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Dr. Ikramul Haq & Abdul Rauf Shakoori
We live increasingly in a world of haves and have-nots, of gated communities next to ghettos, of extreme poverty and unbelievable riches. Some enjoy rights that are completely denied to others. Relative inequalities are exploding, and the world’s poorest, despite all the advances of globalization, may even be getting poorer—Noreena Hertz, Economist & Author
The road to prosperity for Pakistan is full of challenges, enough to shake the common citizens’ trust who have limited or no hope for improvement any time soon—this trust deficit between the state and citizens is widening. It has touched a dangerous level as people directly and rightly accuse the rulers as well as the powerful institutions for all the hardships and difficulties in their lives.
Elites’ monopoly and control over the resources of Pakistan is getting stronger with every passing day. Ordinary people are forced to bear adverse results of their imprudent economic policies and their disinterest in reforming the system based on injustice and inequality. In the last 75 years we have failed to create a state that discharges its responsibilities towards its citizens. Our governance model protects the interests of the powerful elites—direct beneficiaries of the system, and that too at the cost of citizens.
After seven plus decades of independence, people are still deprived of basic needs such as health, education, infrastructure, and transport etc. even clean drinking water. On the contrary elites have been exploiting state resources to their advantage, receiving unprecedented perks, concessions and preferential tax treatments. Successive governments have failed to dismantle the outdated colonial administrative structure, and review inherited Anglo-Saxon laws. Consequently, the cherished objective of a fair society offering equal opportunities to all citizens remains unfulfilled.
Access to power and wealth remains concentrated with the privileged elites. The historic pattern of inheriting wealth and connectivity within the power circles remains unchallenged. Pakistan National Human Development Report 2020 by United Nations Development Programme highlights inequalities prevailing in Pakistan in its various forms.
The report explores various dimensions of ‘state capture by the elite’ through special provisions for the privileged in laws, rules, and regulations including special treatment by public institutions. It estimates that the total benefits and privileges enjoyed by different vested interests in Pakistan amount to Rs, 2.66 trillion in 2017–2018 which is around 7% of the country’s GDP.
The report includes an interesting and factual analysis of the situation as follows:
The economic elites often use their wealth and power to influence government policies, political decisions, and public debates in ways that lead to a greater concentration of wealth. Money buys political clout, which the richest and most powerful use to further entrench their influence and advantages. Many of Pakistan’s wealthiest people today have made their fortunes thanks to exclusive government concessions, tax exemptions, sweetheart contracts, land concessions, subsidies, privatization (even in the education and health systems), corruption, and the monopoly of power. Private healthcare providers, and a few organized private education institutions, have become so powerful in recent years that the Government is unable to trim their influence and provide equal access to quality education and health care for all – both of which are essential to address inequality.
The report analyses benefits and preferential treatments available for military establishment, high net worth individuals, rich traders, corporate sector, exporters, feudal class and state-owned enterprises in the shape of tax exemptions, low effective tax rates, tax evasion, cheaper inputs, higher output prices through favorable pricing formulas and preferential access to land and capital, etc. It claims that 92,919 people belonging to feudal elite, representing barely 1.1% of the total number of farmers, own 22% of the nation’s farm area. Similarly, it observes that large-scale farmers enjoy preferential access to credit lines offered by banks. Farms with 50 acres or more consumed 56% of agricultural credit i.e. Rs. 972 billion in 2017–2018. The report says that benefits enjoyed by absentee landed class are around Rs. 370 billion per year.
As per report the corporate sector has privileges amounting to around Rs. 724 billion and these benefits eventually accrue to shareholders of companies that are less than 0.7% of Pakistan’s population. Further, corporate partners operating within different segments have formed alliances and partnerships in the shape of joint action forums and bodies that protect and facilitate their commercial interests. Some notable examples are the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), All Pakistan Textile Mills Association (APTMA), All Pakistan Cement Manufacturers Association (APCMA), Pakistan Sugar Mills Association (PSMA), Pakistan Automotive Manufacturers Association (PAMA). These bodies enjoy close liaison in corridors of power—governments facilitate their key members through political appointments etc. Businessmen also have direct links with political cortés, serving in federal and provincial cabinets. Ignoring conflict of interest, political parties welcome such people having strong financial backgrounds.
The latest data issued by Federal Board of Revenue, Tax expenditure report for FY 2022, estimates Rs. 1.482.3 billion as tax expenditure i.e. 31.2% of total collection in FY 2020-22 and constituting approximately 2.67% of total GDP.
“Tax expenditure” represents potential tax revenue that is foregone due to specific provisions of tax laws relating to exemptions, exclusions, preferential rates, tax credits, etc. During FY 2021-22, Rs. 399.7 billion was foregone under Income Tax, Rs. 739.8 billion under sales tax and Rs. 342.8 billion under Customs duty. This huge tax potential remains untapped by successive governments that go on burdening existing taxpayers with more and more taxes to meet collection targets.
Likewise, powerful institutions keep violating constitutional mandate, meddling in political affairs—in the last 75 years we had four direct military rules covering around 31 out of 75 years of our history. Resultantly, this establishment has assumed a diversified role, which is surely beyond its core and only designated function of safeguarding security of the country,
The report highlights the military establishment as the largest conglomerate of business entities in Pakistan is involved in a wide range of activities ranging from real estate development, public construction, fertilizers, banking, insurance, and fast-moving consumer goods. These business activities are take place through two set-ups—Fauji Foundation and the Army Welfare Trust. The Fauji Foundation comprises 03 fully-owned companies and 22 associated companies, engaged in various businesses related to cement, foods, fertilizers, power generation, gas exploration, LPG marketing and distribution, marine terminals, financial and security services, etc.
Based on available details, the combined estimated value of these companies’ assets has reached Rs. 672 billion (US$4.62 billion) in 2021 (US$ Parity of Rs. 157.3 as of 30-Jun-21). Similarly, the Army Welfare Trust, formed in 1972, owns and operates more than 20 business units with total assets worth Rs. 40 billion, providing over 28,000 jobs. The military has also assumed another key role as contractor in public projects through Frontier Works Organization (FWO) which is one of the largest infrastructure development companies in Pakistan, specializing in fields of civil engineering, their official publications state that FWO has completed 676 projects worth US$ 2.68 billion.
Wealth and power in Pakistan are concentrated in a few hands. Ordinary people are losing faith in the system. They are left at the mercy of strong headwinds of inflation and macroeconomic adjustments. Unfortunately, there is no comprehensive social protection mechanism to shield different segments of society. The only functioning mechanism is Benazir Income Support Programme which has a limited impact working only as a helping hand, whereas the situation requires a comprehensive social protection system based on equality, to enable businesses to thrive. Resources of the state must be utilized efficiently in the country’s larger interest rather than for the benefit of a few powerful segments.
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Dr. Ikramul Haq, Advocate Supreme Court and writer, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of the Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions with Huzaima Bukhari.