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| March 01, 2007 | Thursday | Safar 11, 1428 |
Housing priorities
Preventing dengue fever
The ten-year tax raise plan
THE Central Board of Revenue has come up with a ten-year tax maximisation plan to raise the federal tax collection to Rs 4.3 trillion by 2016 on the basis of a tax-GDP ratio of 14.5 per cent to 15 per cent from the current ten to eleven per cent of the GDP. Presented to President Musharraf last week formally the plan has not only his approval but also the assurance of full support from him.
CHURCHILL must be turning in his grave over the way one of his successors at 10 Downing Street is conducting a war. Compared to what Churchill was called upon to handle in 1940, when the fall of France was imminent, and later after the Japanese attack on Pearl Harbour turned the conflict in Europe into a world war, Mr Tony Blair’s is a mini-war, though as dirty. Churchill’s greatness lay in defying the enemy at a time when Hitler was reigning supreme on the continent, and — in sharp contrast to Mr Blair — being a down-to-earth realist, for Churchill promised no false victory but prepared his people for “blood, toil, tears and sweat”. Even though there was FDR, with America’s industrial and military might at his side, and there was Stalin with the vast expanse of Russia behind him, it was Churchill who held centre stage and decided the course of war. Mr Blair, on the other hand, has reduced himself to a side-kick. In fact, given the difference between America and Britain today in terms of economic and military clout, nobody, including M. Jacques Chirac, had any illusions about the role the Labour government under Mr Blair would play except one of subservience to American neocons’ rabidly pro-Zionist, anti-Arab and hawkish policy.
In 2003, Mr Blair was simplistic in his approach to the complex situation that has existed in the Middle East since the founding of Israel, and shared President George Bush’s optimism that the Baathist regime would collapse like a house of cards, the Anglo-American troops would be welcome as liberators and then together they would “spread democracy” not just in Iraq but in the whole region. The first assumption turned out to be true, for the Saddam regime gave the enemy a virtual walkover. But no one — not even the majority Shia community — welcomed Iraq’s conquerors as liberators, and if there is anything that Iraq is far from today it is democracy and peace. On Tuesday, Mr Blair refused to admit responsibility for the civilian deaths — estimated at a minimum of 150,000 — saying such an admission would encourage terrorists, but he did accept responsibility for the mess Iraq is in. The strategic and tactical blunders the Bush and Blair governments made in Iraq are many. They range from the disbandment of the Iraqi army to the failure to carry out the first duty of a de facto authority — giving peace and security to the people so they could get on with normal life. Instead, what one sees today is total anarchy, the virtual absence of an Iraqi administration and no possibility yet of a final withdrawal of the occupation forces. The result is continuing misery for the Iraqi people.
At his monthly conference on Tuesday, Mr Blair again took the American line on Iran and pleaded for “tough” action against Tehran, for any weakness in dealing with Iran would be “fatal”. This ominously reminds one of the talk before Iraq was invaded in March 2003 and highlights the anti-climax towards which Mr Blair’s career is headed. He had begun well: it was under his leadership that the Labour Party won three general elections in a row, and his talk of “new left” had electrified Britain in the post-Thatcherite era. But it seems history will remember Mr Blair less for this and more for tagging his country along with America in the Iraqi misadventure.
ONLY a conditional welcome can be extended to the proposal by the economic coordination committee of the federal cabinet to make state land available for developing housing units for the general public. The committee has identified some 6,500 acres in the four provinces and the capital territory for the purpose. The scheme is to be implemented by the respective provincial or federal governments, with land development meant to be carried out at the district and tehsil levels. However, the way the committee was tasked, reportedly by the prime minister, to set the modalities for developing state land leaves much to be desired. According to these, the land is to be developed on a public-private partnership basis and financed solely by commercial banks, with the government having nothing to do with any funding. If carried out as planned, with no regulatory strings attached, it would simply mean handing over large chunks of state land to the private sector for profit-making. In the hands of an unscrupulous developer this would negate the very purpose of providing affordable housing for the general public. One says this because in its initial report the economic committee has cited projects like Lake City and Sport City near Lahore — besides auctioning off two islands near Karachi — to UAE-based land developers as models for the scheme in question. There is obviously much that is wrong with this kind of approach to housing in a country with the requirement touching a 400,000-unit per annum mark, while luxury housing estate developers have put suburban land out of reach for the general public. How could this sorry trend serve as a model for affordable housing?
State land should be made available for developing housing units but the conditions governing the contracts between the government and private-sector developers must be such that housing remains an affordable proposition for the general public. The kind of lop-sided and unregulated land development that has taken place in the sector over the decade or so must be rectified. There is a dire need to properly regulate such development projects if the shortage of housing is to be addressed in a meaningful way.
NOW is the time to prepare for a possible outbreak of dengue fever. Of late, three patients have tested positive for the virus in Karachi. Last year, 4,600 people with symptoms of the vector-borne disease were admitted to hospitals in the city. Out of these, 1,600 were diagnosed as dengue-positive. Several cases were also reported in other towns and cities. It is possible that in the rural areas the actual figure for dengue cases could have been higher than reported because disease detection and surveillance methods are poor in these areas and several cases could have escaped the authorities’ notice. The winter months meant a brief respite from the dengue virus, but now, the mosquito-breeding season is once again here. Unfortunately, the country’s health delivery system is not adequately equipped to handle dengue cases, especially those complicated by hemorrhaging that has often proved fatal. Experts have warned that if not checked, the disease’s mortality rate could increase to 20 per cent of all dengue-positive cases.
Although its symptoms can be treated, there is no cure for dengue fever. Only preventive measures can curb its spread. Apart from large-scale fumigation of vulnerable areas by the relevant authorities, there are steps that can be taken at an individual level to protect against mosquito bites. Application of mosquito repellent and the use of netting and long-sleeved clothing are some protective measures. Moreover, water containers must be kept covered and no standing water should be left in open receptacles like wash basins. Setting up neighbourhood committees to oversee the fumigation of stagnant pools of water would also go a long way in restricting mosquito-breeding. All this can only happen with greater awareness which is sadly lacking at the moment. Educating the people about dengue fever and how to guard against it is necessary for preventive steps to prove successful.
Achieving this target compared to current year’s Rs8.35 billion and next year’s Rs1 trillion is a big leap. But the chairman of the CBR Abdullah Yusuf is confident that the target could be achieved by bringing a good many untaxed or barely taxed sectors, like the services, under taxation.
The CBR with its enhanced operational and financial autonomy assured has high hopes to increase the number of taxpayers every year by 20 per cent. It hopes to achieve a five per cent increase in the tax-GDP ratio by bringing the potential new sectors under taxation.
The president has given some sane advice to the CBR. He wants to reduce the extent of indirect taxation as they affect the poor. He seeks a less number of taxes, lower tax rates wherever they are high and wants the service sector which has a 57 per cent share in the GDP to be taxed properly along with retailers. He wants proper taxation of the transporters.
One of the indirect taxes, which hits the poor directly, is General Sales Tax. At the rate of 15 per cent, is too high. It rose from ten per cent to 12.5 per cent and then to 15 with a far heavier rates in some areas. The rates above 15 per cent have now been reduced and yet this rate is a very high.
In the US, the richest country in the world, the sales tax is around eight per cent and is a state tax, not a federal levy. In much of the Far East, it is between three and six per cent and there is a widespread demand there for its reduction. In Pakistan, the Senate committee on the budget wanted sales tax to be reduced to 10 per cent which is rational.
There is no massive evasion of sales tax but there is a large duty drawback by the exporters who sometimes do not pay the sales tax.
The withdrawal of taxes takes place often with the collusion of customs officials. Very few of them get punished. A large number of companies do not pay to the government the sales tax they collect from their customers. The CBR has now identified 300 such defaulters whose total default is very large. They have now to pay up.
If the CBR reduces the rate of sales tax, it may increase its spread and bring far more items under sales tax. But that has to be done in a sensible and rational manner so that the helpless do not get hurt needlessly. The president has advised the CBR to tax retailers. Some of them have a large turnover and are very rich and still pay little or no tax. Such men should be brought under the tax net.
The total number of taxes should undoubtedly be reduced. Until recently the country had a massive total of 101 federal, provincial and local taxes when the octroi was done away with.
Mr Shaukat Aziz had, after he became prime minister, promised to reduce the federal taxes to three and provincial taxes to seven or eight. All he did at the centre was to do away with wealth tax to save the US passport holders in offices in Pakistan from having to pay wealth tax on their external assets. The number of provincial taxes went down by two or three. All else has remained more or less the same, including the federal excise which was to be dropped earlier.
Managers of companies in Pakistan, particularly of multinationals, have been protesting against the 40-odd taxes they have to pay to the centre, provinces and the local government. They have been calling for a reduction in their number to save themselves from needless harassment and widespread petty corruption. The physical task of paying too many taxes is exacting and time-consuming.
The rate of taxation has also to be brought down to international levels. That has been done in the case of banks which were paying 70 per cent of their profits as income tax and protesting shrilly. That has been brought down step by step to the normal corporate rate. The banks are great gainers of that and are too cash-rich now. But that has not motivated them to give a fair deal to the savings depositors who are getting too little for their savings -- far below the real inflation rate.
Far more revenue is to be collected by the CBR after shedding 23,000 of its employees through a golden handshake at a total cost of Rs3.6 billion. A part of that large fund is to come as a grant from the World Bank which has been calling for rationalisation of CBR structure. The vacancies will be filled by the personnel trained in accounts and audit as experience in these areas is more relevant to the CBR functions than the common staff.
Meanwhile, some of the CBR officers are to be trained at the IBA, Karachi through a special course.
The tax evasion in the country is so massive that, according to Abdullah Yusuf, 63 per cent of the corporate income tax filers declare either no income or losses and 12 per cent of the rest declare about two lakh rupees as their income. He says in the service sector the transporters and the hotels and restaurants are among the tax evaders. In the industrial sector the textile companies and food processing concerns are major offenders.
He says now sectors like oil and gas and banks are paying regular taxes, but the sugar manufacturers and cement makers are among the evaders.
While the ten year plan aims to collect 14.5-15 per cent of the GDP as tax by 2016, the president of the chamber of commerce and industry, Karachi, Tanveer Sheikh wants that limit to be raised to 17 per cent of the GDP instead of that remaining at 10 to 11 per cent.
There are three large areas excluded from income tax which have been in recent years very profitable. They are agricultural incomes, capital gains tax from stock exchange operations and the staggering returns from real estate transactions.
The CBR has wanted to tax all the three sectors. But now it is recognised that agriculture is a provincial subject and tax revenues from it should go to the provinces. Then, there is political resistance to that tax as most of the political leaders are landlords with large land holdings. Added to that are senior officials and generals, both serving and retired. So the centre is unlikely to direct the provinces to collect tax from agricultural incomes.
Prime Minister Shaukat Aziz and his advisors do not want to levy capital gains tax on large incomes from shares as the stock exchange barons do not relish that. Secondly, the government holds the soaring stock exchange index as the symbol of its economic success and beacon for foreign investors who come in and raise far more capital locally.
Senior officials own a great deal of real estate the price of which has soared many times. And that is all the more true of the residential areas in the Defence housing authorities and housing schemes sponsored by the defence personnel. So the government is not interested in taxing real estate transactions, however keen the CBR may be.
With the three large lucrative sectors out of the tax net, the taxation authority may find it difficult to meet the large and ever rising tax targets. But Abdullah Yusuf is keeping the required data more or less ready to swing into action when permission is granted. As far as people are concerned, they pay high prices for the items they buy as if the merchants were are paying full taxes to the government, particularly the 15 per cent sales tax and not holding back the payments.
The CBR has hence proposed changes in the taxation law to make it obligatory for auditors of company accounts to verify and certify that all the taxes due from the public had been withheld and paid into the government treasury. That was being done so far in respect of Zakat deduction. The auditors may now have to do the same in respect of all the taxes deductible by a company. If the auditors agree to do the additional task, they may have to be paid a higher fee for that.
The CBR officials are also being trained to detect money laundering as the World Bank wants that. It has been suspecting that the soaring home remittances which may touch six billion rupees in this financial year contains a large amount of money laundering. Tax evaded money went out through hundi and has been coming back as home remittances and, hence, clean money.
As the CBR talks of its great plan for tax reform, a taxation scandal has burst in Islamabad. Its free port was being used by importers from Islamabad, Rawalpindi and Lahore for massive under-invoicing of imports from China that include electronics and toys.
Containers of the same size were cleared from different importers at vastly different rates with the collusion of the customs officials. Action is proposed against the officials. All these add to the responsibilities and burdens of the CBR.