THERE are many sacred cows in the economy about which one must not ask too many questions: Defence expenditure is a ‘sensitive’ matter and so a silence is advised. But there are issues open to public debate, yet no one has stood up to ask why and how of it. One such subject is the Workers’ Profit Participation Fund (WPPF), as it is generally known.
It was in the days of Z.A.Bhutto in the early 70s that a law was enacted requiring all profitable business entities to share five per cent of their yearly pre-tax profit with the labour force. Workers drawing up to Rs1,000 per month in salary were eligible to participate.
Three decades ago, anything above Rs1,000 was a fat pay package and the employer had to distribute about half a per cent of the five per cent among eligible workers. The rest of the sum was to be deposited in the Treasury, ostensibly being utilized by the State for opening up schools, health centres, housing colonies and other facilities for the working class.
But does five per cent of the total pre-tax profit of a big business concern now seem, fit enough a subject to talk about? The public impression must be that it ought to be a tiny sum. The fact is, exactly the opposite. The total amount involved runs into billions of rupees. And remember that the collection is made by the government every year.
Interestingly, the current ‘Pakistan Economic Survey 2004-05’ maintains a complete silence on the issue. It does not give any figure of the amount collected under this head at the federal level. Giving the compilers of the prestigious economic report the benefit of doubt, one must assume that the WPPF might have been considered too trivial to deserve a mention. But according to the estimate of a senior functionary who asked not to be named, the government collects about Rs5-6 billion annually under this head. Considering that WPPF is due from companies to which labour laws apply, there are more than 46,000 companies listed with the Registrar of companies, of which 662 are at the stock exchange. Then there are umpteen number of sole proprietorships and partnership firms. The total collection of just about Rs6 billion is therefore to be taken with a pinch of salt.
But about that, a little latter. Lets first try to figure out how the mechanism of WPPF works. According to the current law, the amount under WPPF initially lands with the trust managed by a joint body of employers and employees at the company level. The fund is distributed amongst workers in accordance with a formula. Under this there are three wage bands: band A covers workers drawing wages equal to or less than Rs2,500, per month; band B covers workers drawing average monthly wages exceeding 2,500 but within the range of Rs3,200; band C is for workers getting average monthly wages exceeding Rs3,200 but not exceeding the limit of Rs5,000. A certain agreed amount is distributed progressively increasing, amongst those three bands with the lowest band getting the highest percentage. Workers earning more than Rs5,000 per month are not covered by the scheme at all. The maximum amount that can be given to an individual worker is also limited.
The formula is such that normally only a tiny portion of the amount generated on account of five per cent profit is utilized in distribution. The remaining amount is left with the ‘trustees’, who after making payment to the workers, are required to deposit the balance with the government in an account at the State Bank to be pooled at the federal level.
Now back to the government officials’ total collection of Rs6 billion under the head of WPPF and why the sum seems to be an under estimation. Just take the case of one randomly selected giant company. The Pakistan Petroleum Limited (PPL) allocated a cool sum of Rs708 million for the year 2004-05, for WPPF. Total contribution by less a dozen such large corporates— not to count the scores of multinationals that operate in Pakistan— would make up more than Rs6 billion.
Can the yearly collection by the government under the head of WPPF be anything less than Rs25-30 billion? Consider also the fact that just a handful of workers are paid a few thousand rupees each under the scheme. That brings us to the conclusion that almost 80-90 per cent of the total allocated amount by companies end up with the SBP in an account of the government.
The fund so collected by the state is supposed to be recycled through a board of trustees towards financing projects that may benefit poorest of the poor workers.
The Central Board of Revenue (CBR) later transfer funds collected under this head to the accounts of Workers Welfare Fund, a department that functions under the ministry of labour. A tripartite board with nominated members of employers, workers and the government called Workers Welfare Board (WWB) manages workers participatory fund under the guidance of rules and regulations in this regard. The board in all has 18 members. The current composition of the governing body of the WWB is as follows: secretary, labour and manpower division, GoP, joint secretary labour, GoP, financial advisor, labour, ministry of finance, GoP, secretary labour of all four provinces, Shaikh Tariq Sadiq employer’s representative (federal area), Javed Iqbal employer’s Punjab, Muhammad Zubair Motiwala employer’s representative Sindh, Nauman Wazir employer’s representative NWFP, Mirza Muhammad Ibrahim Baluch employer’s representative Balochistan, Zahoor Awan worker’s representative federal, Haji Abdul Jabbar worker’s representative Punjab, Qamoos Gul Khattak worker’s representing Sindh, S. LiaquatBadshah workers representative NWFP Sarzameen Afghani, worker’s representative Balochistan.
The leaders representing employers and employees claimed that in most instances government representatives prevail in the boards meeting that does not meet very regularly. “We cannot afford to fall on the wrong side of the government as we also have our private businesses to manage” said an employers’ representative on the board who wished not to be named. “We do protest and project workers’ interests in the board. However we cannot be expected to push too hard or the government could manoeuvre to drop us from the board altogether”, confided a labour nominee on the board.
Queries made in this regard revealed some interesting facts. The collection, management and dispersal of this fund makes an intriguing subject for those interested in peeping through the veneer of good governance. It becomes all the more revealing as the fund is not managed single-handedly by the government but by a tripartite body.
Though managed by the WWB, most employers and employees representatives contacted were found to be unhappy with the criterion that governs the distribution of the WPPF. Majyd Aziz, a businessman active on many forums was critical of the management of WPPF. “Rules governing the distribution of WPPF need to be changed to correspond to real life situation. In the current scenario major chunk of WPPF ends up in the hands of a federal board that does not have an enviable record of utilizing funds in a prudent fashion. It makes more sense if the fund is allowed to be managed at the company level and is distributed amongst workers of a profit making entity”, Majyd said. “How can we be happy with the formula that allows leakages? Had these funds been utilized efficiently it could have supported many model facilities such as schools, colleges, housing colonies, hospitals exclusively for workers”, he says.
At the company level, the tiny amount that is to be distributed to workers is deposited in a designated account of the Workers Trust. This Trust has equal number of representatives of employers and employees. Its secretary is appointed by the employer but the office of chairman rotates between the representatives of employers and employees. The tenure of the chairman is one year.
All that raises a number of question marks. How much exactly is the sum collected by the government under this head? Is the system of management of money transparent? Do funds so raised reach the targeted beneficiaries? And at the company level, do the employers pay the eligible workers their due?
While billions sit idle in welfare fund accounts, workers live sub-human conditions. They are required to work hard in increasingly challenging environment and are still condemned to live a life of deprivation. Hostile socio-political environment, ineffective trade unions and increasing number of job seekers has undermined the bargaining position of workers and leave them with little option but to make do with whatever their employers are willing to pay. And employers, in most cases, would hardly pay as much as to compensate the labour its hard work. The fact is that in Pakistan most employers faced with increasing capital costs see wage bill as their only option to cut down their expenditure and maintain higher margins of profit. It, however, is ironical that what little private sector offers from its earnings to the labour over and above their wages as a premium for their contribution in making of profits under WPPF, is gobbled up by the system if not the government directly leaving workers high and dry.
A senior official in the Workers Welfare Fund (WWF) in Islamabad revealed that at the moment the fund has Rs13.650 billion in its account which include carry-forward funds. He told Dawn that normally the government is reluctant to transfer the full amount of collection to the fund on the plea that WWF is a rich body that has enough of the past balances.
The government being a custodian of the rights of the people is expected to act more responsibly towards funds deposited in trust in its account. “The government’s calls for socially responsible behaviour would carry more weight if it sets example by practicing what it preaches” said a seasoned labour lawyer referring to the conduct of the government in this regard.
“We have to cede five per cent of our hard earned profit to the government so that workers who are integral part of our enterprise gets benefited. If the system is flawed and funds do not reach them, there are two ways to address the problem”, said an irate business man, adding: “Either drop the scheme or make it effective”.
Sources in the Ministry of Finance contend that until July this year just about Rs1.93 billion have been received in the Treasury. The amount mentioned is ridiculously low. This is a year of immense profitability for the corporate sector. Shouldn’t someone be monitoring why so little has yet been deposited or has a big chunk of money lost in transit?
“No more than one per cent of this WPPF reach the targeted beneficiaries, while the rest is lost to the system”, says Mr. Nabi Ahmed, a senior trade unionist known for his grip on workers’ affairs. This may be an exaggeration. But what has been written is just a tip of the iceberg.
(Part II of this article will be published next Monday.)