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DAWN - Opinion; 08 April, 2004

April 08, 2004

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Mixed signals on tax front

By Sultan Ahmed

In a world of falling taxes and reluctant investments in developing countries, Pakistan proposes to reduce its corporate tax to 25 per cent from 35 per cent to attract much needed investment from abroad. This is one of several tax reductions to be proposed in the forthcoming budget which will be presented in May or June.

The idea is to stimulate investment, particularly foreign investment, which has dropped to $360 million in the first seven months of the current financial year from $600 million in the corresponding period of the previous year.

While the commercial and industrial sectors have been pleading for such a tax reduction, the driving force from the government's side has been Dr Ishrat Husain, the governor of the State Bank of Pakistan.

Dr Husain has been advocating a decisive cut in the corporate tax rate, both to stimulate domestic and foreign investment and to raise revenues from the corporate sector.

For its part, the corporate sector regards the proposed cuts with mixed feelings. It grudges the fact that the same relief will also be available to unlisted companies, owned by a family or a few individuals, who will pocket the vastly enhanced gains.

Listed companies are subject to various checks and regulations instituted by the Securities and Exchange Commission. This is in addition to the monitoring by the stock exchange and the scrutiny of ordinary members at share holders' meetings. In addition, the State Bank also keeps an eye. In contrast, the unlisted companies have no such checks.

Sensing this disparity, the Karachi Stock Exchange has asked in its pre-budget proposals for a minimum of at least five per cent difference between the taxation on the income of the two categories of companies, instead of the ten per cent difference which was in force until recently.

During the 2002 budget the government did away with the 10 per cent difference and decided to bring down the tax rate for non-listed units from 45 per cent, by shaving off a further two per cent annually.

Unless abolished, the difference under the new budget will be 39 per cent (to be paid by the non-listed companies) to 35 per cent (paid by the listed). If the two per cent corporate tax reduction per year continues, the listed and non-listed companies will be on par by the year 2006 - two years from now.

This is contrary to the declared policy of the government to get more and more companies listed in the capital markets. Also under a cloud would be the move to set up a National Stock exchange as well to add to the three exchanges in Karachi, Lahore and Islamabad.

The KSE has hence urged the government to adopt a policy that encourages more offering of shares to the public and come up with appropriate fiscal stimulus. In fact, under the proposed new fiscal policy more and more of the listed companies will become private limited or non-listed companies. They will buy back their shares from the public, as many companies have been doing this with the approval of the SECP.

There is a great deal of confusion on the issue. The government remains unsure of its targets : does it want the low and middle income share holders to have a larger share of the corporate profits? It is with this idea in mind that the government is selling a part of the shares of companies it seeks to privatize to the public at rather reasonable prices in a rising stock market.

But at the same time it is encouraging a tax policy that treats private limited companies at par with the quoted companies, whose shares are owned by a larger and more diverse number of persons.

The KSE opposes double-taxation of corporate profits - first in the hands of companies and then in the hands of shareholders at 10 per cent. Previously the income of non-listed companies in the hands of their share holders was charged 20 per cent tax. The KSE now wants the double taxation to go and the taxation on income of non-listed companies to be at least 5 per cent above that of the listed companies.

Mrs Margaret Thatcher in Britain was credited with building a share-holders' democracy. Would President Musharraf and finance minister Shaukat Aziz want to do something like that on a smaller scale for Pakistan? Or do they want to continue the regression towards primitive capitalism, to add to our feudal excesses and monopolistic strongholds?

Shaukat Aziz may not be wanting to prefer such a policy as he does not belong to feudal stock and is a product of the corporate world at its financial peak. He proposes to encourage the investors who have been standing-by or playing a marginal game instead of playing their full part.

While the industrial sector and the stock exchanges have been pleading for abolition of duty on import of machinery to make larger investment easy, the finance minister wants to reduce the import duty to 5 per cent.

He is prodded to some extent by the industries minister Liaquat Jatoi. Jatoi also hints that the new budget may be reducing the import duty on industrial raw materials, which can be doubly helpful to investors.

In the past, companies not listed on stock exchanges could not get very large loans from banks. Now they can, based on their track-record. And instead of going to the stock exchanges to raise capital, they can raise the funds they need through Term Finance Certificates at the prevailing low interest rates.

They are answerable to almost no one, except the loan owning coterie. So more and more investors may now prefer private limited companies or non-listed entities to opening themselves up to a great many questions by going to the stock exchange for a public listing. This is a return to a pre-corporate pattern where a few own everything.

The new budget is also proposing to reduce the general sales tax from 15 per cent to 12 per cent, and also to have two categories of GST - about 5 per cent on essentials like food and 12 per cent on other items.

Does that mean that the tax net would be spread much further to cover far more items in the category of food, including food grains? Will less tax on some items mean far more items coming under the GST net? If that happens, there will be little relief to the people. They will still be spending more for consuming less, and to that extent industrial production will suffer.

Sales tax revenue is the highest source of revenue for the state today at Rs. 223 billion compared to the revenue from income tax of Rs. 154 billion. So Shaukat Aziz calls sales tax as the tax of the future. If that is the case, he can afford to be less stringent about income tax in the coming budget instead of making that, too, a bugbear for the people.

It has also been reported that in view of the loud public outcry against high POL prices, which rise by rupees and fall by paisas, the heavy surcharge on petroleum products and natural gas may be reduced.

The revenue from petroleum products surcharge budgeted this year was Rs 46 billion, while the surcharge from natural gas is to yield Rs. 15 billion, making a total of Rs. 61 billion against Rs. 66 billion last year and Rs. 60 billion the year before.

In addition, there is the royalty on crude oil, royalty on natural gas and excise duty on natural gas, making a total of Rs. 20.8 billion in government revenues. If oil has to become less expensive for the people, the surcharge has to come down as long as the world prices of oil are very high.

The Saudi foreign minister Prince Faisal says oil prices would eventually come down to $24 to $28 a barrel. That time may be far off in view of the lasting tumult in the Middle East, the aggressive policies of the US and excessive truculence of Israel.

Until then, the surcharge on petroleum products in Pakistan has to be low. Otherwise POL prices in Pakistan will be too high, particularly of furnace oil used for production of power. The government and the gas companies have to make more and more gas available for power production as long as hydel power has a small part in the overall power output.

Will the government truly embark on such liberal policies? After profiting by the petroleum surcharges a great deal, it is not even treating this as a tax for tax calculation purposes. Investors, particularly foreign investors, want cheap power and steady supply. And that can be ensured only if the domestic oil prices are reasonable, which is possible only with lowered petroleum surcharge.

It has also been reported that to enable the entrepreneurs invest more, land will be given to them at 10 per cent down payment in the Karachi Export Processing Zone and at Port Qasim. This is proper at a time when land prices have gone up high and construction cost is equally stiff because of high steel and cement prices.

What matters in the investment arena is that the government's words and deeds go together. It has been reported following the policy of reducing the federal and provincial taxes, the Sindh government last year reduced the number of its taxes on industry from 16 to 4.

But in actual practice the provincial officials have been collecting the other taxes by bullying the investors and demanding kickbacks from them. So it is no use announcing one-window or one desk policy to help the investors and then violating that in practice.

If tax concessions are to be announced through the coming budget, this is the best time for the finance minister to do so. Last year for the first time in many years the revenue collection of Rs. 525.8 billion exceeded the target of Rs. 521 billion and this year's collection is on target to collect Rs. 571 billion.

In the first nine months of the current financial year total revenue collection amounted to Rs. 351.7 billion and the year is expected to end with the target of Rs 571 billion.

An economy that does well, particularly in the production sector, yields larger revenues as is happening now. It is the industry which pays the bulk of the taxes, beginning with customs duty and sales tax, larger corporate income means higher taxes paid by the companies and then from dividends in the hands of the share holders. All these factors are helping the government at this moment.

At such a time, reduction in taxes along with the lowered interest rates will mean higher investment and production and larger revenue. The government should not miss this opportunity to bring real relief to the people so that they do better along with the government instead of the government flourishing in isolation.

Why inaction on women's issues?

By Adil Zareef

The usual activities celebrating the empowerment of women were witnessed on International Women's Day last month. Once again, high-sounding declarations were made and commitments renewed towards enhancing the status of women in the country. And just as it happens every year, after the event, all assurances and promises receded into the background.

Meanwhile, there has been no abatement in violence against women which is reported on almost a daily basis from different parts of the country. A heated debate continues to rage in the National Assembly on the repeal of the draconian Hudood Ordinance that continues to affect the lives of thousands of women.

Four years of a liberal and progressive government have done little to improve the lot of women. There is plenty of smooth talk in President Musharraf's government but very little groundwork where gender issues are concerned.

The Parliamentary Commission of Inquiry for Women reported in 2001 that violence against women "has been described as the most pervasive violation of human rights" in the country and it called for legislation unequivocally making domestic violence against women a criminal offence.

It noted that there were no specific laws pertaining to domestic violence, except for the Qisas and Diyat ordinances, which were rarely invoked, and especially not if the victim was an offspring or other lineal descendant of the perpetrator. Law-enforcement and legal authorities tend to see domestic violence as a family problem, and are reluctant to take action in such cases.

According to Amnesty International, "men accused of rape sometimes were acquitted and released, while their victims were held on adultery charges". Also, a Human Rights Watch report noted that women face difficulty at every level of the judicial system in bringing rape cases to trial.

Law enforcement authorities are reluctant to record the complaint and may even turn abusive towards the victim; while legal authorities do not always subscribe to consistent standards of proof as to what constitutes rape and what corroboration is required.

It also observed that police and prosecutors are biased against female rape victims tending to presume consent on their part. There has also been reluctance to convict offenders.

These facts, collected from various published and net-based sources, point to the utter contempt shown by legislative and administrative bodies towards women and gender-related issues.

Since its enforcement in 1979, certain jurists have not been in favour of the Hudood Ordinance. But today, even discussion on its repeal is viewed by obscurantist forces as a serious threat to their interests.

A recent agreement between the government and opposition - in the backdrop of differences over Wana, security, law and order, NSC, the LFO - saw the leader of PML-Q and the prime minister decide that the Hudood ordinances would not be touched to avoid a possible confrontation with the MMA.

Giving categorical assurances to the leader of the Jamaat-e-Islami that the law would neither be repealed nor amended, they exposed the empty claims of the government that it is committed to women's rights and gender equality.

The 1997 report of the Commission of Inquiry on Women, a high-powered official commission set up by the government and chaired by a judge of the supreme court, recommended the total repeal of this law.

In 2003, the Pakistan National Commission on the Status of Women (NCSW), a statuary body established by the government to recommend law reform in the context of women's rights and headed by a former judge of the high court made the same recommendation. These reports, as required under the law, were sent to the president and the prime minister for review.

In September 2003, the prime minister assured civil society organizations demanding the implementation of the NCSW recommendations that the report was important and that action would be taken accordingly.

More recently in February, during the Asia Pacific First Ladies Summit in Islamabad, the president called for an open debate on the Hudood Ordinance. He also recommended that it must be resolved through 'ijtihad' and by legislative institutions in collaboration with women's institutions.

Despite the president's assurances to his international audience, nothing substantial has been done in this regard. Under the NCSW statute, the president was meant to place all its recommendations before parliament. That too has not happened.

The Joint Action Committee (JAC) comprising a number of human rights and civil society organizations issued a statement condemning "the anti-women rights stance" of the prime minister and demanding that he immediately withdraw his undemocratic decision.

JAC also demands that all progressive political parties and parliamentarians both from the ruling party and the opposition, immediately raise the issue in the parliament and ensure that these draconian laws are repealed".

And yet, all shades of political parties in the assembly continue to resist the "Protection and Empowerment Women Bill" tabled by the PPP that seeks the repeal of the Hudood Law and equal rights for women.

The unanimous opposition of the treasury and opposition to women's rights across the political divide, clearly reflects the utter callousness, insensitivity and lack of political will to combat a social anomaly that has wrought immense suffering to womenfolk.

When International Women's Day is observed next year there will again be a number of seminars, talk shows and public pledges of support to women by official and non-government organizations. The sad part is that the gender inequality that has persisted for centuries will remain. It appears that a long wait is ahead for half of Pakistan's population to taste the real fruits of emancipation.

US failure to control Iraq

By Iffat Idris

As the deadline of June 30 draws closer, the talk is all about if Iraq is ready for control to be transferred from the Coalition Provisional Authority to the Iraqis themselves. Question marks are raised over the readiness of the Iraqis to assume power, and/or over the willingness of the Americans to hand over power.

Critics claim the transfer will be to a nominal Iraqi government, with real seat of power being the US embassy. This debate and these questions miss the real point, which is that no one is in control in Iraq, least of all the Americans.

Washington recently "celebrated" one year of the war in Iraq. It is rapidly heading towards the first anniversary of the "end of official hostilities", ie US occupation of Iraq. But one year into an occupation, one would not expect to see the scenes that have been appearing on television screens recently.

The most horrific pictures - and utterly condemnable - were of course those of four American civilian contractors killed by an angry mob in Falluja, then hacked, burned, hung, decapitated and dragged through the streets. No amount of anger or oppression can justify that kind of barbarism: nothing can redeem it. It was pure evil. That is not the issue here, though.

The relevant point in this context is that the incident was filmed and went on for some time: yet during the entire period not a single American soldier or Iraqi policeman was anywhere to be seen. Eventually the bodies had to be recovered by Iraqi police and handed over to the "ruling" Americans. Is that control?

One year into occupation, you would not expect to see the most powerful person in the country - Paul Bremer - stepping out of his Viceregal Palace to condemn the Falluja killings, surrounded by a mini-army of security personnel. Surely, someone "in control" would be able to walk around without the paralytic fear implicit in Bremer's entourage - not to mention the multiple barriers behind which he and the CPA operate.

One year into occupation, you would not expect to see pictures of battles on the streets of the capital between American forces and an armed militia. Yet on Monday the news was of Moqtada Sadr's Shia army - estimated to number tens of thousands - taking over police stations, a hospital, the governor's residence in Basra.

Nine US soldiers were killed fighting in Al-Sadr, a Baghdad neighbourhood. Shias clashed with the occupation forces in four major Iraqi cities. A front-page photograph on Tuesday showed a sword-wielding Sadr addressing a crowd in front of the captured Governor House. Same question: is this control?

The US might have toppled Saddam Hussein, and its forces might be occupying Iraq, but it is far from in control of the country. "Control" implies what the British enjoyed when they ruled the subcontinent: authority, respect, the knowledge that the word of the ruler was law, the ability to enforce their will without having to take up arms.

The British ruled and controlled India with a comparatively minimal number of men. The Americans have 120,000 troops stationed in Iraq. Yet their control runs as far as they can physically enforce it with a gun. Any warlord or gangster can claim the same degree of "control".

This time last year Baghdad and other cities saw a wave of looting and anarchy as the old regime was toppled and the new one stood by and watched. With hindsight, the blatant inability of the occupying forces to assert their will then was a precursor of things to come. Today US control remains as tenuous - indeed, is more tenuous - than it was a year ago.

Washington tries to dismiss each violent incident, each attack, each protest as a minority phenomenon, the exception, teething troubles, even as "an up-tick in localized engagements" (General Kimmit speaking just a day before the Falluja atrocity). How long can it avoid the obvious? How long will it deny the reality that, almost one year after the defeat of Saddam Hussein, the Americans have failed to establish their hold in Iraq?

Why has the US failed to establish control in Iraq? How or where does one begin answering this question? With the lack of legitimacy of the US attack on Iraq? Or the arrogant assumption that Iraqis would welcome American soldiers with flowers and open arms? Or the equally arrogant assumption that military power alone can conquer countries, hearts and minds?

Or perhaps, one should look at what transpired once Bush had toppled his old enemy: the failure to find a single WMD; the failure to provide basic services to Iraq's people (let alone jobs and prosperity); the thousands of Iraqi casualties some killed directly by the Americans, others by anti-US forces, but all killed as a consequence of the US-led war on Iraq; the lucrative contracts awarded to American firms?

A final option is that America has not secured control because it has - despite all proof to the contrary - persistently failed to face and acknowledge reality in Iraq. Paul Bremer's recent threats against Moqtada Al-Sadr were the ultimate proof of that denial of reality: "Effectively he is attempting to establish his authority in place of the legitimate authority.

We will not tolerate this... We will reassert the law and order that the Iraqi people expect". What "legitimate authority" is Bremer talking about? What "law and order"? So long as the US continues living in cloud cuckoo land, it will never be able to establish control in the real Iraq.

The answer to the question posed above is, of course, that not one or some, but all of the above factors have contributed to Washington's all too obvious lack of control in Iraq today.

A war that started on the wrong footing - mired in controversy, deception, subterfuge, illegality - was not only unable to recover from that, but got further embroiled in trouble as it progressed. The current situation in Iraq is the culmination of a whole series of mistakes. The question is: what happens next?

Washington - if it could exercise this option - would happily cut and run from Iraq tomorrow. The Bush administration's grand strategic plans to run Iraq as a pliant oil pump have come to nought, crushed under the weight of 600-plus US body-bags. Iraq is turning into a modern-day Vietnam: a drain on men, funds, international goodwill, domestic political support. Pictures like those that came out of Falluja last week do nothing to help President Bush's re-election chances.

Loathed as the US occupation of Iraq is, the Americans cannot be allowed to just pack their bags and head home. That would be the easy option for the US, but not for Iraq. For everyone knows what will happen when they leave: with no Iraqi body ready to take their place, post-Bremer Iraq will sink into civil war and anarchy. As the instigators of the current mess in Iraq, Washington has an obligation to avert that scenario.

The US exit strategy therefore has to go through stages like genuine political engagement with Iraqis, genuine efforts to improve the lives of the Iraqi people, genuine transfer of decision-making authority to the United Nations and thence to the Iraqis, and the establishment of a genuinely multi-national security force (as opposed to the current US occupation force).

The Bush administration is not in control in Iraq, but it cannot leave without first ensuring that someone is in control.