Reforms for growth & prosperity

Dr. Ikramul Haq

“A comprehensive strategy has been formulated to shift the gear and move to higher economic growth. I do not believe in increase in taxes to increase revenue collection but those outside the tax net would be tapped. The chances for any harassment by FBR officials shall be eliminated for which change in audit procedures. 17 percent General Sales Tax rate is very high and a mechanism has been prepared for its reduction and the government was also working on a sales tax system for small businesses….”—Finance Minister, Shaukat Fayaz Ahmed Tarin, in his first testimony before the Standing Committee of the National Assembly on May 3, 2021.

“If the Federal Board of Revenue (FBR) does not increase its revenue to 15%, then the country will run out of money to spend. The FBR will have to bring revenue to 20% in 5-7 years […] otherwise the country will not be able to achieve an economic growth rate of 7-8%—Shaukat Fayaz Ahmed Tarin, two days before taking oath quoted by Press. 

For years, we have been doing everything in our power to erode the state in every way. The rich and powerful have habitually used the state to obtain easy riches. Learning from them, state functionaries—civil service, army and the judiciary—developed perks, plots and protocol as a means of joining the elite—What reforms mean,Dr.Nadeem Ul Haque

There is a general consensus that Pakistan needs all-out reforms in all areas of governance and institutions if it has to achieve high, equitable and sustainable growth of seven percent and above assuring prosperity for all citizens. It is recently highlighted by Pakistan Institute of Development Economics (PIDE) in PIDE Reform Agenda for Accelerated and Sustained Growth (April 2021). There are also many other studies and models presented by noted, economists, authors and researchers, not funded by foreign lenders and donors, but none is implemented to confirm their outcome.

The study by PIDE was launched on April 22, 2021, chaired by Asad Umar, Federal Minister for Planning, Development, Reforms and Special Initiatives. He was the first Finance Minister of the coalition government of Pakistan Tehreek-i-Insaf (PTI) from August 20, 2018 to April 18, 2019, announced even before victory in elections by head of PTI, Imran Khan.

In April 2019, the unexpected exit of Asad Umar, who joined PTI leaving the post of chief executive officer (CEO) of a multinational with hefty salary and benefits, jolted many inside the party and public at large. Many claim that it was due to Jahangir Khan Tareen, though disqualified like three-time-elected Prime Minister, Mian Muhammad Nawaz Sharif, he was near to Prime Minister and influential even to secure second vote of confidence for him. Reportedly, Asad Umar as Finance Minister resisted some “demands” of Jahangir Tareen, allegedly being in the nature of personal favours.  Many say that he was not acceptable to International Monetary Fund (IMF) for not yielding to their “undesirable” demands. His replacement, having the consent of those who matter in the land, was Dr. Abdul Hafeez Shaikh, first appointed as Adviser to Prime Minister and then Finance & Revenue Minister for six months, but failed to win the seat of Senate from Islamabad against former Prime Minister, Yousaf Raza Gilani, who was disqualified by the Supreme Court of Pakistan on June 19, 2012.

After Dr. Abdul Hafeez Shaikh, Hammad Azhar, Minister of Industries, was given the portfolio of Finance & Revenue for 18 days [March 29 to April 16 2021] and then made Minister for Energy. It is mentioned in Budget 2021: Taxes, Inflation Growth & IMF, Surkhyian, April 26, 2021:

In the petition filed by Dr. Muhammad Zubair Khan, former official of the International Monetary Fund (IMF) and ex-commerce minister (1996-97), under Article 183 of the Constitution of Islamic Republic of Pakistan [“the Constitution”], admitted for hearing, after overruling objections raised by Registrar of Supreme Court of Pakistan, according to a press report, contends:

“…..Shaikh was appointed as finance adviser on April 18, 2019. At the time, he was a partner in the New Silk Route (NSR) Growth Fund led by CEO and Founder Parag Saxena together with two other Indian partners. As advisor to the prime minister of Pakistan, Shaikh was not authorised under the constitution of Pakistan, to make or take decisions which adversely affect, compromise and violate the fundamental rights of the citizens of Pakistan…..Similarly, the present SBP governor took office on May 5, 2019, who was at the time a career staff member of the IMF serving as the IMF’s senior resident representative in Egypt. “His appointment was made in haste and has been made without following the legal procedures and the mandate as per law and the enunciations by this Court for appointments to public offices in Pakistan.”.

The fourth federal finance and revenue minister, Shaukat Fayaz Ahmed Tarin, was appointed by Premier Imran Khan on April 16, 2021. Shaukat Tarin earlier held the same portfolio from October 6, 2008 till February 28, 2010 in the Cabinet of then Prime Minister, Yousaf Raza Gillani of Pakistan Peoples Party.

Mr. Shaukat took oath of his office on April 17, 2021, subject to becoming member of National Assembly or Senate within 60 days. The resume of Shaukat Fayaz Ahmed Tarin is available on the websites of Ministry of Finance at: http://www.finance.gov.pk/profile_minister.html

According to the resume:

“During his tenure he stabilized the economy which was heading towards a certain default and was facing high inflation, large current account and fiscal deficits and dwindling FX reserves.  He was able to spearhead the successful conclusion of a Consensus National Finance Commission Award after 19 years.

During his stay with the government, Mr. Tarin refused compensation and paid for his own transport and accommodation expenses as well.

Mr. Tarin resigned from his post as Finance Minister on a matter of principle that he could not help his bank raise capital while he was in office. Managing Director IMF recognized his valuable services to the country when he left office”.

The challenges on economic front are grim and Shaukat Tarin has shown firmness to deal with them. Before becoming minister under PTI Government, he openly criticised his predecessors (Asad and Hafeez) for going to IMF originally unprepared (Asad) and for revival by (Hafeez) accepting unreasonable conditions when having no plan in hand. He also criticised the Governor State Bank of Pakistan (SBP) for high interest rates that according to him was second time negative GDP growth of 0.4 percent in fiscal year 2019-20.

In his maiden Press conference on May 5, 2021, Shaukat Tarin said: Pakistan cannot currently have the capacity to raise its tariffs or taxes under the IMF programme, adding that the World Bank and IMF have been sympathetic to the point of view. If people think we are trying to come out of the IMF programme, then no we will not. You get a stamp [of approval] from it because of which the world sees you are going towards stability, however, the targets they’ve given us at this time, we’ll tell them that the third wave of Covid-19 has arrived and give us some space at this time.” 

[bold and underlined for emphasis]

Shaukat Tarin said that he and the Prime Minister shared the philosophy of moving out of the stabilisation phase and towards growth. He said: “We have to grow this economy that it will be achieved through incentivising industry, agriculture and housing so there is employment for the people and the industry grows“.

The new Finance Minister lamented that Pakistan had been among the top economies in Asia in the past—a time when it had actually carried out economic planning. Shaukat Tarin revealed that “12 groups had now been formed under the Economic Advisory Council to conduct short, medium and long-term planning for various sectors”. He further claimed: “We have to make a comprehensive plan of those people and ministries who have to implement it so we can ensure their accountability”.

According to Mr. Shaukat Tarin, price stability is also an important aspect. He is of the view that “our prices are very erratic and our inflation is not coming coming down so we need to analyse what is the reason for this”. He specifically pointed at the disparity in prices between the retail sector and what the farmers receive and said: “It will be seen how it could be reduced. All of us want that inflation for the common man should be less, especially in items of everyday use”.

Shaukat Tarin and his team may study the model [Retail sector: a US$ 5 billion tax potential, TNS, [Political Economy] The News, September 6, 2020] of low-rate retail sales tax on retailers with point-of-sale (POS) connectivity that will bring price down, yield higher revenues and growth. This model as pilot project is elaborated in detail along with other tax policy and administrative reforms in Towards Flat, Low-rate, Broad and Predictable Taxes (PRIME Institute, Islamabad, revised and enlarged version (December 2020) is available free at: https://primeinstitute.org/towards-flat-low-rate-broad-and-predictable-taxes/). It is a fact that even after availing three consecutive programmes of IMF by Pakistan Peoples Party (PPP), Pakistan Muslim League (Nawaz)—PMLN—and PTI since 2018, our economic woes are continuing, rather becoming sever with every passing day—see details in Tax Reforms in Pakistan: Historic & Critical View, published by PIDE (available  free at: https://www.pide.org.pk/pdf/Books/Tax-Reforms-in-Pakistan-Historic-and-Critical-View.pdf.

The main objection on programmes of IMF and World Bank is that their prescriptions are without understanding the mundane realities of Pakistan. The IMF, World Bank and others lenders/donors are least pushed about the inequitable character of our tax system, under which the burden of taxes is less on the rich and more on the poor and above all it is anti-growth. We all know that the complex tax codes and procedures and their maladministration by the FBR is the main stumbling block in the way of investment, which is a prerequisite for any growth model. There exists a huge trust gap between the FBR and the taxpayers. The complete roadmap for simplification of taxation system, growth, documentation and bridging tax gap is given in a recent article, Restructuring of tax system: a blueprint, Business Recorder, May 7, 2021.    

The reforms are not only required in taxation system but in all areas. The most important is political stability that is the main challenge for the PTI Government. To continue as Finance Minister beyond six months, Shaukat Tarin needs to be elected as member of National Assembly or Senate. According to a news story [The return of Tarin] of April 19, 2021:

“Mr. Tarin, in a polarised polity of Pakistan, will have to stay tall on the conflict-of-interest sermons Prime Minister Imran Khan and his party followers keep rolling out on sugar prices amid his close relationship with Jahangir Khan Tareen, Akhtar brothers and Anwar Majeed who jointly control almost half of the country’s sugar industry”.

The above insinuations appear to be ill-founded. Shaukat Tarin, or for that any other citizen, should be considered innocents until proven guilty. However, the ministers and responsible officials of the present government and media as well as National Accountability Bureau (NAB) are too fond of media trial that is against the basic norms of democratic dispensation. Democracy is not mere elections. It is a system of checks and balances. The best way to uproot corruption and other financial crime, please read:Uprooting corruption: Lessons from China, Global Village Space, May 12, 2021. Political parties must get rid of the corrupt in their ranks and files and also come out of the cultism—one man controlling the entire party. Once elected the Prime Minister, he/she should not head the party. No political party is adhering to the basic norm of democracy that is separation of party control and running the state affairs. The party should make the government accountable.

In utter violation of the Constitution, no party is holding election as elsewhere in the world where bona fide democracy is in existence. This is the main area where we need to focus before talking of growth. Authoritarianism is apparent in our political culture. No one should be indispensible. Individuals come and go—what matters is welfare of masses, effective functioning of institutions and enforcement of rule of law. Democratisation of political parties, accountability of all and supremacy of the Constitution alone can strengthen democracy—this is also necessary to check external institutional influence and control of party by those having money power. It is time to reform all institutions and ensure economic progress of Pakistan for which a detailed roadmap is given in Friend for all seasons, Narratives, May 8, 2021 explaining what we can learn from our most trusted friend China while celebrating 70 years of cherished relations and the importance of China-Pakistan Economic Corridor (CPEC) and  Belt and Road Initiative (BRI).  

The salient points for consideration of all political parties and national debate to evolve National Reforms Agenda, beyond party affiliations, can be:

1. Fundamental reforms in the justice system and in administrative/governance apparatuses to eliminate the causes of litigation. Ensuring efficacy and accountability of all institutions. 
2. Revamping of education system to end ignorance and illiteracy, and make people skilful rather than distributing paper degrees and diplomas, Focal point of education should be creating a society that is tolerant, disciplined, courteous and knowledgeable—capable of making innovations and technological advances.
3. Direct elections of Senate and giving it powers to vote on Money Bill.
4. Decentralisation of political, administrative and financial responsibility to local governments. Education, health, housing, local policing, and all civil amenities should be provided through elected representatives of the local governments that should have powers to raise taxes for these purposes.
5. Digitization, transparency and accountability in the governments at all levels to enable citizens to understand and participate fully in the process of national integration.
6. Reforms in civil services, fair deal for employees with effective and across the board accountability.
7. Elimination of terrorism, sectarianism, bigotry, intolerance and violence though enforcement of law and by taking concrete measures to ensure social development of society based on higher values of life and humanity.
8. Strict laws and their effective implementation to curb terrorist financing, money laundering, plundering of national wealth, political write off of loans and leakages in revenue collections.
9. Devising long-term and short-term strategies to break the shackles of debt-trap, making Pakistan a self-reliant economy and ensuring social security and economic justice for all citizens.

10. Reform and strengthening of management of public finances. Transparent public sector spending coupled with efficient performance.
11. Determination and political will to control wasteful, non-developmental expenditure.
12. Reform of technical, institutional and organizational dimensions of public finance.
13. Good governance and corruption free administrative and judicial structures.
14. Federal government should only collect income tax and customs duty. Harmonised sales tax on goods and services should be in the provincial domain. All federal, provincial and local taxes should be collected through one agency (National Tax Authority) which should also disburse pension and other social security payments to all citizens.
15. Reduction in excessive marginal tax rates making them compatible with other tax jurisdictions of the world, especially in Asia. Substantial reduction in corporate rate of tax. Elimination of onerous taxes and other regulations for corporate sector that are the main stumbling blocks for domestic and foreign investments. Simplification of tax laws and procedures.

An eminent thinker and economist, Dr. Nadeem Ul Haque, Vice Chancellor of PIDE, has written a book showing how Pakistan managed to achieve the status of Asian Tiger. He has offered an optimistic, futuristic and realistic perspective for a prosperous Pakistan. Unfortunately, his work has yet not been given the attention it deserves by policymakers, legislators, academicians, businessmen and administrators. Our politicians, administrators, intelligentsia and entrepreneurs keep on complaining about multiple and complex challenges faced by Pakistan but seldom strive to implement even the available and workable solutions by local experts. We want IMF, World Bank and others to reform us. This is our real tragedy and dilemma. We must appreciate and implement the indigenous research-based solution after debate in public and in national and provincial assemblies and Senate. The Standing and Special Committees should invite (these days through virtual platforms) experts for assisting and there should be live telecast so that public must know the process of legislation for beneficial reforms.

The problem of Pakistan is not scarcity of resources, but unwillingness on the part of policymakers to tap the same, properly utilise and manage their equitable distribution, absence of effective administrative and justice systems to check socio-economic injustice and violation of rule of law. We cannot achieve sustainable higher growth without undertaking the fundamental reforms mentioned above. Rapid economic growth is not possible without ensuring socio-economic justice for all, rule of law, equal opportunities for all, jobs to millions of young people, whose frustration is on the rise with every passing day, especially in the aftermath of heavy economic toll of three Covid-19 outbreaks leading to full and partial lockdowns.  

The work of PIDE [especially, ‘PIDE Reform Agenda for Accelerated and Sustained Growth,] and Dr. Nadeem’s  book [Looking Back: How Pakistan Became an Asian Tiger by 2050] are very important from the perspective of how to go for all-out reforms and achieve high growth with inclusive development benefitting all segments of society. We need to end the rule of mediocrity, imposed by today’s administrative apparatus, culture of plots and perks, and non-functioning of state institutions, inefficiencies in public and private sectors, human resource development. This alone can ensure fulfillment of dream of becoming a booming economy again assuring prosperity for all as reiterated many a times by the new, energetic and determined Finance Minister since April 17, 2021. 

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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, IT, intellectual property and international tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation.  He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.