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| November 18, 2006 | Saturday | Shawwal 25, 1427 |
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Missing the point
Ties with Russia
The evil of black money
THE volume of black money which fuels the economy of Pakistan and vitiates its functioning has been the subject of study by several economists. Estimates of its volume vary in keeping with the caution with which the subject is studied and the element of speculation that invariably creeps into its calculation.
THE government has done well to seize on the momentum created by the passage of the Protection of Women Bill in the National Assembly to prepare the Prevention of Anti-Women Practices Bill for consideration by the House at its next sitting. This draft seeks to put an end to six practices, namely, depriving women of their property rights, vani, forced marriage, divorce by pronouncing it thrice in one sitting, marrying women to the Quran and watta satta (exchange marriages). Although legislation designating these social evils as criminal offences was long overdue, the initiative to tackle these problems on the legal front has been taken only now — and that too at a time of deep antagonism between the government and the MMA which is threatening to resign from the National Assembly over the passage of the women’s protection bill. In principle one cannot deny that the thrust of the proposed new law is in the right direction and it should be supported. However, the text of the draft must be widely publicised to allow for an informed debate. It hardly needs to be pointed out that the implementation and effectiveness of a law depends on how it is worded and understood.
There is no denying the fact that the practices which the new bill seeks to prohibit are most abhorrent and do not reflect well on our society, culture and moral values. They betray an antiquated mindset that allows women to be treated as chattels and sex objects — that is what it amounts to when women are given as compensation in murder cases or bartered. Similarly, it speaks of a feudal culture when women are denied their property rights or ‘wedded’ to the Quran to pre-empt their marriage outside the family that could lead to property being passed on to ‘outsiders’. While the government is determined to address all the misogynist issues that plague our society, the lawmakers should be reminded of the bills pertaining to women submitted to the National Assembly by the PPP-P. One is the Protection and Empowerment of Women Bill and the other is the Prevention of Domestic Violence Bill. Both have been sent by the Speaker to some committee never to be heard of again. This is a pity. An objective study of these bills will indicate that in some ways the issues they deal with — such as domestic violence, discrimination in pay, illiteracy, etc — affect many more women than those who become victims of vani or watta satta. The need of the hour is to take a holistic approach to women’s problems and address all such issues that undermine their status in society. Hence the need to consider the other bills too.
What, however, needs to be emphasised is that the problems of women will not be resolved simply by adopting laws on them. Legislation will certainly help by opening doors to legal remedy when transgression takes place. But a greater impact can be made by creating awareness and educating the people about women’s rights. A movement for social and behavioural changes should be launched not just by the government but also by civil society organisations, NGOs, and rights and community activists. The idea should be to reach out to the people at the grassroots level and introduce them to ideas that can prove to be catalysts for change. Laws provide the necessary underpinning for the process of change that has already begun.
WITH a few exceptions, those raising their voice against the allotment of Bundal and Buddo islands to a UAE developer are missing the point altogether. Almost across the board, from the nationalists to mainstream politicians, the protest in Sindh is focused on the question of ownership and the centre’s decision to parcel out land that many believe is provincial property. These are not trivial concerns at a time when Islamabad’s honesty of purpose is increasingly being questioned in the smaller provinces. But there is a danger here of losing sight of what should be the core demand: Bundal and Buddo must be left undisturbed. Though conservation and livelihood security are the key issues, what we are witnessing instead is a squabble over the right to exploit the islands. Environmentalists and fishermen’s representatives aside, the ranks of the ‘stakeholders’ are rife with opportunists who are interested primarily in a piece of the pie. This is particularly true of those in the provincial government who were initially ill at ease with the project but have now woken up to the possibility of personal gain. For those out of government, extracting maximum political mileage appears to be the primary concern.
Bundal and Buddo are not a wasteland. Part of a coastal stretch listed by the World Conservation Union as a “high-priority area”, they are home to lush mangrove forests and serve as a breeding ground for endangered green turtles. Egrets, herons, terns and waders live on the islands which are also visited by cranes, flamingos and pelicans. If all goes according to plan, this thriving ecosystem will be destroyed in favour of luxury housing and recreation facilities. Besides harming natural hatcheries, the loss of mangroves also increases the risk of damage from tsunamis and other tidal surges such as those caused by cyclones. Another serious worry is the sand-dumping and ‘rainbowing’ (dredging and spraying) techniques that will likely be used to increase the size of the islands. As witnessed in the UAE, such interventions can alter the course of water channels, eroding the coastline in some areas and dumping sediment in others. What is otherwise a slow, natural process can be dramatically accelerated and Port Qasim, for one, could come under direct threat. This dangerous project must be halted in its tracks.
A DIVERSE portfolio widens the investor’s safety net. Bets can be hedged and a decline in the value of one asset need not spell ruin. The same can be said of strategic and economic relationships between nations. Geopolitical imperatives can change and today’s front-line ally may be a burden to shed tomorrow, as witnessed all too well in the years following the Soviet pull-out from Afghanistan. Islamabad has received considerable financial support from Washington since 2001, and the country’s military too has benefited from a resumption in arms supplies. The assistance came with strings attached but there is no doubt that US aid and Washington’s go-ahead signal to lending agencies helped resurrect an economy teetering on the brink. There is no guarantee, however, that such endorsement will continue. Now that the Democrats control Congress, budgetary allocations for Pakistan may not be forthcoming so readily in the future. The US strategy in Afghanistan and Iraq is also up for a rethink. As such, Pakistan would do well not to place all its eggs in the American basket.
Talking to Russia is a step in the right direction. Moscow is reasserting itself on the world stage and the time is right for Islamabad to widen its horizons and look beyond Washington. Pakistan can continue to count on China’s support but another heavyweight in its corner can only help in a crisis situation. It is because of the constructive roles played by Russia and China that Iran has so far managed to evade sterner action by the US. America may have been overstretched militarily but economic sanctions on Iran could have been a reality by now if it weren’t for Russia and China. A strategic relationship with Russia can also yield economic dividends for Pakistan, particularly in the energy sector such as oil and gas. It is time to move beyond Cold War mistrust and historic mistakes.
According to a research report prepared by Qazi Masood Ahmed and A.M. Haider Hussain ‘Estimating the black money through monetary approach’ — a case study of Pakistan that has been published by the Social Policy and Development Centre — the volume of black money in Pakistan in 2003 was Rs981 billion or 20.3 per cent of the GDP. In 1960, this was Rs9.2 billion or 51.6 per cent of the GDP. This means that there has been a great deal of improvement in tax collection since 1960, although the volume of black money has increased. According to another estimate, the volume of black money in 2003 was far larger at Rs1,308.69 billion or 27.1 per cent of the GDP than in 1960 when it was Rs10.74 billion or 60.2 per cent of the GDP.
But there is far more to black money than evading taxes. Black money can be the outcome of large-scale and widespread corruption, including the most common and petty kind. It can also be the result of an increase in crimes, including kidnapping for ransom. It is not easy to quantify the amount of money made from such hidden sources.
In fact, for some years now, income from corruption and even big-time crime is received abroad and retained there for a long time and put to considerably profitable use. A number of Pakistanis who have derived their income through corrupt or criminal practices have set up shell companies abroad to invest their money and profit by that. Some of the money has gone into the share market abroad and has proved profitable thanks to expert advice. Certain foreign companies have been paying bribes to secure an official foothold here to secure contracts for large projects as recent revelations show.
The World Bank has now blacklisted a German company which was to serve as a contractor for the Bhasha dam project. It has been blacklisted on the basis of its proven corrupt practices in an African country where it was under contract for a World Bank aided project. Income that otherwise should have formed part of tax revenues and which is retained at home does not remain idle. Much of it is far more active than the tax-paid income in the hands of businessmen or moneylenders. It is given out as short-term loans at higher rates of interest and circulates pretty fast.
The small-scale sector is financed mostly through such means by the moneylenders. Ashraf Janjua as deputy governor of the State Bank of Pakistan had earlier said that only five per cent of the money needed by small-scale industries is financed through regular banks. The other, larger part is funded by the informal sector.
Some of the money earned through corruption or criminal practices and deposited abroad may come back later in parts but seldom in full for fear of disclosure of the basic source of the large income. Some of that money may come in the form of home remittances from overseas Pakistanis. So Abdullah Yusuf, chairman of the Central Board of Revenue, wanted to look into that inflow which now exceeds five billion dollars a year. But he has been forbidden by the ministry of finance to do so lest such an investigation arrests the inflow of much-needed foreign exchange. In this manner, the basic sources of dubious remittances remain quite well protected.
However, more of the black money is created through tax evasion. That is so because the rate of income tax in Pakistan has been high. In the earlier years, it used to be as high as 70 to 80 per cent and the extent of tax evasion was 50 to 60 per cent. Since then, the rate of taxation has come down gradually and is now 35 per cent with suggestions that it should be reduced further to 30 or 25 per cent.
In the same period, the rate of import duties has come down from around 125 per cent to 25 per cent following the international pattern and in order to reduce the massive customs duty evasion. Even now, customs duty is heavy and sales tax evasion common.
But while the income tax rates have come down, the sales tax rate has gone up from 10 to 15 per cent. Some of the higher rates have come down from a maximum of 22 per cent to 15 per cent.
Higher sales tax is paid by every consumer of major items and hence the revenue from sales tax is far in excess of the revenue from income tax and is paid by the poor consumers as well. The low-income consumers are in need of relief from such arbitrarily high sales taxes.
Sales tax evasion by businessmen, after the tax is collected from consumers, is on such an extensive scale that the government is now proposing to hand over a few cases to the dreaded National Accountability Bureau. If such cases lead to fruitful results, the government may hand over more cases to NAB.
Earlier, when the government found it could not beat the tax evaders, it went along with them and came up with varied bearer bonds in large denominations. Sometimes, the increase in bearer bonds was as much as the increase in money supply. No questions were asked about the ownership of the bonds and no limit was set to restrict individual ownership.
The government came up with prize bonds in rising denominations and enhanced prize money steadily to make it more attractive. But the prize bonds have been favourites with thieves as well.
Official GNP figures also include the hidden income on the basis of guess-estimates and so the GNP figure shows a number far higher than what readily available figures would warrant.
Since black money moves at a much faster rate than taxed income, the authors of the research report have come out with the rate at which these funds move. This was 4.6 per cent in 1960 and came down to 2.9 per cent in 2003. According to another estimate, this has come down from 4.9 and five per cent in 1960-61 to three in 2003.
The report says that overall black money has shown a declining trend as a percentage of the GDP. This is so because of tax reform that involves the rationalisation of tax rates. The other cause of tax evasion is the corrupt tax machinery. Taxation officials insist they should be paid their share of money even by honest taxpayers. This is where corruption begins. Once that happens, it goes on increasing. The report says that despite the fact that black money as a percentage of GDP has decreased, the annual compound rate of growth of black money remains more than 11 per cent. This growth was two per cent during the 1960s, 17 per cent during the 1970s, 15 per cent during the 1980s and 13 per cent in the 1990s and onwards. Similarly, tax evasion has grown at the rate of 12 per cent.
Tax evasion increased as the government began collecting too many taxes — a total 101 federal, provincial and local taxes until recently and the people got almost nothing or little in return for it from the government. The law and order situation is constantly on the decline, while corruption in the ranks of the police is increasing along with the law enforcers’ gross inefficiency. One has now to pay a fee even to enter public parks as we approach the sea coast in the city. Hence, people find small justification for paying high and varied taxes.
When it comes to the utilities many who pay for water, do not get it. Nor is the drainage scheme any better. Hence the moral basis of taxation has been eroding fast, even while those in office are able to get whatever they want free.
The authors say the solution to tax evasion is not increasing the tax rate as that would give rise to higher tax evasion. “Instead, broad-basing the tax base would be the ultimate solution.” Along with that, tax evasion should be dealt with strongly, and the tax reform process should be consolidated and integrated with other macro economic reforms, they argue.
Corruption in the taxation services, too, should be dealt with firmly.
As the increasing volume of black money is the outcome of tax evasion and increasing corruption, all three problems should be dealt with sternly. Simply focusing on better tax collection while ignoring the other two major maladies will not do. The result of government attempts and reforms on this score should be lasting good governance along with improvements in the law and order situation.
In fact, corruption and crime are tied together. Increase in one leads to an increase in the other. Even street crime including the lifting of cars and the snatching of mobile phones has become big business as evident in the scale on which such crimes occur. It is foolish to take street crime lightly. The practitioners of such crimes soon go on to become big-time criminals and corrupt many officials and vitiate the administration all together.
Black money deserves to be called the mother of many evils. It can give birth to numerous new problems and make life difficult for all.
The roots of this evil must therefore be tackled earnestly if we are to have a better and more equitable society.