation in respect of tax relief. The government itself appears to be encouraging such speculation and adding to surmises. In fact, unlike in the past, it has come up with significant tax relief even before the presentation of the budget scheduled for first Saturday of next month.

It could have come with the budget itself if the National Finance Commission had given its award with the concurrence of the provinces. The provinces want 50 per cent of the federally collected taxes on their behalf, while the centre is agreeable to less. Prime Minister Shaukat Aziz wants a settlement on the basis of ‘give and take.’

When more of the subjects in the concurrent list of the Constitution are to be transferred to the provinces they would need more funds to discharge their duty to the people and do better than the centre did with those subjects almost exclusively.

Following a steady rise in inflation, which is now in double digit, and a higher inflation in food prices, the government has announced exemption of duty and withholding tax on the import of a number of key kitchen items which are in short supply. They include potatoes, onions, tomatoes, garlic and Halal meat and live bovine animals. An estimate of the animals is said to be one million and special arrangements are being made for quarantine facilities at the Wagah border and elsewhere as needed.

Import of vegetables has been opposed by the Vegetable Growers Association and Halal meat by the butchers bodies which would prefer live animals and sell them at any price they like. It should be made clear to the varied vested interests and hoarders in the country that their practice of manipulating the market and making profits after creating artificial shortages will not pay any more.

As a matter of fact, when the industrial and agricultural production goes up prices should come down. This elementary law of economics does not operate in Pakistan because of hoarding and profiteering. Here, surpluses do not benefit consumers. And whenever the government takes steps to help the people by flooding the market with imported items, which are in short supply, the interest groups intervene and manipulate the market prices in their favour.

The Sugar Mills Association says the rise of sugar price in the market from Rs 22 to Rs 28 in the retail market is the result of manipulation by the free market forces. Some of the sugar mills might have bought sugar cane at giddy prices; but in other cases it is the result of manipulation.

The government has also decided to levy zero-rate sales tax on the import or local supply of 12 essential inputs of the textile industry, including polyester staple fibre, to make the industry more competitive in the world market following the end of the textile quota system. The government has done well to provide the much needed relief now instead of waiting for the budget.

What was feared in case of textile exports has come to pass. China, India and Bangladesh are eating into the market share of Pakistan’s textile exports. And Pakistan’s trade deficit which rose to 3.5 billion dollars in the first nine months of this financial year may end with a total deficit of six billion dollars, primarily due to the soaring price of oil and larger imports, including machinery and motor cars.

The high oil prices are posing a greater danger to Asia, including the oil-exporting country like Malaysia, says the president of the Asian Development Bank Haruhiko Khuroda. He says that if the current extremely high prices of oil continue for one or two years that would certainly affect the growth prospects of many countries in the region.

Meanwhile the government is proposing to borrow two to three billion dollars from the world capital market, says Dr. Salman Shah, Adviser to the prime minister on finance. That would include a euro bond float and possibly another Sukuk bond float following the success of the first.

Meanwhile, the foreign exchange reserves of the country have touched 13 billion dollars, while voices are being raised against keeping too much of the reserves in US bonds because of the depreciation of the dollar. Dr. Salman Shah, who has always glad tidings to convey to the people, now says that allocation for education would be raised from two per cent of the GDP to four per cent and the allocation for public health is to be doubled. He did not specify the deadline for both for which the people have been clamouring.

He however said that poverty in Pakistan would be halved by 2015, the UN Millennium Development goal. The donors of Pakistan, including the World Bank and the Asian Development Bank, have promised adequate support to achieve that target. Does that mean by 2015 we would be left with 15 per cent of the people living below the poverty line of a dollar a day?

Meanwhile Ramzan Bhatti, member, Central Board of Revenue, says that the new budget would do away with central excise duty on most of the items, save four. He said the tariff structure was being revised and now there would be only four slabs of 5, 10, 20 and 25 per cent. At the same time Dr Shah says the tax net will be broadened and larger revenue collected. The current year’s tax revenue target would be raised from Rs. 580 billion to Rs. 590 billion — an increase of Rs. 10 billion — reflecting higher economic growth.

The budget is to provide relief to the income taxpayers at both higher and lower ends. The maximum corporate and personal tax is to be reduced from 35 per cent to 30 per cent while the lower end the exemption limit may be raised to Rs 115,000. The exemption limit was raised from Rs 80,000 to Rs 100,000 last year, but made applicable from July 2005. Can there be a double exemption, inclusive of the new limit of Rs 115,000 proposed now? I doubt it. The government is also considering to reduce the number of income tax slabs from seven to five, with the minimum tax of five per cent and maximum of 30 per cent.

The government has also to come up now with the final decision on the salary and pension. An increase of 15 per cent is expected. And that will increase the deficit of central and provincial governments as well as local bodies. And that may be the basis for the ministers, MNAs and Senators to claim higher emoluments, although many of them are too rich to need that and hardly ever attend the sessions of the Parliament, which are too often postponed for want of quorum.

Meanwhile, the government has prepared an annual development plan of Rs 275-278 billion for next financial year. The plan has to be approved at a federal-provincial governments meeting on May 16. The plan outlay is 34 per cent more than the current financial year’s plan outlay of Rs 202 billion. But the actual utilization is expected to be Rs 188 billion.

However, the budget size next year is expected to cross the trillion mark and touch Rs 1.05 trillion to Rs 1.10 trillion. And that is a lot more money than what was budgeted for expenditure this year which is Rs. 908.378 billion. Meanwhile, there has been a rise of only half a per cent in domestic debt. That is not much because the government paid off a part of the debt but because of the heavy withdrawal from the National Savings Schemes. The domestic debt now stands at Rs 2,051 billion but the debt burden sits less heavy on the government as the interest rates on National Savings Schemes have been heavily slashed.

While there is some good news in respect of taxation, Wapda is reported to have asked its 12 distribution companies to collect 23.2 per cent more from their consumers. Ten per cent of that is to cover inflation. How far Nepra would approve of such a sharp increase in the power rates remains to be seen. That will certainly increase the cost of production, sale prices and aggravate the inflation.

Meanwhile, we are told that the KESC, which is to be privatized soon, has incurred a loss of Rs. 6.75 billion in the first nine months of the year. That would mean the KESC will also increase its rates to add to the hardships of its paying customers, while those who steal power, continue to do so merrily regardless of the new rates.

Prime minister’s visit to the Far East is proving to be of considerable help to the economy. The number of Pakistanis seeking employment abroad fell by 20 per cent last year, because of the preference of Gulf governments, particularly of Saudi Arabia, to employ their own people. Now Malaysia has agreed to take in a number of Pakistani workers. Their number is stated to be between 1,000 and 100,000. Brunei, which already employs a number of Pakistanis, will engage more of them. Now that its oil income is soaring due to high oil prices, it has far more employment to offer to outsiders in view of its small population.

Pakistan’s economy, particularly the industrial and export sectors, will have to undergo radical changes for success in this area. Value addition must be the prime concern. And so also the preoccupation with improving the quality of the goods to be exported, and their packaging.

PRESIDENT General Pervez Musharraf’s visit to India last month, undertaken to witness the one-day cricket match, also provided him an opportunity to hold intensive talks with Prime Minister Manmohan Singh on all outstanding issues between the two countries, including Kashmir.

On arrival in India, President Musharraf declared that he had brought a message of peace and solidarity between the two countries. He, however, cautioned that the issue of Kashmir could not be brushed aside or put under the carpet any more.

The Kashmir dispute arose from the circumstances in which the British India was partitioned in 1947. Regrettably, the UN Security Council (UNSC) could not get its resolutions on Kashmir implemented to resolve the conflict and despite the recognition of the dangers inherent in this dispute, nor could Pakistan and India hammer out a mutually acceptable solution bilaterally.

President Musharraf, who has been stressing the need for an early resolution of the Kashmir dispute, by peaceful means suggested that instead of clinging persistently to a particular mechanism, which has proved to be futile, other viable options should be explored by showing flexibility if the two sides are indeed keen to address this long-standing problem. By no stretch of imagination can such an upright and pragmatic approach by President Musharraf be construed to be an abdication of the principle of the right of self-determination of the Kashmiris, as alleged by his detractors.

It may also be pertinent to mention that the UN resolutions envisaged that the final dispensation of the State of Jammu and Kashmir would take place in accordance with the wishes of the Kashmiri people to be ascertained through a plebiscite held under the auspices of the United Nations. It follows from this that only the right of self-determination, which provides the legal basis for the resolution of the Kashmir dispute, is sacrosanct. In other words, procedures and processes matter little. If the people of Kashmir decide to resolve the Kashmir dispute through a method other than the one stipulated in the UN resolutions, it would also be in conformity with the spirit of these resolutions.

During his talks with Prime Minister Manmohan Singh, President Musharraf stood firm on Pakistan’s stand on Kashmir. He told the Indian leader that any solution of the Kashmir dispute which was not in accordance with the wishes of the Kashmiri people would not be acceptable to Pakistan. He also stressed that the status quo offered no solution to the Kashmir problem and that the Line of Control could not be accepted as a permanent border.

The prospects of an early resolution of the Kashmir dispute will continue to remain dim unless a basis for its settlement is agreed upon between the parties concerned. During his visit to New Delhi President Musharraf made an honest attempt to come to some kind of an understanding in this regard with the Indian leader but it seems that a sharp divergence in their views persists. One should not, however, be disheartened if at this stage the two leaders have not been able to minimize their basic differences over the manner in which the complex Kashmir dispute is to be resolved.

However it transpires from the joint statement, issued on April 18 that the two leaders have agreed on the need to continue discussion for a final settlement of the dispute which is a significant development as it shows that there is a resolve on both sides to come to grips with this problem. This augurs well for the future of peace talks.

Some political analysts in Pakistan have, however, pointed out that an identical provision, which existed in the Shimla agreement, remains inconclusive even after a lapse of more than 30 years and, as such, it cannot be relied upon. This argument is, however, untenable, as the fate of the UNSC resolutions on Kashmir, which these analysts allege President Musharraf has abandoned, is also no different from the Shimla agreement. In any case, it would be impolitic to entirely foreclose the chances of a diplomatic compromise with India if it has reneged on its commitments in the UNSC resolutions and the Shimla agreement.

The omission of mention of Baglihar dam from the joint statement has also been criticized by several analysts. According to the press reports emanating from New Delhi, President Musharraf raised the question of the controversial dam with the Indian prime minister who desired more discussions on this issue between the experts of the two countries. The World Bank, at the request of Pakistan, has already announced, in February this year, to appoint a “neutral expert” to arbitrate in this matter and, as such, perhaps it may not have been considered advisable to include it in the joint statement.

This is, however, mere conjecture. Therefore, the foreign office may wish to clarify the position to dispel any misgivings.

The people of Kashmir, regardless of their political affiliations, have wholeheartedly supported the ongoing peace process between Pakistan and India, and therefore, the continued human rights violations in occupied Kashmir, at the hands of the state apparatus, have created a tense situation there. President Musharraf is believed to have also raised this question with the Indian prime minister but regrettably, there has been no respite from these violations. These abuses in Indian held Kashmir must end, not only in order to protect the Kashmiri people from physical and mental anguish but also to avoid the possibility of the derailment of the peace process between Pakistan and India. The people of Kashmir will lose interest in this process if it does not bring any solace to them.

Regrettably, both Pakistan and India have remained mired in a dangerous cycle of animosity since their independence. The citizens of the two countries are genuinely distressed over the continuation of this situation and have demonstrated their wishes for peace between the two countries. This is a positive change in their attitude and one that cannot be ignored. Rhetoric and acrimony should not, therefore, be allowed to overshadow the ongoing peace process between the two neighbours. On the contrary, there is a need to make an earnest effort at all levels to reinforce the current goodwill.

Judging from the progress made by the peace process between Pakistan and India, one has reason to be optimistic that if pursued with sincerity, the dialogue could ultimately lead to a solution of the intractable Kashmir dispute. That would usher in a new era of lasting peace and friendship between the two countries.

The writer is a former ambassador.

IN A remarkable display of political skill and administrative deftness, the salaried establishment of Pakistan has secured a notable victory over the main alliances of the opposition parties.

Six months ago when President Pervez Musharraf had declared that he intended to retain both the offices of president and the chief of the army staff, the opposition appeared to have a formidable platform to launch a successful agitation to put him in serious trouble, if not dethrone him. Today, not only the Alliance for the Restoration of Democracy (ARD) and the Muttahida Majlis-i-Amal (MMA) stand divided within themselves but are also pitted against each other. The opposition is in total disarray.

The turnaround in the political landscape should be gratifying as well as tragic for President Musharraf and Prime Minister Shaukat Aziz. It is gratifying, for now they can feel safe against a possible political onslaught by their political opponents for some time to come. Praise and reward for the establishment may well be in order. What the establishment has done for General Musharraf and his prime minister in temporarily making mincemeat of the main political opposition is identical to the services it had rendered for General Ziaul Haq, prime minister Zulfikar Ali Bhutto, president Ayub Khan and governor- generals Iskander Mirza and Ghulam Muhammad.

On the other hand, it is tragic for the president because the existence of such a powerful, self-perpetuating and ever present establishment is a danger for him, his prime minister and his political supporters as it has been for governors-general, presidents, prime ministers and chief martial administrators of the past, who were made to quit their high offices, confirming and reconfirming that their authority existed only in name. The litmus test is simple enough: if X can remove Y from office, then X is more powerful than Y but if Y can remove X, then Y is more powerful than X.

Our establishment is capable of performing the most amazing feats. It can land any innocent citizen in jail or let free any criminal. It can make or break political parties and alliances. It can make you win or lose elections or make a claimant win a referendum. Under the nose of a president or a prime minister it can manufacture nuclear devices without their having a clue about it. The clout of the establishment has proved to be supreme in the past while the authority of the president, prime minister and parliament has proved to be titular.

Our establishment may be divided into two parts. In one part may be put the policy planning and directive issuing echelons at the highest level of the state, while in the second part may be included the implementers of state policy. The former comprise very senior civil and military officers, especially those who are privy to “for eyes only” intelligence reports. The other is made up of members of the administrative machinery of the state at the district level, particularly departments dealing with the maintenance of law and order and property matters. Together, they exercise the power of a sovereign.

At the level of the district administration, our civil and military employees exercise total power under the laws of the state. They are not accountable to anyone outside their salaried hierarchy. They can violate at will any freedom of citizens in disregard of the provisions of the Constitution. Under Section 144 of the Criminal Procedure Code, a district magistrate or his equivalent can issue any order under the sky and ensure its compliance.

At the highest level of the functioning of the state, the doctrine of necessity validates any and all actions of a usurper of state power and empowers the usurper to make amendments to the Constitution, things which lie only in the jurisdiction of a sovereign. Hand-picked parliaments packed with opportunists and collaborators validate all actions of the usurper.

Whenever a president or prime minister is removed or left with no alternative except to vacate his office, all kinds of allegations are made against him or her. More often than not, the person is taken to court or is subjected to a whispering campaign or both. It is contended that the establishment had no alternative left but to remove him. Generally allegations similar to those given below come into circulation (one or more may be aimed at a particular individual):

1. The law and order situation was out of control. The police were no longer in a position to restore peace. If the army was called, it would have to use force on a large scale which was not desirable. The better alternative was that the man at the top be made to step down.

2. The country was on the verge of bankruptcy. There was no money for imports or to service the debt burden. Default was about to take place. The World Bank, the IMF and other lenders were up in arms. The government was not accepting the conditions the foreign institutions were demanding from Pakistan. There was mass unemployment and high inflation, etc., etc.

3. The prime minister had become too big for his boots. There was a danger that he might become stronger than the establishment. The clout of the establishment was in danger.

4. Differences on foreign policy issues had become serious. The head of the government or the state was conspiring with the enemy. He was about to hand over Kashmir or wanted to adopt anti- national policies with respect to Afghanistan.

5. The establishment was earning a bad name on account of the corruption of the ruler, his family, ministers and others.

6. The prime minister wanted to interfere in the administration of the armed forces.

False, partially false or true, the establishment tries to build up a moral case against its victim. The action taken by the executive branch of the establishment in perpetrating a coup d’etat is always validated by its sister judicial branch; the exception — proving to be of no consequence — was the restoration of prime minister Nawaz Sharif to office following his dismissal in 1993. He was made to resign soon afterwards.

So far eight presidents and 12 prime ministers have paid the ultimate price of riding the tiger that our establishment is. Like the victims sacrificed before the formidable Kali in India, they prove to be the saviours, bestowing another lease of life on the establishment. Unfortunately for the victims (and to the disgrace of the establishment), they remain unsung ‘shaheeds’ (martyrs) for its cause.

The supreme irony is that the rules, regulations, traditions and interests of the establishment that make it necessary for it to sacrifice its presidents and prime ministers are not within the powers of the establishment to change. The establishment finds itself in a straitjacket from which it is powerless to free itself. A Greek tragedy unfolds itself again and yet again.

AS a reward for supporting the Bush administration’s war on Islamic militants, Pakistan is being allowed to buy 25 F-16 multirole fighter aircraft. This is a pretty poor payoff for everything Pakistan has done, including selling out its former friends and allies to curry favour in Washington.

After all, the US still owes Pakistan 71 F-16s it bought in 1988. These aircraft were never delivered after the US Israel lobby blocked the sale. Pakistan’s money was eventually returned, but the damage to the PAF was enormous.

Even if the new F-16s are delivered, the PAF will have only 57 F-16s, over half outdated Bloc A or B models. The rest of Pakistan’s 243 fighters and fighter-bombers are either at the end of their operational life, like its French Mirages, or obsolescent, like its Chinese Q-5s and J-5s, which are a poor man’s copies of the 1960s vintage MiG-21. While Pakistan gratefully accepts aeronautical crumbs from Washington, the US is offering India at least 126 of the most advanced versions of its latest multirole warplanes, the F-16 Bloc 50 or the F-18 Super Hornet in a $3.5 billion deal.

This sale is just the beginning. The US defence industry and Pentagon are hungrily eyeing India’s booming market for imported weapons. There is already talk of the US selling state of the art command and control electronic systems, military satellite technology, naval equipment, early warning and missile defence systems.

Israeli arms and technology sales to India are also booming. In fact, Israel is now India’s second largest arms supplier after Russia. In addition to arms and military equipment, Israel has been supplying India with advanced nuclear weapons and missile technology, and space-based reconnaissance systems.

Even more worrying for Pakistan, Israel is deep in talks with New Delhi about supplying its new Arrow anti-missile system, a deal that requires US approval. The Arrow is said to be highly effective against the short and medium-ranged ballistic missiles that make up Pakistan’s nuclear deterrent forces. Pakistan has no anti-missile systems. Arrow’s introduction would thus gravely jeopardize Pakistan’s nuclear deterrent and even tempt India to use its growing arsenal of nuclear-armed tactical missiles in any major conflict.

India will soon begin deploying three Israeli-supplied Phalcon airborne warning and control radar systems(AWACS), mounted into Russian Il-76 heavy transports. This new AWACS system will further worsen the conventional arms imbalance between India and Pakistan. Modern warfare is based on real-time command and control of fast-moving forces. Nations that lack such systems are almost certain to be defeated, as the miserable performance of Arab armies has shown time and again.

AWACS will allow Indian commanders to monitor all of Pakistan’s airspace and the movement from takeoff to landing of virtually every plane of the PAF. The Israeli system may also be able to track the movement of all Pakistani ground forces, day or night, through rain, fog or dust.

Given India’s ongoing acquisition of fleets of new French and Russian fighters, hundreds of new tanks, armoured vehicles, mobile heavy artillery and rocket batteries, plus its rapid deployment of new missile systems, Pakistan’s equipment-poor armed forces are now at the worst military disadvantage against India they have ever been since 1947.

Ironically, this ominous swing has accelerated during the rule of a military regime that professes to put national security above all other considerations. Today, Pakistan is seriously outmanned and outgunned by India. In a general war, Pakistan has enough military supplies and spare parts for only five to six days of heavy combat. India’s powerful industrial base allows its 1,325,000-man armed forces to fight on for weeks. India’s growing navy can easily blockade Karachi and Gwadar, cutting off most of Pakistan’s imports of oil and raw materials.

Current peace talks are lessening some of the military tensions between New Delhi and Islamabad, but since Pakistanis have to negotiate from a position of increasing military weakness, these put it at a serious disadvantage, as India clearly understands. Ironically, by bolstering India’s conventional and nuclear power as a counterweight to China, the Bush administration is undermining its stated goal of lessening Pakistan’s reliance on nuclear weapons. As the military imbalance grows, Pakistan will have to reply ever more on its nukes for national security.

As an old American ally and comrade in arms, as well as President Bush’s most useful sepoy in fighting rebellious Muslims, Pakistan deserves much better than to be thrown military scraps and be treated like a beggar. Thank, you, Sahib, is not the reply Pakistan should be giving. — copyright Eric S. Margolis 2005