The new East India Company

The IMF is playing havoc with our economy and industry, as if to remind us that we are still ruled by a colonial power

By Huzaima Bukhari and Dr Ikramul Haq

The International Monetary Fund (IMF), according to a private television channel, will finalise Pakistan’s budget for the financial year 2009-10 (FY10) in ‘consultation’ with the country’s officials on May 11 in Dubai. This confirms an old-age adage that beggars cannot be choosers. The channel quoted sources in the Ministry of Finance as saying that Pakistan and the IMF would hold talks from May 4 to 11 in Dubai to discuss the payment of the third tranche of IMF’s loan to Pakistan.

It was also reported that the Federal Bureau Revenue (FBR) would present to the IMF “an action plan under which new taxes would be levied in the upcoming budget. Prepared with IMF assistance, the action plan proposes imposition of new taxes on the services sector while focussing on audit of taxpayers.” Adviser to the Prime Minister on Finance Shaukat Tareen, State Bank of Pakistan (SBP) Governor Saleem Raza and senior officers of the FBR would represent Pakistan during the talks.

The IMF — or the new East India Company — has now virtually taken over the Ministry of Finance and FBR. Its role is the same as was that of the East India Company in the subcontinent, leading to the long British colonial rule during which a few thousand foreigners were able to overpower hundreds of millions of locals. There are striking similarities in the operations of the IMF in Pakistan and those of the East India Company in the subcontinent vis-à-vis revenue collection; both are oppressive, tyrannical, unjust and anti-people.

The IMF-dictated policies are reminiscent of the British rule when the East India Company’s henchmen used to go to the abodes of peasants and snatch most of their produce. According to some historians, the East Indian Company’s tax collectors used to take away one-half to two-thirds of the crops. Therefore, the peasants’ life was most miserable during the colonial period. The current Pakistani government, by imposing general sales tax (GST) on everything, even on salt and agricultural inputs, has resurrected the days of the East India Company.

For more than 150 years, the East India Company (John Company) raised its own armed forces in the British India. The three administrative units of India – the presidencies of Bombay, Madras and Bengal – each maintained their own army with its own commander-in-chief. However, the commander-in-chief of the Presidency of Bengal was regarded as the senior officer of the three. These armies were paid for entirely out of the East India Company’s Indian revenues and together were larger than the British Army itself. All the officers were British and trained at military academies in England. There were a few regiments of European infantry too, but the vast majority of the soldiers were natives. The IMF and World Bank, in the present day technological era, do not need armies in thousands; even a few people can control an entire nation through revenue administration and economic subjugation.

The East India Company destroyed the indigenous industry of the subcontinent to promote the products of the Queen’s England. In the same manner, the FBR is blocking refunds worth billions of rupees due to exporters to ensure the success of IMF’s agenda: Pakistan’s export industry in particular and the country’s local industry in general become paralysed, and the products of other developing countries fill in the gap. The IMF and World Bank want to capture the markets of populous countries like India and Pakistan. This can only be done if the indigenous industries of these countries are either destroyed or taken over by the multinationals that make the policies of the IMF and World Bank.

The IMF has recently ordered Shaukat Tareen to act as the ‘chief tax collector’; he sits in the FBR to supervise that taxes are collected where they are not even due. Similar orders were issued by the East India Company to the local rulers, to act as mansabdars (local revenue officials) on their behalf. These mansabdars unleashed a reign of terror on the locals through revenue collection, as is being done by the IMF’s cronies in the Ministry of Finance and FBR these days. Although they are not ashamed of being treated as slaves by the IMF, citizens of Pakistan have a right to agitate against this neo-colonial behaviour of foreign donors.

It is true that the FBR is facing revenue shortfall of billions of rupees, but does it justify a reign of terror against the taxpayers? In most of the cases, taxes are levied unjustly only because no deal could be reached. In cases where taxes are levied in a ‘friendly’ manner, there are absolutely no problems! Therefore, the IMF is actually lending a helping hand to the FBR to penalise the honest taxpayers, because those who are ‘friends’ of tax collectors are fully protected though they are proven tax evaders.

The sovereignty of a state is measured by the power it enjoys in imposing taxes on its people. These taxes are to be used for the benefit of the less privileged and to ensure general welfare of all the citizens. On the contrary, we are opening our markets to foreign goods so that our local industry becomes paralysed. Is this globalisation? One wonders how the rulers of the day in Pakistan are operating. Obviously, they want perpetuation of their rule and perhaps know that this is only possible if they unquestionably follow the commands of their foreign masters, who only want economic benefits because they are no more interested in subjugating us physically.

It is painful to note that the FBR, to please its foreign masters, has resorted to a tyrannical structure of taxation. According to an Asian Development Bank (ADB) study, the tax system of Pakistan, which was progressive till 1990, was converted into a regressive regime in 1991 with the introduction of massive indirect taxes. As a result, during these 19 years (1991-2009), the tax burden on the poorest households increased by 17.4 percent, while it declined by 15.9 percent for the richest households. The ADB study should serve as an eye-opener for the target-oriented FBR officials, who — in the frenzy of showing higher figures to their foreign masters — have put additional burden of taxes on the poor.

Pakistan joined the IMF on July 11, 1950. After receiving disbursements of a few billion dollars in more than 30 installment since then, what we in Pakistan have so far seen is increasing poverty, depreciating value of rupee, declining purchasing power, increasing electricity and natural gas tariffs, declining standard of living, and increasing unemployment, inflation, de-industrialisation, unequal distribution of wealth, ethnic tensions, child labour and loss of sovereignty.

The IMF is bent upon destroying our agriculture sector through the imposition of new taxes, despite the fact that this sector already pays a number of taxes. Do we really need any other proof to show where the actual power to levy taxes lies? Our economic subjugation is now complete. We are a nation that is neither dead nor alive. The foreign masters will not allow us to die until they squeeze out the last drop of our blood. But this is the result of our wrongdoings in the past.

In fact, our fate was sealed the day we decided not to fulfil our obligations as a nation. The blame of our own misdeeds can easily be shifted to the IMF or World Bank, but the fact is that we are at the receiving end only because we opted for losing our sovereignty and independence. We have no right to blame the IMF or others for this self-destructive path. We have been moving towards self-annihilation and that is not very far now — the coming budget will bring more miseries for the poor segments of society and further debt enslavement for the state!

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(The writers, tax consultants and authors of several books, are visiting professors at LUMS.)

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6 Comments

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6 responses to “The new East India Company

  1. IMF is also pressing for agricultural tax if we believe news report,,isnt it a good thing? it’s a direct tax which will be imposed on the rich
    IMF gives policy direction only when v ask for it,,they dnt come by themselves
    article is nicely written but i think comparing and contratsing IMF with the earstwhile east India Company can be justified but y not to compare and contast our administrative and economic management with the last defunct mughals
    hope u got wht i meant,,, instead of maligning foreing institutions y not to put our own house in order

  2. PatExpat

    I used to respect LUMS. But after seeing Salman Shah (former head at LUMS) sucking up to the dictator, throwing statistics in the air and making tall claims left right and centre to justify the misdirected policies, LUMS certification had lost half its appeal. And now I have to read the above populist piece of writing, which the author lend weight to by saying that they are professors at LUMS.

    The article can be torn apart so easily and in so many ways that I am wetting my lips in anticipation of how delicious it would be to see it shredding into pieces.

  3. Danial Burki

    We end up with the Fund because we plainly refuse to live within our means. Of course there are going to be conditionalities that our entrenched political and economic elite aren’t going to enjoy very much. But the fact of the matter is: they are all designed to make us live within our means.

    Do the people of Pakistan seriously expect their government to empty the coffers and then get free no-strings-attached money from the Fund? Nonsense.

    If we actually make sensible and sound economic policy, we’ll graduate from this IMF programme much faster than doom-mongers would have us believe.

  4. TSK

    I worked as a staff economist at the Fund in DC in their tax policy division a few years back. For dogs years the Fund sent myriad missions to Islamabad (btw as requested by the GoP) to analyze the dysfunctional tax policies of Pakistan with the numerous distortions and inefficiencies and special rebates and exemptions to different interest groups. Being Pakistani, I was interested in and made it a point to read most of the staff reports and the recommendations contained – these were mostly aimed at reducing distortions, increasing the tax base by withdrawing the special rebates, improving revenue collection through easier tax compliance and less complicated tax policy, and so on… Nothing insidious about them at all. A higher tax on consumption may have been part of the recommendations – but i do not recall the tax rate suggested by the Fund to be any higher than in other comparable economies.

    Undoubtedly a consumption tax can be regressive (inequitable) but there are ways to mitigate that, particularly by subjecting certain items, such as medicines, food etc to lower (or no ) tax rates as happens in most countries (no rocket science required here, we all know what poor people spend their money on). The other principle of taxation is efficiency – and in Pakistan (as in other developing countries) such a tax makes sense on the grounds that labour and capital income is highly mobile (witness our rulers huge wealth which is kept abroad) and also very hard to tax for administrative reasons. Consumption is not. So people get taxed when they consume (not when they earn).

    Now, perhaps the authors of the report have suggestions of their own to improve the tax to GDP take of Pakistan, which at close to 12-14% is one of the lowest in the world and is what leads us repeatedly to beg for external funding to finance our expenditures? If so would they care to detail them? Ofcourse another option for Pakistan is that it could just cut back on government expenditures (not a bad thing in many cases, if its a question of getting more bang for the buck by improving the efficiency with with money is spent) . But if we were to cut back our spending to match (roughly) our income, we would have to forgo many crucial infrastructure, health education and social spending projects

    Until then, I would request that these authors not comment on subjects that they are undoubtedly not even close to being experts on. Just lots of waffle and no substance at all. And the extremely funny comments about IMF and its “cronies” in the FBR and Shaukat Tareen as the “chief tax collector” and the citizens of Pakistan as the “slaves of the IMF”. (makes me laugh, if we are the slaves of anybody it is of so-called experts like these guys who write using alarmist language and fail to debate policy the way it should be.

    IMF staff economists have nothing to gain from the advice they provide to Pakistan, and indeed as Pakistan had shown, it is often up to the country to debate, consider and implement their recommendations. The advice of the Fund tax missions to Islamabad was ignored for many years. Now the Fund is providing money to Pakistan, and yes nothing comes for free. It will obviously ask pakistan to put its tax house in order, something which we cannot do by ourselves.

    Next thing we will read that Pakistan being a very special Islamic state ( after all we are being taken over by the Taliban) , it should also default on its external debt. Oh I forgot, this was suggested under when Mr Nawaz Sharif was PM. This country is full of jokers just like these authors!

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