Tag Archives: VAT

Time for a consensus on economic policy

Raza Rumi

The recent decision of the federal cabinet to rationalise General Sales Tax (GST) and levy a one-time flood surcharge are much-needed reforms to bolster Pakistan’s elusive and perhaps unattainable ideal of economic self-reliance. A state, which has perfected the art of collecting and negotiating rents for its strategic games, is least interested in creating a redistributive welfare state.

The emergence and fortification of a rentier state, therefore, is neither peculiar nor new as phenomena. However, it has now come to haunt the future of the country due to the evolution of rent-seeking culture, which is almost a way of life. We need no half-baked perceptions-based studies from abroad to know that crude and sophisticated forms of corruption are now embedded in our public life. From the delivery of a basic service to the purchase of a submarine, this is the way the country functions. The elites have strengthened trends such as tax-evasion and made them legit mechanisms of governance and public affairs.

Tragic that the world leaders such as Hillary Clinton had to remind Pakistanis about how they were not willing to pay up in the face of the 2010 floods devastation and were continuously looking towards the West and international community at large. Such a debate should have emanated from Pakistan’s Parliament and its patriotism-obsessed media. But this did not happen as all barons are averse to paying taxes in this country. Continue reading

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Pakistan’s budget: Policy sans public

Raza Rumi
Last week, a former Minister while referring to the budgeting process remarked how the budget documents were accessible to only 3% of the parliamentarians. A lady MNA whom I met after the budget speech was ploughing through the shabbily printed pink documents, looking for the allocations for regulatory bodies and both of us could not find the relevant figures. This should be enough to describe the inaccessibility and obfuscated nature of the budgeting process in Pakistan and several other developing countries.

Executive board-room syndrome
: Lack of public consultation in the budgetary processes is another hallmark of how the executive formulates the national priorities and finances them. Our state considers the people as ‘beneficiaries’ and ‘recipients’ of the wise decisions made in air-conditioned secretariats and donor board-rooms. This is why the economic and social policies are seldom reflective of the will of the people. Pakistan’s deep rooted authoritarian tradition explains this dilemma. But the civilian governments have rarely attempted to change this trend. More often than not, they also rely on the same evergreen bureaucrats. Our present elected government has chosen economic managers who are former international bureaucrats representing the good-old Washington Consensus.

Lack of participation:
Across the globe, pre-budget consultations are exercises seeking public support and inputs for policy. Countries in democratic transition are adopting participatory decision-making processes. There is also a growing consensus that budget decisions need to be subjected to public scrutiny and debate. Earlier, our government organized seminars in big cities and consulted the business, middle classes and other stakeholders to frame the policies. This time last-minute public consultations focused on the VAT issue. Quite obviously, for purely political reasons, these consultations have failed and we have a higher GST rate thereby more exposure to inflation.Development charades: The development allocations at the time of the budget announcement are almost always notional. Invariably these are slashed in the last quarter when fiscal crunch hits the government (40% in the last fiscal year). The new PSDP is Rs 663 billion but it remains to be seen if this will hold. How has it been estimated and prepared; only a handful of people know. The overall ceiling is guided by the NFC award. But, does it address the key development challenges? Perhaps not. Overestimated figures from the Friends of Democratic Pakistan were also factored in the previous years and even this year the allocations reflect what is expected and not necessarily what we have or need.

Lobbies who always win: As before, the big business, the landlords and the security establishment benefits from the limited resource base. The business lobby has avoided VAT at least until October, no mention was made of agricultural income tax in the budget speech and of course the defence budget is higher by 17%. The local vehicle-manufacturing industry will continue to enjoy protection. Much of the defence budget is hidden under the “General Public Services” category as the salaries and pensions are not reflected in the defence category.

Inflation will rise:
Contrary to various claims, inflation is here to stay. Higher energy prices and increased GST will lead to further increase in prices of commodities with a direct impact on the poor and the fixed-income groups. Apparently a study has been carried out to disprove the link between GST and inflation but it is not in the public domain. If and when VAT is imposed, inflation will further increase whether we like it or not.

Saving graces: Three key policies are somewhat promising. First, the focus on energy conservation, by providing 30 million energy savers, is a step in the right direction. The allocation of Rs. 40 billion for Benazir Income Support Programme and lastly the increase in salaries of the government employees are commendable policy decisions. It is not clear, though, as to how far the pay and pension commission’s recommendation was taken into account while finalising these figures.

Sterile debate:
Given the lack of budget awareness, the new gurus of Pakistani conscience have been holding endless talk shows on the budget. The commentary by TV anchors and their ‘political’ hosts is emotional and largely uninformed. Debate is good but spiraling ignorance is something that we must avoid. Similarly, the polemical statements in the National Assembly are intriguing. For instance, the leader of the opposition criticized the increase in government salaries for the adverse fiscal impact on the Punjab government, and at the same time lambasted the government for not doing enough for the vulnerable. MQM’s refrain that electricity should be cheaper in Karachi is also beyond logic.

Pakistan’s democracy is nascent and fragile. However, it is also an opportunity for the budgeting process to be reformed. The government should involve the media and civil society in raising awareness and building consensus on reform. In several parts of the world, accessible materials to increase budget literacy are commonly used. Similarly, it is time that the legislators are made more familiar with the budget process to enhance public oversight. Techniques that track inter-governmental expenditures can help reduce corruption and waste. All of this requires deepening of democracy, civil service reform and the emergence of a responsible media. We need a light year to get there.

First published in The Friday Times, Lahore (June 11 issue)

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Filed under Economy, Pakistan, Politics, poverty

Room for optimism

[‘The audacity of hope’? ‘Hope dies last’? Or, just the reality of Pakistan in its many aspects? Here’s how Mohsin Hamid sees it. – PTH]

Dawn, Friday, 09 Apr, 2010
 
 EVER since returning to live in Pakistan a few months ago, I’ve been struck by the pervasive negativity of views here about our country. Whether in conversation, on television, or in the newspaper, what I hear and read often tends to boil down to the same message: our country is going down the drain.

But I’m not convinced that it is.

I don’t dispute for a second that these are hard times. Thousands of us died last year in terrorist attacks. Hundreds of thousands were displaced by military operations. Most of us don’t have access to decent schools. Inflation is squeezing our poor and middle class. Millions are, if not starving, hungry. Even those who can afford electricity don’t have it half the day.

Yet despite this desperate suffering, Pakistan is also something of a miracle. It’s worth pointing this out, because incessant pessimism robs us of an important resource: hope.

First, we are a vast nation. We are the sixth most populous country in the world. One in every 40 human beings is Pakistani. There are more people aged 14 and younger in Pakistan than there are in America. A nation is its people, and in our people we have a huge, and significantly untapped, sea of potential. Continue reading

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OBAMA’S LATEST SURGE: A TIGHT BALLOON IN HOT AIR

(A Brace for Bloody Winters)

By Samson Simon Sharaf

The long awaited Obama Speech is over. It is to wait and see the impact of the third surge in a highly destabilized, charged and violent region. The endgame if one dares, is not what Secretary Clinton wants us to believe.

I would describe the new strategy as a tight balloon in hot air that may rapture even before it reaches close to its objectives. The speech makes all the right noises of an establishment given up on the doctrine of ‘Shock and Awe’ that promoted absolutism in distant lands. It recognizes Pakistan’s integrity, sovereignty and welfare of the people. Following intense lobbying between State Department and Pentagon, there appears a lead role for the Pentagon working in tandem with Joint Special Operations Command (JSOC) previously headed by General Stanley McChrystal from the Vice President’s Office and the CIA. Continue reading

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Filed under Afghanistan, Army, Obama, Pakistan, Terrorism, USA, violence, war, War On Terror