Wednesday / Jan 04 2023
Newspaper : The News
Pakistan today faces the gravest crisis in its history after its dismemberment in 1971. Its foreign reserves are down to $5.8 billion, which include deposits worth $5 billion from Saudi Arabia and China with specific conditions of use.
Pakistan needs to repay loans amounting to around $8 billion by March 2023. Rumour has it that the IMF has refused to negotiate with the present government because of its past unfulfilled commitments. Other aid agencies are also averse to helping the country further. So, what is the way forward?
First, it is a pity that despite the acute shortage of foreign exchange, we continue to import items like milk, cheese, corn flakes, chocolates, tobacco for cigarettes, and even cat food from abroad. Luxury vehicles, cosmetics and other luxury items also continue to be imported. As a result, our local industry has been badly affected. We must ban all non-essential imports immediately (or if this violates international/WTO laws, then impose a significantly high tax rate on these products) and change our policies to stimulate local industrial development and export of value-added products.
Second, we need to stop relying on foreign loans and reform our policies so that our expenditure is less than our earnings. This can help us reduce our foreign debt. In the short term, we should let the Pakistani rupee slide to about Rs260 or Rs300 to a dollar since this will lead to enhanced exports and reduced imports. One consequence of this policy will be a hike in the prices of fuel, electricity and imported edible oil, affecting the poor adversely. To offset this, Rs500 billion should be set aside to help the poor by providing monetary support through welfare programmes. This will partly help relieve the pain imposed by these policies.
Third, there are only 3.4 million taxpayers in a country of 220 million. We need to impose a substantial agricultural income tax based on per-acre land under cultivation, and not on declared income. This will generate a significant amount of revenue. Property tax is also based on substantially lower assessments than actual property values. They need to be reassessed based on market prices. This step alone will result in a three-fold increase in property taxes. All shops across the country must be taxed based on a flat tax according to their size and location. There are about two million retail stores in Pakistan. A mandatory retail tax of an average of Rs4,000 per month per shop can lead to an additional Rs100 billion annually.
Pakistan should also follow in the footsteps of India and ban all Rs5,000 and Rs1,000 notes in the country with no warning, and then allow people to deposit any cash money in their bank accounts within four weeks. This would lead to a significant increase in the size of the white economy and taxation. Similarly, to preserve valuable foreign exchange, all letters of credit should be opened only against the production of foreign currency through local purchase or foreign transfer by importers. Export vouchers could be given to preferred industrial high-tech exports to compensate them for the high cost of electricity, etc.
The use of IT can provide a huge boost to national tax collection by bringing in transparency in the whole process. One important step in this connection would be to make it mandatory by law that all sales and purchases of property, shares, cars or any other assets must be placed with full details on a government website before the legal transaction is allowed. Any complaints by citizens against undervalued transactions should be independently examined, and if found to be correct, 30 per cent of the additional tax/penalties should be imposed. The amount so collected could go as a reward to the complainant. This will curb any black money transactions.
One illustration of how IT can bring transparency in tax collection is found by a project undertaken by the Knowledge Economy Task Force that worked closely with NADRA and the FBR to widen the tax net and increase the tax revenue some years back. Employing a portion of NADRA’s transaction records and using innovative Artificial Intelligence (AI) protocols, the programme identified 3.8 million non-filers – each with a tax liability of more than Rs100,000 who should have paid an estimated Rs1.6 trillion in income tax. As a result of this three-month-long effort that cost the government absolutely nothing, the total declared assets moved sharply up to Rs3 trillion and the additional taxes paid to Rs65 billion. Also, over 90,000 non-filers became filers and the total tax returns for the year ending June 30, 2018 crossed two million. This was by far the highest number ever in the history of the FBR. Such measures can be expanded to all provinces and restrictions should be placed on non-filers on purchasing air or railway tickets, or renewing passports, driving licences, etc.
The fourth area that we must focus on is the reformation of the judicial system. The National Corruption Perception Survey 2021 conducted by Transparency International Pakistan has found that the police and the judiciary were the most corrupt institutions in the country. This conclusion is supported by the World Justice Project Rule of Law Index 2021 that has ranked Pakistan at the shameful 130th rank out of 139 countries in the areas of law and order and security.
Massive corruption among politicians, bureaucrats, senior government officials and the judiciary has been the primary reason for Pakistan drowning in debt, while billions of dollars have been piled up in assets abroad. Several leaked documents such the Pandora Papers have uncovered the financial secrets of 35 current and former world leaders, and 330 politicians and public officials in 91 countries. Some of these politicians are from Pakistan. The answer lies in carrying out sting operations and awarding capital punishment for mega corruption as done in China, Indonesia and many other countries.
The last but perhaps the most important step to get back on the road to progress is to give the highest national priority to education, science and innovation. This can only be achieved by an honest, technologically competent leadership in a presidential form of democracy where ministers are appointed on the basis of their competence, and not on the basis of their ability to spend Rs150-200 million in what I call a sham electoral process where power rules over merit.