Agenda for reform & survival

Dr. Ikramul Haq

Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 6365584, e-mail: irm@brain.net.pk; website: http://www.paktax.com.pk). He is a member of the visiting faculty of the Lahore Institute of Tax Education (LITE). He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law and global narcotics trade, some of which are co-authored with his wife, Mrs. Huzaima Bukhari.

The main cause of our pathetic economic situation is existence of inefficient, corrupt, repressive and criminal governments/institutions, which do not give a damn for the welfare of the common people. The successive governments’ onerous tax and regulatory policies have reduced Pakistan to an economically unviable State. We will have to move quickly and decisively to reverse this trend by restoring Pakistan’s undeniable geo-strategic and business competitive position in the region. There is an urgent need to take necessary and tough decisions to make Pakistan a respectable place to work, live and invest. The military regime instead of wasting time on referendum and useless public rallies must concentrate on balancing its forthcoming budget for 2002-2003, reduce heavy reliance on internal and external loans.

The following steps are inevitable if we want to make Pakistan a competitive place in today’s world:

1. Establishment and continuance of democratic institutions both in form and substance.
2. Revamping of entire education system and ensuring revolutionary measure to take society out of jahalat [ignorance]. Our problem is not only illiteracy but also ignorance. Even the so-called literates are jahil of worst order, as they do not demonstrate by their actions any norms of a civilized society. The foremost stress should be on Iqra [knowledge].
3. Elimination of bigotry, religious intolerance and violence by taking concrete measures to ensure social development of society based on higher values of life and humanity.
4. Devising long-term and short-term strategies to break the shackles of debt-trap.
5. Determination and political will to control wasteful, non-developmental and defence expenditure.
6. Strict laws and their effective implementation to curb money laundering, plundering of national wealth, political write off of bank loans and leakages in revenue collections.
7. Reform of technical, institutional and organizational dimensions of public finance.
8. Improvement in public sector effectiveness.
9. Reform and strengthening of management of public finances.
10. Transparent public sector spending.
11. Efficient public sector performance.
12. Revitalization of tax machinery.
13. Simplification of tax laws and procedures.
14. Good governance and corrupt free government structures.
15. Reduction in excessive marginal tax rates making them compatible with other tax jurisdictions of the world, especially in Asia.
16. Elimination of GST/VAT on production, machinery and equipment.
17. Substantial reduction in corporate rate of tax, especially the banking companies
18. Elimination of corporate capital taxation that is the main stumbling block for new direct foreign investments which is drying up day by day.
19.  Sufficient openness and accountability in the government to enable citizens to understand and participate fully in the process of national integration. This includes live telecast of the assembly proceedings.
20. Complete transparency in government and private financial transactions.

The juxtaposition of economic policymaking and political reform [democratization] of society is necessary. The agenda for reform and survival should entail a comprehensive, well-integrated and unified plan that alone can assure its success. The reform in one sector ignoring the ills in the other, resorting to improving something at the cost of leaving aside the one interlinked, will not yield desired results. The case of tax reform divorced to elimination of black economy is the point in focus. The main cause of fiscal deficit is existence of an unprecedented size of underground economy and the share of incompetence and inefficient tax machinery is significant, but reform in tax administration alone without routing the causes of parallel economy is not going to improve GDP-tax ratio. In the same manner mere constitutional changes giving more powers to a self-appointed President will fail to improve the political culture unless respect for rule of law and democratic behaviour in practice is clearly demonstrated. Seeking legitimacy by referendum is yet another great fallacy. The general elections alone are not an instrument to ensure democratization of society. These are a means to achieve the goal of true representation of the people in governance. One is skeptical that the forth-coming elections under the guided eyes of the military junta will initiate a most dreamt of peoples’ rule in Pakistan.

The understanding of the concept of peoples’ rule of the present regime is not different from that of the late Gen. Ziaul Haq, who destroyed all public institutions during his 11-year dictatorial rule in the name of his version of democracy and Islam. Every dictator desires to perpetuate his unlawful rule advocating that he is the saviour of the nation, and ultimately destroys the national cohesion itself. It is unfortunate that our highest court since the inception of the country lent legitimacy to the unconstitutional rule that came into existence by flagrant violation of the Constitution itself.  A new dangerous trend has now emerged where the approver of the military coup has been asked to supervise the electoral process as well. It is sheer mockery of the rule of law, respect of which is at the core of a democratically successful society.

As we are doing everything contrary to democracy in the name of political reforms, in the same manner we are resorting to anti-people policies in the area of economic policymaking at the dictates of foreign donors making Pakistan heavily dependent on external loans instead of moving towards self-reliance.

The military regime of General Musharraf, free from the compulsions of political governments, was expected to be more realistic in tackling economic problems. However, the Federal Budgets for 2000-2001 and 2001-2002 announced by the military junta were cast in the traditional mould with the striking difference that it had counted the chickens not before they were hatched but long before even the eggs had been laid. The tax revenue target, which by all standards was rather too ambitious, was fixed without taking into account ground realities, and was therefore revised downward many a times during the financial year. This is again a mockery of economic prudence and wise fiscal policies.

The budget makers conveniently overlooked the advance payment of taxes. Scheduled banks deposited colossal amounts of Rs 70 to 90 billion under “advanced tax paid”, courtesy a wickedly drafted law requiring them to pay advance tax on “turnover-basis” instead of on “actual income-basis”. External resources were also over-estimated. The usual frequent downward revisions of revenue estimates with cut in expenditure, mostly for development and social sectors, during the years was thus on the cards. After failing to achieve various macroeconomic targets in 2000 and 2001, the government functionaries have been claiming that the targets fixed for-2001-2002 could not be achieved due to September 11 events. Instead of changing the existing strategy they have conveniently shifted the blame on an event occurring in the USA. What explanation will they provide for the fact that some of the modest targets set by the military government in the Federal Budget of the current financial year have now been adjusted downward in consultation with the Fund even after receiving fresh external credit? Where are we heading? Where is the much harped about rational policy and agenda of reform and survival?