AS the budget-making season starts, representatives of trade and industry have become active seeking tax concessions and incentives from a cash-strapped government to secure a better future in the given difficult business environment.

Some seek support because they are in distress which may be because of their own acts of omission and commission or due to external shocks. Many complain that they are denied even a playing field because of fiscal anomalies which stifle their business growth. And some recall the infant industry argument where the country has domestic advantage and needs an initial push. Then there are traditional industries losing foreign markets because of global slowdown and what they call not so globally competitive domestic business environment.

And last and more important is the segment whose businesses have thrived on rent-seeking with the successive governments always obliging. There is subsidy on production, exports, R&D etc for well-established traditional industries losing their share of the international market, not keeping pace with productivity and quality comparable to international standards, and satisfied in manufacturing low value-added goods and services.

The tax relief system has to be anchored on the need of many rather than on the interest of a few

Of course security and energy shortages are stated to be the key culprits, an argument not so convincing when things are seen in the overall context. Crutches provided by the government for prolonged period of time have led to inefficiency.

Of course one cannot reject all claims and the government can find many demands justified for support but with one condition. The relief should be for a limited period and should be withdrawn at the first available opportunity. And not so prudent revenue-oriented policy should be reviewed to impart a generally pro-business instance not for traditional industries but the emerging segment of the new economy.

The government has to respond to the market dynamics and its tax policies should not be stuck in the past. It is the market dynamics which sets the course of economic development and state policies must respond accordingly. In these critical times, many traditional industries have failed to adopt new ideas and latest technologies and keep pace with the changing market scenario. They are the losers and cannot be the winners and no amount of government support will help them at least in the long-term.

The present economic trends indicate the gradual emergence of a dynamic new economy driven by new ideas and latest technologies with a future while traditional industries are trying to survive on props. And the new economy is changing the mode of production and distribution and the mix of capital, technology and human resource employed in all economic activities. And no less important is the fact that: the cost of investment in latest technologies is much lower than the traditional ones. The quality of human resource needed is much superior. The role of the new economy, currently subdued, has to be enlarged at the fastest possible speed.

If the rent-seeking culture is not eliminated from the dominant segment of the economy, the common taxpayers’ money will go down the drain instead of being employed for sustainable socio-economic development

If the rent-seeking culture is not eliminated from the dominant segment of the economy, the common taxpayers’ money will go down the drain instead of being employed for sustainable socio-economic development. Pakistan’s economic progress has lost much of its earlier links with social progress. That is so evident from widening disparities in household and regional incomes and skewed distribution of national assets and wealth. The quality of economic growth is poor, not inclusive despite so much rhetoric about it and does not measure the common man’s standard of living.

Some economists have recently suggested that the country’s economic performance should be judged by changes in per capita income rather than rate of economic growth. The key issue is how to make taxation system equitable and socially acceptable rather than expanding the withholding tax net to non-eligible citizens and provide relief to those who make millions and billions and systemically escape tax obligations. The tax relief system has to be anchored on the need of many rather than on the interest of a few.

Published in Dawn, Business & Finance weekly, April 25th, 2016