SIX hundred billion rupees borrowed from the IMF between 2008 and December 2012 — and Rs700bn granted as tax exemptions over the same period, the Federal Board of Revenue informed the Senate on Tuesday. Bald figures can often be misleading — not all borrowing is undesirable and some tax concessions may stimulate growth — but they can also be revealing. The juxtaposition with IMF borrowing and tax exemptions falls into the latter category: evocative figures that tell a sordid tale as Pakistan once again slips towards the IMF embrace. With the financial year more than halfway through already and with a general election on the horizon, the possibility of economic reforms at this time is nearly zero. Factor in the utter incompetence and recklessness of the PPP-led federal government and the likelihood of reforms at this moment does become zero.
Yet, if a constituency for reforms is ever to be created, the complex ways in which the state bestows favours on favourites has to be understood. The principal figure in this racket is something known as a Statutory Regulatory Order. While the power to tax ought to be the remit of parliament, the SRO is an often-abused instrument for the executive to override legislative requirements. The PPP did not invent the SRO and is far from the only government to have abused the regime: the Musharraf government before it did and if a non-PPP government follows, it will likely do so too. There is an analogy here: like the suo motu powers of the superior judiciary, the SRO regime is not inherently a bad idea. But when used too often and almost as a default instrument, it undermines the wider system. The SRO regime has been used to grant such wide-ranging tax and duty exemptions that it has effectively dismantled the overall tax system. What is especially harmful about it is that it is used to favour big business and the best-connected special interests. The tax-to-GDP ratio will not be restored to a healthy number merely by ending the abuse of SROs, but clamping down will send a strong signal that the big boys don’t have a free run anymore.