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Budget, IMF & subjugation

Huzaima Bukhari & Dr. Ikramul Haq

In 2016, we wrote an article, entitled, ‘Budget of trapped and enslaved’. In 2019 the situation is no different, rather worse. All the six budgets presented by the last government of Pakistan Muslim League (Nawaz) [PMLN] form 2013-2018 had the common characteristics: encouraging imports and destroying exports, crushing the poor and appeasing the rich, ignoring the suggestions of local experts and toeing the lines of the lenders/donors. The crafty economic wizard (sic) of PMLN, Ishaq Dar, now a fugitive, ensured that our economic enslavement should further accentuate through burgeoning debts. He faithfully obeyed commands of the International Monetary Fund (IMF) that gave US$ 6.6 billion bailout package. The same amount has now been secured by the coalition government of Pakistan Tahreek-i-Insaf (PTI) with conditions imposed are the most stringent in our history of having many bailouts from IMF.

During the infamous Dar era, the cause for concern was not as much as toeing the lines of IMF and earning “good” reports and “generous” waivers as it was reflection and confirmation of the age-old adage: beggars cannot be choosers. The real worrisome aspect of his budget making and “managing” (sic) economy was figure fudging and manipulation of incomes/expenditure accounts for painting a rosy picture. He hoodwinked the entire nation and even the PTI after coming into power admitted, “we were not anticipating that situation would be so bad”.

During 2013-18, many independent economists have been warning about the deteriorations and distortions in economy, especially on external front with mounting debt burden and dwindling debt sustainability but Dar criticised them and even wrote a column accusing them of doing “disservice to the nation”. We took strong exception of that, contested his shenanigans and exposed his lies in two articles, Debt debates, Business Recorder, February 3, 2017 and Rejoinder: Debt Debates, Business Recorder, February 28, 2017, which are now part of history. Other than PTI which at that time was highly vibrant, PPP and others did not pay any heed to the facts we narrated and warning issued for future economic meltdown. PTI though criticised Ishaq Dar for his blatant lies nut failed to present its own concrete manifesto/programme/plan/strategy to overcome fiscal woes if voted in power. This confirms callousness on the part of all political parties with PTI being no exception. Had PTI paid attention to what was suggested by us and many economists exposing Ishaq Dar and prepared a well-thought-for plan for economic revival, things could have been much different. We could have averted the chronic economic crisis staring in our face right now.

What our rulers did in the past, where we stand now and what may happen in future is  described by economist Kaiser Bengali while speaking at an event in Karachi, titled “Ye Watan Humaara Hai: IMF & the Economic Future of Pakistan“, alongside economists Akbar Zaidi and ex-Finance Minister Asad Umar, in the following words:

“After the 1999 military takeover, an imported finance minister who then became the prime minister was brought in who brought an imported team of technocrats who were all employees of international financial organisations. They deliberately opened up the country to such an extent that the foreign exchange gap we are facing today was unreachable without approaching the IMF. I am using the word deliberate because Pakistan has been led up the garden path to this point so that we can be blackmailed, and we are being blackmailed and the story is yet to unfold”. 

The PTI’s performance within few months of coming into power: from seeking help from friendly countries to accumulating more debts without salvation, from failure to attract mega remittances and investments from Pakistanis residing abroad to mismanaging tax collections, from the unceremonial exit of Asad Umar to bowing before IMF, from slogans of self-reliance and promoting own talent to giving economic affairs to Dr. Abdul Hafeez Shaikh of Zardari era, is continuity of our subjugation and humiliation. Economist Akbar S. Zaidi candidly commented: If Hafeez Shaikh does even one-tenth of what he did when he was part of the Zardari government, then you can only imagine where we are headed. Things can be much worse now.”  

In a nutshell, on June 11, 2019 we are going to hear the same old style budget where there is no relief for the masses, no structural reforms, nothing innovative, but all efforts in meeting the conditionalities of IMF. The same old jargon of tough measures for “fiscal stabilization” that means more taxes on the masses, no plan for rapid growth and no measures to end luxuries of the privileged classes.  

The trio of incompetent politicians, tax bureaucrats and foreign-imposed technocrats love the agenda of lenders/donors. They keep on singing the mantra of “more taxes” and improving “tax-to-GDP” ratio without admitting that Pakistanis are one the most heavily-taxed nations in Asia where even those not earning taxable incomes [the number is as high as 90 million unique mobile users] pay advance income tax of 12.5% with bills/recharge and the apex court had refrained to intervene. How can you collect advance income tax from those who have no taxable income? This is the cruelest act on the part of State violative of Article 3 and 4 of the Constitution of Pakistan. Adding insult to injury, these taxpayers (majority is not filing income tax returns as they have below taxable incomes) get nothing in return, not even a decent education, healthcare, public transport, clean drinking water and other civic amenities.

The lenders and donor-funded tax reform and other initiatives never stress the governments to start taxing extraordinary perks and perquisites available to the mighty politicians sitting in Assembles, Senate and powerful members of militro-judicial-civil complex. They never talk about taxing members of elite clubs enjoying huge golf courses on state lands, clubs, rest houses etc. Never recommend adequate and quality spending on health, education and human resource development.

Our privileged classes (militro-judicial civil complex, businessmen-turned-politicians and unscrupulous businessmen) thrive on taxes and borrowed funds, enjoy unprecedented tax-free parks and perquisites and concessions through statutory regulatory orders (SROs). The IMF (lender of last resort) and many foreign donors never in their studies criticise our governments for not living within their means. They never ask them how the super-rich successfully manage to escape taxation on their collossal incomes and why they get generous and frequent amnesties—majority of them are non-filers. Many say that they, in fact, want our incompetent rulers not to bring any meaningful reforms in the existing elitist structures so that our dependence on them should continue unabated. It is evident from the fact that despite giving loans and grants of millions of dollars and sending experts (sic), tax reforms in Pakistan undertaken under their supervision have been failures. Many say just a farce!!

Noted economist, Arshad Zaman, in his brilliant piece, The roots of our budget crises, rightly pointed out:

The root cause of the perennial crisis of public finance in Pakistan is as easy to understand as it is difficult to correct. The crisis does not arise, as many would have us believe, because some this-to-that ratio is much less than in another country. This is just arithmetic.

The crisis is largely due to three intractable facts. First, that tax collectors systematically punish the rare honest tax-filer to extort bribes, and are so well-connected politically that top officials are unable to stop them. Second, that the rich lend to government but don’t pay taxes (nor return loans); with the result that government spends more on interest payments to rich citizens (in 2017-18, Rs 1,320 billion, or thirty of every hundred rupees collected in taxes) than it does on defence (Rs 1,030 billion) or development (Rs 790 billion). Finally, the proliferation of exemptions, especially the exemption of landlords from federal income tax, renders direct taxation toothless.

Since the successive governments have failed to generate required resources by taxing the rich and accelerate economic growth, neither fiscal deficit is receded nor has the goal of poverty alleviation been achieved. It is an admitted fact that about 3.5 million ultra-rich are not paying income tax according to their real incomes—total number of individuals showing income exceeding ten million rupees is less than five thousand for the last many years. The members of militro-judicial-civil complex—the real rulers of Pakistan—get tax-free perks and perquisites, billions are expended on them from taxpayers’ money and then we say our tax-to-GDP ratio is one of the lowest in the world. Over 75% taxes collected are indirect, many even under the garb of income tax in the form of presumptive and minimum taxes pushing millions to below the poverty line every year.

The Executive ( in our context government run by bureaucrats) have managed to secure and retain the powers to vary tax rates or grant exemptions/waivers through SROs, conveniently bypassing laws passed by the Parliament. It is blatant violation of Article 77 and 162. The tax agencies at federal and provincial levels, paid to collect taxes as per law, are themselves the root cause of massive tax leakages. During the Dar’s era, on our recommendation, the IMF asked the government to surrender sub-legislative powers of issuing SROs. Ishaq Dar and the mighty business lobby frustrated it knowing that this would end their crucial financial lifeline. The Government of PMLN skillfully protected non-compliance of payment of tax by super-rich by just imposing on them “extra” (sic) withholding tax as non-filers! The vistas of tax evasion and non-compliance were, thus, kept open. The most glaring example: many business houses collect sales tax from people but with the connivance of tax officials deposit only a fraction of it in the government treasury. In this way they get illegally enriched as well as avoid disclosure of real incomes.

Unfortunately, PTI has not bothered to change the culture of tax evasion, loot and plunder promoted and protected by its predecessors. In the coming budget, the only focus will be how to achieve the target of Rs, 5500 billion agreed with IMF and not to concentrate simplifying tax system, lowering tax rates for investment and rapid growth, improving climate for investment, facilitating new business initiatives, providing affordable finance to all, especially the young educated entrepreneurs, and above all reforming all state institutions, simplifying laws and regulations and ensuring their publication in Urdu as well. We need sustainable growth of at least 7% to provide jobs to two million young people every year. Policies should be made to achieve this target. Tax being byproduct of growth will increase accordingly. Reduce the taxes, make them simple and let the investments and businesses grow.      

The existing tax system and policies are reminiscent of the British period when East India Company’s henchmen would go to the peasant abodes and snatch away most of their produce. According to many historians, the East Indian Company’s tax collectors used to take away one half to two-thirds of the crops and, therefore, the peasant’s life was highly miserable during the colonial period. Our successive governments by taxing the poor and exempting the rich have been doing the same injustice. Will the new Chairman of Federal Board of Revenue (FBR) end these malpractices?

It is time to recall the history for Syed Muhammad Shabbar Zaidi. The East India Company destroyed the indigenous industry of the Subcontinent to promote products of the Queen’s England. In the same manner, successive governments have been destroying local industries by making raw material costly through exorbitant taxes and promoting imports of finished goods, creating shortages of electricity and gas and then increasing their prices, and blocking refunds worth billions of rupees due to exporters. These policies were deliberately adopted by Shaukat Aziz, Hafeez Shaikh, Ishaq Dar. These were aimed at crippling our local industry in general and export industry in particular on the behest of Neo-colonialist master, IMF and others. They wanted and still want to capture huge consumer markets of populous countries like Pakistan, India and Central Asia. This can only be done if the indigenous industries of such countries are either destroyed/crippled or by paving the way to monopolies of multinationals, which actually fund and influence the policies of the United States and Western governments.

The role of FBR and other tax agencies can be compared with that of East India Company during the British raj. A handful of bureaucrats in the Ministry of Finance and FBR and technocrats imposed by lenders/donors have over-empowered millions of people. There are remarkable similarities in the operations of the IMF in Pakistan and those of East India Company and their crony rulers during the colonial era. Political and economic ccontrol is exerted through an oppressive, inequitable, tyrannical, unjust, and anti-people tax system in which the sufferers are the drown-trodden people of Pakistan while the beneficiaries are the rich and mighty.

The sovereignty of a state is measured by the power it enjoys in imposing taxes on its people—responsible governments utilise revenues for the benefits of the less privileged and for welfare of citizens. On the contrary, our inept rulers are utilising the same for their luxuries including foreign trips, even umrahas on taxpayers’ expense. They are destroying local industries and opening their markets to foreign goods—look at the free and abundant availability of imported and smuggled goods everywhere. This has paralyzed our local manufacturers. One wonders how ruthlessly the so-called people’s representatives have been destroying Pakistan. Obviously they want perpetuation of their own rule and they know that this can only be done if they unquestionably follow the command of lenders and donors who only look for their benefits. The era of physical subjugationn is over. It is now the era of economic subjugation.

The ruling elites in Pakistan represent a club of tax dodgers and plunderers of the national wealth. If we are being maltreated by USA and IMF or others, it is because of our ruling elites that opted not to pay taxes at the expense of national sovereignty. We have no right to accuse the USA, IMF and others for this. We have long been moving towards self-destruction.

Experts say that taxation and other proposals to be presented on June 11, 2019 will bring more miseries for the poor segments of society and further debt enslavement for the State. There is no plan to collect taxes to the tune of Rs. 8000 billion, which is the actual tax potential of Pakistan. They want to fix tax target at Rs. 5500 billion and for that more oppressive taxes would be levied but no taxation on the rich people, rather generous money whitening schemes for them. The agenda is clear: allow the rich to amass wealth, keep the country under debt subjugation and deny the masses their legitimate economic and other fundamental rights. The Government of PTI claims it will prove otherwise and take revolutionary measures to reverse the earlier policies. If it does so, our post-budget article will be eulogy praising Imran Khan and PTI! As of today, people have been bulldozed under rising prices of items of daily use. The rich and exploiters are minting more money taking benefit of the situation. Tax dodgers are enjoying the benefits of Assets Declaration Ordinance, 2019 telling the honest taxpayers that they are fools and idiots for being loyal citizens of this country!   


The writers, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).

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