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FROM here till the handover of power to an interim setup, the government’s priorities will increasingly become survivalist in nature. Already the government is buckling to the demands of special interests all around it. Consider how easily it reversed a decision taken by the commerce ministry back in October to combat the abuse of a used car import scheme that is meant specifically for returning expatriates.
The current policy allows overseas Pakistanis to bring back their own car with them when returning to Pakistan under a baggage scheme or transfer of residence. It allows imports of used car as a ‘gift’ from abroad. But used car importers and dealers have been using this scheme to import cars on a commercial basis for onward sale. To prevent this abuse, the commerce ministry, on the advice of the State Bank, issued a simple new rule for clearing of used car imports. The new rules required that all duties and taxes paid on used cars being cleared under the baggage or transfer-of-residence schemes be made from bank accounts that are in the name of the person who is returning.
The people who advised on this rule knew what they were doing. Instantly, the racket behind used car imports ground to a halt. We are told somewhere around 10,000 used cars that were en route to Pakistan when the new rules were announced were left stranded at the port because the dealers were unable to clear them past customs on the basis of the new rules. As expected, there was a massive hue and cry from used car dealers, who make a killing from this racket, as well as demands for the new rules to be overturned and reverted to the old scheme.
Consider what this means: a fully legalised and officially sanctioned policy of ‘benign neglect’ towards a clear racket.
Consider what this means. The used car dealers were effectively demanding a right to abuse the old clearing rules, and continue commercial imports fraudulently under a scheme meant for returning expatriates only. The FBR sided with the dealers in this case, arguing that the new rules had been implementing “without consultation with stakeholders”. How used car dealers become ‘stakeholders’ in a scheme meant for returning expatriates is a mystery, unless you’re willing to accept that the racket ought to be allowed to continue without any hindrance.
The amount of money to be made under this racket is stupendous, and it is an open secret that many among our political elite, MNAs and MPAs, are either operating used car dealerships directly or through somebody known to them. The hue and cry that this community of dealers was able to create, therefore, easily reached the ears of the government.
Earlier in February, the Economic Coordination Committee of the cabinet made the decision to revert to the old rules for clearing of used cars. With support from the FBR, which argued that billions of rupees of revenue were stuck along with the cars, the ECC said the new rules should be overturned. Less than a fortnight later, the cabinet ratified the ECC decision, and days later the commerce ministry issued the necessary notification.
Consider what this means: a fully legalised and officially sanctioned policy of ‘benign neglect’ towards a clear racket. By so vocally and visibly resisting the new clearing rules, the dealers sent a clear message that they were principal beneficiaries of the schemes meant for expatriates. A clearer acknowledgement of the fact that the schemes meant for individuals and families was being abused for commercial purposes would be hard to find. And the government, at levels high and low, bowed before this pressure, which undoubtedly was coming from close quarters.
It is astonishing how common this sort of thing is. Across our economy, from abuse of import schemes, to exchange companies using hundi and hawala transactions below the radar of the regulator (though in full view of law enforcement), to smuggling of fuel and illegal fishing, to land grabs and transport mafias, brokers engaged in manipulative trades and money laundering through the prize bond schemes to fuel adulteration in the furnace oil business, and so on — rackets dominate the economy. And the racketeers find plenty of political support within the government and the political elite, since many of them are involved themselves, either directly or through relatives.
The one time the government managed to successfully shut down a large racket was with the CNG station owners, many of whom became infamous for selling gas without paying the gas utilities their bills, meaning they were selling government-owned gas to consumers and pocketing the proceeds themselves. The effort to shut down the CNG sector took many years, and finally reached completion when the present government managed to persuade their leadership to arrange for their own gas supplies from imported LNG rather than relying on subsidised supplies of domestic gas. That agreement was the undoing of the CNG sector, since the cost of imported gas is only marginally below that of petrol, reducing the incentive for motorists to use it. Today, that sector has shrunk to a fraction of what it was in the late 2000s.
Rackets are not limited to the so-called informal economy. Even large players, formalised and registered, have evolved into elaborate rackets of sorts. One day it will be necessary to write about how the power sector of this country has basically devolved into one massive racket, with private power producers relying on capacity charges and penal interest to make their money instead of sales of power, as well as micro adjustments in their own billings and costs to obtain highly lucrative terms from their power purchase agreements with the government.
How well a government deals with the rackets that permeate our economy is one good indicator of how well it is managing the economy. Perhaps more than any other macroeconomic indicator, the capacity to either shut down or at least ‘mainstream’ these rackets is a real measure of political acumen.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, March 1st, 2018
