KARACHI: “The Federal Board of Revenue (FBR) has fallen apart,” said economist Prof Dr Hafeez Pasha while speaking at a seminar on the provincial budgets of Pakistan on Tuesday. Held at the Applied Economics Research Centre, University of Karachi, the seminar covered different areas of concerns with regards to Pakistan’s economic policy, especially in the context of the current budgets announced for the financial year 2015-16.

Documenting the gradual degradation of the economic fabric of the country, Dr Pasha placed the blame entirely on the shoulders of economic institutions such as the FBR as well as the country’s leadership.

“There are two main reasons behind the low tax-to-GDP ratio in the country. One is evasion and widespread corruption. The second equally important reason is the tax expenditures, exemptions and concessions provided by the tax system,” he said. Dr Pasha believes that these exemptions provided to the rich and the powerful, corps commanders, members of the Supreme Court as well as ministers, have made the tax system more regressive.

Also read: Federal budget FY16 — time for growth to kick in

Though the current budget, according to Dr Pasha, does have a few upsides to it, he raised serious objections about certain changes. For one, the increase of the general sales tax (GST) from 16 to 17 per cent is very “ill-advised”.

From the introduction of the minimum import duty of 2pc on non-dutiable products, to raising taxes on high speed diesel oil used for transport of food products, Dr Pasha labelled all these as forms of extra taxation in a desperate bid to generate more revenue. Another worrying part of the budget was the regulatory duty on furnace oil that is the basic fuel used for electricity production.

These increments have resulted in heavy indirect taxation, letting down the people of Pakistan as most are unaware of these roundabout ways adopted by the government. According to Dr Pasha, a transparent government would have the courage to declare these increases.

Dr Pasha, who is also managing director at the Institute of Policy Reforms, Lahore, and has published more than 150 books and articles on governance, economics, industry and related fields, was the perfect candidate to discuss the provincial and federal budgets of Pakistan. His frank, no-holds-barred style and downright honesty painted a true picture of the current economic status of the country, and its projected growth.

His take on the provincial budgets was very objective, and he praised the provincial governments for exercising a level of independence not seen before. “The reality, fortunately, is that there is a certain degree of decentralisation in the provincial governments and this has resulted in some growth.” With respect to resource mobilisation, he credited the Sindh government where “in the last two to three years, the best resource mobilisation has been visible”.

However, his criticism was not far behind. He believes that many individuals are benefiting from this imbalance in taxation. The zamindars are an example, believes Dr Pasha. “Today there are 13,000 zamindars in the country who own almost six million acres of land, with preferential access to water. Why are they not taxed accordingly?”

Another shortcoming is the lack of accountability of the corporate sector by the FBR. “Don’t run after individual tax payers, but penalise corporate tax evaders. Pakistan has 65,000 registered companies, and only 23,000 of these filed tax returns. Out of those who filed, 11,000 declared zero profit.” With billions of rupees worth of tax being evaded by the corporate sector, blame is instead levelled against individual tax evaders, said Dr Pasha.

The Pakistan Social & Living Standard Measurement was also discussed and Dr Pasha spoke about the necessity of the provincial budgets to improve the social indicators of people within their provinces. “I was dismayed to see a drop in the overall literacy rate which fell from 60 to 58pc, especially in Sindh. Even immunisation of infants shows a 6pc less coverage overall; 13pc less in Sindh and 11pc less coverage in Karachi.”

Dr Pasha then suggested different measures that the FBR and the government could take to ensure taxation of global incomes as well as on capital gains. “Break the state capture of the ruling elite and tax all incomes, irrespective of the source,” he concluded.

Published in Dawn, June 17th, 2015

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