IMF: New East India Company in Pakistan

Dr. Ikramul Haq[1]

The International Monetary Fund (IMF) is emerging as a new East India Company in Pakistan. It has decided to take over our revenue administration in the same manner as was done by the East India Company in the Subcontinent that led to a long colonial era, where a handful of foreigners overempowered millions of people. There are remarkable similarities in the operations of the IMF in Pakistan and the colonial era of East India Company vis-à-vis revenue collections; both are oppressive, tyrannical, unjust, and anti-people.

The IMF dictated policies are reminiscent of British period when East India Company’s henchmen used to go to the peasant abodes and snatch most of their produce. According to many historians, the East Indian Company’s tax collectors used to take away one half to two-third of the crops. Therefore, the peasants’ lives were most miserable during the colonial period. The present government by imposing GST on agricultural inputs has resurrected the days of East India Company.

East Indian Company now and then

For more than 150 years the East India Company (John Company) had raised its own armed forces in the British India. The three administrative areas of India, the Presidencies of Bombay, Madras and Bengal, each maintained their own army with its own commander-in-chief. The C-in-C Bengal was regarded as the senior officer of the three. These armies were paid for entirely out of the Company’s Indian revenues and together were larger than the British Army itself. All the officers were British and trained at the Company’s military academy in England. There were a few regiments of European infantry but the vast majority of the Company’s soldiers were native troops. In 1857 the total number of soldiers in India was 34,000, Europeans of all ranks and 257,000 sepoys.

Today ex-employees of IMF and the World Bank replace the role of sepoys. In today’s’ world you do not need them in thousands; even a few can control the entire nation through revenue administration and economic subjugation. They are now the new East India Company’s (IMF) soldiers in Pakistan to ensure full control of their foreign masters. Interestingly they work for the IMF, but get remunerations from revenues in Pakistan as foretold in history.

The East India Company destroyed the indigenous industry of the Sub-continent to promote the products of the Queen’s England. In the same manner, the CBR is blocking refunds worth billions of rupees due to exporters to ensure the success of IMF’s agenda; that is our local industry in general and export industry in particular become paralysed and the products of the developing countries fill in the gap. They want to capture huge markets of countries like Pakistan, India and the Central Asia where population is enormous. This can only be done if the indigenous industries of such countries are either destroyed or taken over by the multinationals, which are actually controlling the policies of IMF and the World Bank

The IMF has recently ordered the members of different taxes of Central Board of Revenue (CBR) to act as tax collectors in their personal capacity. The same orders were issued by the East India Company to the local rulers to act as mansabdars (local officials) on their behalf. We know that the word gumashta (worker) was invented by the colonial rulers for their local lackeys, who for the sake of enjoying their control over the native population, joined hands with them. They unleashed a reign of terror on the locals in the matter of revenue collection as is being done by the IMF’s “gumashtas” in the CBR these days.

 The IMF team has issued the following orders and instructions to their gumashtas:

1. The Central Board of Revenue (CBR) should prepare a short-term action plan to target top 100 defaulters each of sales and income tax departments.
2. The authorities in CBR are to expedite audit and recovery drive to improve revenue collection to the level of Rs 417.3 billion till end-June 2001.
3. The respective CBR members will oversee collection drive by tabulating a list of authentic ongoing arrears as on December 31, 2000 for monitoring. This list for all the tax defaulters of Rs 1 million and above would be updated on monthly basis and will be discussed with the IMF representatives. [It is a shameful state of affairs that our grade 21 members have now been reduced to the level of recovery clerks, and yet they are clinging to their posts where they are the subject matter of the wrath of the IMF small wigs].
4. To start with, cases of top 10 tax arrears in each collectorate, totaling 100 cases, would be prepared and targeted by the taxmen to make them cough up large amounts as early as possible in the Sales Tax Department. The Income Tax Department would also prepare a similar list of top 100 tax dodgers.
5. For other taxes, 10 top revenue default cases, in terms of potential, would be pursued vigorously. CBR has to initiate an exercise to work on case-wise details of arrears above Rs 1 million.
6.  On the auditing side, the Central Board of Revenue should constitute a special management cell within the CBR comprising one chief, one cost accountant and one secretary, to work with the DFID consultant. In addition, 400 auditors are to be reassigned from tax survey project to auditing. By doing this, CBR has been ordered to achieve completion of 1,000 audits in March; 1,200 in April; 1,400 in May; 1,600 in July; and 1,800 each in August and September.

Notwithstanding the necessity for these measures, the question is, what authority does the IMF have to dictate our high-placed officials in such a derogatory manner. Although they are not ashamed of being treated in this manner, as a nation every Pakistani has a right to agitate against this neo-colonial behaviour on the part of IMF. No doubt the Central Board of Revenue is facing a huge recovery burden of Rs 30 billion in sales tax head alone, and an overwhelming portion of it is blocked in adjudication or auditing processes. But does it mean that a reign of terror should be unleashed against the taxpayers. In majority of the cases tax levied is unjust as no muk muka (deal) was reached. The cases where tax was levied in a “friendly” manner, there are absolutely no arrears! The IMF is actually asking the CBR to penalize the honest taxpayers, as those who are ‘friends’ of tax collectors are not the tax dodgers or tax defaulters.

To discourage holding back tax liabilities, the CBR has already on the instructions of the IMF increased the penalty for late payment of tax to two per cent per month, and the penalty for non-filing of sales tax returns to Rs 5,000. What more does the IMF want to penalize our taxpayers? In the West there is loud talk of protecting the rights of taxpayers and in Pakistan, the IMF wants to hang them. This policy portrays double standards while dealing with the poor countries. We have a right to know in which country the IMF imposed such harsh conditionalities as it has done in the case of Pakistan?

The CBR, acting as a gumashta of IMF, has decided to deal with the cases of non-filers or tax evaders to please their foreign masters. The simple question is who are the habitual tax offenders? Can CBR publish the tax declarations of all the federal secretaries and the mighty people in uniform?  Those who looted the wealth of the nation were set free to have a good time in exile. What is the justification for levying VAT-mode GST on the ordinary people of Pakistan when the ruling elite is spending million of rupees just for personal comfort? There can be endless questions of this nature to expose the conspiracy behind the IMF’s operations in Pakistan and the role of local gumashtas. The classical era of colonial subjugation has actually reappeared in the form of neo-colonial ‘financial terrorism”, where a few countries want to advance “consumerism” at the cost of the deprived of the poor states.

The sovereignty of a state is measured by the power it enjoys in imposing taxes on its people. These taxes are to be utilized for the benefits 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 paralyzed. Is this globalization? One wonders how the rulers of the day are working in Pakistan. Obviously they want perpetuation of their own rule and they know that this can be done only if they harp the tune of their foreign masters. The foreign masters only want economic benefits, as they are no more interested in subjugating us physically. They are of the considered opinion that they should not take direct responsibility of “worthless subjects” like us.

It is painful to note that the CBR in order to please its foreign masters has resorted to present structure of presumptive taxation that has complicated the poverty problem of Pakistan. According to a recent study of Asian Development Bank, the tax system of Pakistan, which was progressive till 1990, was converted into regressive regime in 1991 with the introduction of provisions like section 80B, 80C, 80CC and 80D in the Income Tax Ordinance, 1979 and VAT-type tax in the Sales Tax Act, 1990. The result is that during the ten years’ period (1991-2000), the tax burden on the poorest households is estimated to have increased by 7.4 percent, while it declined by 15.9 percent for the richest households. This study of ADB is eye-opener for the target-oriented CBR’s stalwarts (sic) that in the frenzy of showing higher figures to their foreign masters they have put extra burden of taxes on the poor of Pakistan. History will never forgive them for this senselessness and shamelessness.

Dr. Farrukh Saleem, a noted columnist, has made some startling revelations in an article (In the grip of IMF, The Nation, April 29,2001), which expose the extent and level of our subjugation in the hand of IMF. The following facts and points narrated by him are worth taking note of:

1.  “Within six months of assuming office, our new Ministry of Finance admitted to the IMF that the Government of Pakistan has actually been maintaining two books; a real one and a phony for the IMF. For the year 1997-98, the real budgetary deficit stood at 7.5 percent of the GDP while the book dressed-up for the IMF showed a deficit of 5.5 percent of GDP.
2. On 28 April 2000, the Executive Board of the IMF held a meeting to “review the misreporting by Pakistan.” The Executive Directors expressed “serious concern that the erroneous data had misled IMF staff and the Executive Board about (Pakistan’s) economic performance.” The misreporting was serious enough to have led to a cancellation of the then-suspended facility. It did not. The same day, the IMF issued a three-page statement that “promised early talks on a new loan for Pakistan after the government admitted its predecessors lied about tax data.” The two other countries that also lied were Russia and Ukraine. Pakistan’s military government, however, got off with a pat on the wrist by paying back SDR 22 million.
3. On 29 November 2000, the IMF approved a “Stand-By credit for Pakistan” in an amount equivalent to SDR 465 million about US$596 million (Press Release No 00/64)” under which $192 million was allowed to be withdrawn immediately. On 30 March 2001, the IMF, knowing fully well that we had missed almost all the targets set in the Stand-By of November 2000, Pakistan was allowed to draw an additional $132 million.
4. What are we giving them in return? First, devaluation. On 12 October 1999, the rupee was trading at Rs54.25 to a dollar (Karachi kerb). The current parity swings around Rs64 per dollar. That’s a hefty 18 percent fall.
5. Second, an increase in the price of utilities. Over the past 18 months the cumulative increase in gas price stands at anywhere from 36 percent to 50 percent. Our promise to the IMF is that within the following three years the price of natural gas shall go up by colossal 304 percent. Again, over the past 18 months, the price of petrol has been raised at five different instances while the lone slashing was on 14 March 2001. Electricity is also more expensive today than it has ever been.
6. Third, our sovereignty in a platter. To be sure, an increase in input costs is bound to make our exports less competitive. The IMF tells us that devaluation is the ultimate cure to our chronic trade deficit. The problem is that under various IMF-supervised programmes, some 70 developing countries are being told to do just that–devalue. The only beneficiary of such a race to devalue is the developed world that gets our output for less.
7. Pakistan joined the IMF on 11 July 1950. Some $5 billion worth of disbursements in more than 25 installment, what we in Pakistan, have so far seen is a falling rupee, lower purchasing power, expensive electricity as well as natural gas, a declining standard of living, increased unemployment, inflation, deindustrialisation, unequal distribution of wealth, ethnic tension, child labour and now a complete loss of sovereignty.”

It is abundantly clear that they just want to take control of our resources and revenues. The agriculture sector is our mainstay and they have decided to impose sales tax on agricultural inputs. It will ruin the local farmers and the corporate farming will ultimately replace it. In corporate farming the actual control and benefits will be available to big companies. This is a simple game. The issue of GST on agriculture inputs has created new apprehensions among the farming community. The Ministry of Food and Agriculture, the provincial governments and the farmers foresee it as a setback to the sector…However, the Minister for Food and Agriculture, who has been advocating the cause of farmers, is reportedly told that it would lead to corporate farming in Pakistan. The question here is, who will benefit from corporate farming? Obviously, the big companies will come and take over our precious income-yielding sector. So no wonder that the Minister has been reportedly asked to speak for the foreign masters. The role of gumashta is to watch the interest of the masters and not that of his people.

“The imposition of GST on agricultural inputs has created a new situation and now we have to readjust all things”, the worthy Minister asserted. Imposition of GST on urea and pesticides has come as a shock to the agriculture sector. In its comments on the issue of GST on agricultural inputs last month, the Agricultural Ministry had opposed the idea. It was of the view that as the agriculture sector was already facing a tough time due to persistent water crisis, any such decision would cause it irreparable loss. The provinces had supported the Agriculture Ministry on this issue. They made it clear to the Federal government that in case it went for the new tax, the prices of agricultural inputs would go beyond the buying power of the farmers who are already finding it hard to strike a balance between per acre expenses and income.

The IMF did not listen to any “excuses” presented by the Agricultural Ministry and ordered its gumashtas in the CBR to go ahead with the plan of imposing GST on agricultural inputs. Our respected President immediately issued, a hurriedly drafted Presidential Ordinance to this effect. Do we really need any other proof to show that where the actual power to levy taxes now 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 so easily until they squeeze out the last drop of our blood. This is the result of our own wrongdoings. The public at large refused to pay the taxes; the tax machinery educated the traders/industrialists in avoiding taxes with their connivance and the ruling elite has always been a mafia of tax dodgers and plunderers of the national wealth. Our fate was sealed the day we decided not to fulfill our obligations as a nation that acquired freedom after a long struggle. The blame of our own misdeeds can easily be shifted to the IMF and others. The fact is that we are receiving maltreatment from them because we opted for losing our sovereignty and independence. We have no right to accuse the IMF and others for this self-destructive path. We have been moving towards self-annihilation, and that is not very far now.

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[1] 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 7226953, 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. He has been awarded Doctorate of Law for his research: Tax Reform in Quasi-Constitutional Perspective.