The News 23th May 2011
By Jamil Nasir
State ownership per se is not the only reason for the lacklustre performance of the public sector entities (PSEs). In this context, privatisation might not be the most pragmatic solution to salvage the futile PSEs, particularly if the government lacks adequate regulatory capabilities or is generally perceived as a corrupt state institution. On the other hand, if the ruling leadership has a strong political will to introduce organisational reforms in the PSEs, the economy’s condition can be improved without resorting to privatisation. Moreover, privatisation of loss-incurring enterprises is not an easy affair. It requires introducing fundamental reforms for improving the overall governance in these organisations to make their functioning and administrative affairs better. It implies that ‘third options’ should be explored that can either act as a substitute for privatisation or pave way for successful privatisation process to occur.
Introduction of fundamental organisational reforms is the first set of policy prescriptions that can be explored as one of the options. The goals and objectives of the PSEs need to be examined critically. Different weights can be assigned to the goals in order of priority. As a result of this critical analysis, the goals of PSEs should be reduced to the minimum possible number. The redundant or overlapping functions should be done away with. In this way, the charters of the PSEs can be redefined to avoid the overlapping of goals among various PSEs.
Another important ingredient of the organisational reforms is to ensure transparency in its operations and money matters. The PSEs should be required to maintain high standards of transparency and disclosure. The maximum possible information should be made available to the public at large related to their functions, policies, contracts/deals, HR aspects etc. Recruitment, placement and transfer should not be based on patronage and political considerations. A code of corporate governance after analysing the best global practices may be a good step forward to improve the governance of the PSEs. The code of governance should, inter-alia, provide answers to the significant questions, such as how the employees are selected, what they are paid, etc.
The appointment of CEOs and other top officials who are primarily responsible to set the direction of the organisations should be through an open, transparent and merit-based process. Recruitment of CEOs may be advertised in the newspapers. The aspirants may be asked to submit their strategy papers for making these enterprises profitable and efficient organisations. Only the candidates of known integrity and possessing proven leadership qualities should be selected through an independent commission that enjoys trust of both the government and the opposition.
In order to reduce interference from the government, the CEOs of such organisations must be accountable to a parliamentary committee composed of representatives of both the government and the opposition, having good understanding of managerial and economic issues. Once a CEO is selected through a competitive and merit-based process, the government should support the actions he/she takes to improve the performance and efficient running of the organisation. The government should not interfere in day- to- day operational matters of the organisations. They should be allowed full operational autonomy to achieve their objectives.
Linking the incentive system with performance, efficiency, productivity, and consumer satisfaction may be another important initiative in the domain of HR. The incentive system need not be construed as meaning materialistic rewards only and must include non-materialistic elements as well. Managerial autonomy, improved performance evaluation system, and a better incentive system can go a long way in improving the performance of the PSEs.
Further, high quality auditing and accounting standards ought to be prescribed for the PSEs. Information relating to accounts like balance sheets and income statements etc. should be available on their websites. Efficient internal audit function should be put in place. In our case, the office of the Auditor General of Pakistan may be tasked with the ‘performance audit’ of such organisations. The performance audit reports could become the starting point for a restructuring strategy of the PSEs.
Another set of policy prescription to salvage the PSEs can be increasing competition. Agreed that in cases where PSEs enjoy natural monopoly, increasing competition is either impossible or socially unproductive. Also agreed that coordination costs of escalating competition can be sometimes high but it does not mean that we do not have room for improving the productivity of a PSE by stimulating competition. For example, a PSE can be divided into regional units. Reward/punishment of such regional units should be according to their relative performance. Such a strategy can pave way for privatisation of some of the regional units at some later stage as was experimented by the British Railway system.
But above all it is the political will of the government that matters. The administrative and structural reforms require a high level of commitment. The culture of political patronage that has permeated into the public sector organisations is the biggest stumbling block to organisational restructuring and reforms. But the fact of the matter is that PSEs are here to stay. There are limits to the down-sizing and right-sizing of the public sector. So the need of the hour is that these organisations and enterprises are subjected to wide-ranging reforms of fundamental nature.
Monday, May 23, 2011
Higher revenue generation: an uphill task
THE NEWS 23th May 2011
By Sardar Irshad Shaheen
Collection of taxes has been the most vital source to generate revenue in almost every society of human history, and a taxation system is the lifeblood for socio-economic development of a modern state. A developed tax system helps establish a fair society through equitable distribution of economic benefits. Such a system must be business friendly to attract and encourage investment at all levels of business activities. But if a tax system remains regressive and inelastic, it discourages properly documented investment with its social implications compelling the country to rely heavily on other revenue generation sources, including foreign assistance with wholly unfamiliar and irrelevant recipes.
High tax rates and an overall complicated tax system in Pakistan are the main causes of black economy and tax evasion, non documentation and corruption. The informal sector is thriving due to unchecked illegal activities such as smuggling, black marketing, and drug trafficking that are taking place in major parts of the country to the advantage of pressure groups who are helped by powerful mafias and vested interests. They are further promoted and protected by politico- bureaucratic amalgam through erosion of institutional stability and hollow cosmetic measures.
Unfortunately, this state of affairs is not only allowed to continue but it is being strengthened by defeating professionalism to accommodate manipulating groups and incompetent individuals.
It is a proven fact that all taxes in any shape are unwelcome, but income tax is the most unpleasant of all taxes, and it remains so in whatever from it is introduced anywhere in the world. A chief reason for its unacceptability is that it does not provide any direct return or benefit to the taxpayer. That explains why Zakat even at a very low flat rate of 2.5 per cent was refused at a very early stage of Islamic history (during the period of first Caliph).
A country’s tax system can be successful only if it has:
(1) Clarity of law and communicable simplicity of procedure.
(2) Stability in institution building and continuity of policies for promoting tax culture, in accordance with the stage of development of a society.
(3) Specialised and professional top management equipped with practical experience in tax field.
(4) Enforcement of law in letter and spirit.
(5) Provision of incentives to the taxpayers with some direct social and material advantages.
Simplicity of tax law and procedure will not succeed unless the number and rate of taxes are reduced to a reasonable level. A few years back more than hundred different taxes were in operation in our country out of which the most frequently charged 77 taxes included; 20 federal taxes, 19 provisional taxes, 14 local taxes and 24 other levies and surcharges. The businessmen were entirely at the mercy of various government departments. The tax rates were also unreasonably high since it was an easy way to increase revenues by increasing the number or rate of taxes.
Simplifying tax laws through experimentation:
Legal provisions under the Income Tax Act 1922 were considered quite complex particularly due to new requirements faced by taxpayers in the emerging business environment. This act was replaced by Income Tax Ordinance, 1979, in which legal provisions and procedures were re-arranged in a much simplified manner. It was welcomed by all the stakeholders. There was no strong demand to replace this law by a new one. The only demand of the taxpayers then was that Universal Self Assessment Scheme be given legal cover instead of changing it every year through circulars.
Nevertheless to the amazement of every stakeholder, a new law was drafted not by local experts, but by a foreign expert- completely oblivious to the local conditions ñ purely on the pattern of a developed economy. This law became operative as the Income Tax Ordinance, 2001. Even senior field officers were not taken into confidence and the entire exercise was done under the compulsion of IMF and World Bank. In the name of reforms every detail was prepared by IMF through a ìconfidentialî paper in which the designation, nomenclature, the design of offices and number of officers and employees were proposed by foreigners. The dominant role allowed to the World Bank and IMF made many field officers believe for quite some time that funds for reforms supplied by these institutions were grants and not loans. Not only was the road map prepared by IMF followed literally, but the loan money had been squandered recklessly. After the promulgation of Income Tax Ordinance 2001, more than four hundred amendments had to be made in it during the first month alone. Over two thousand amendments have so far been made in Income Tax Ordinance, 2001 as it was not in tune with the domestic requirements. It was an unnecessary exercise of mere experimentation which greatly eroded the institutional fabric of the tax organisation and added a great deal of confusion.
After the operation of Income Tax Ordinance 2001, repeated concessions were allowed to taxpayers some of which were not even demanded by them. Our system of income tax today is one of the most concession-orientated systems in the world. But compliance of tax laws has shown no improvement.
In comparison, India redrafted the Income Tax Act 1922 in 1961 and income tax laws have been enacted under Income Tax Act 1961 with effect from 13-09-1961. In this act amendments have been made through 109 finance acts so far. These amendments have been smoothly made by adding additional sections and sub sections without drafting new laws again and again. For instance in Chapter-VI A dealing with some deductions, section 80A has 67 additional sections (besides sub sections) from section 80A to 80 VVA, and section 115 has 75 additional sections from 115A to 115WL. Indian income tax rules revised in 1962 are still operative. We replaced the Income Tax Act 1922 with Income Tax Ordinance 1979, which was repealed and replaced by Income Tax Ordinance 2001 drafted by a foreign expert based on the model of an advanced country.
The Indian tax system had the closest affinity with our business and social environment since both countries inherited the Income Tax Act, 1922. But instead of sharing common experience with Indian tax laws, we preferred aping a model of a distant advanced country having little relevance to our ground realities.
Erosion of FBR as an institution:
An imported finance minister (later prime minister) had managed to thrust upon the FBR five members from the private sector who had little working expertise in a taxation department. Huge amounts were spent on them as perks with hardly any positive achievements. All this was done in the name of reforms and introduction of fresh (but alien) experience in this specialised organisation. These members could hardly match the career tax officers having over 30 years of practical field experience. The officers and workforce remained disillusioned and no positive long lasting result could be achieved. Major attention was focused on withholding tax which has been imposed on nearly every consumable item or receipt, and income tax got converted into an indirect tax which is suicidal for the very spirit of direct tax system. Even the formulation of the budget has been artificial as major chunk of revenue came from sales tax, customs duties and withholding tax on constantly increasing imports. So when these sources fell, the budget target also fell significantly. As if this was not enough, the federal government appointed a generalist as chairman FBR last year (who was junior to 38 officers of FBR). This was done at the most crucial time, when collection of revenue was most needed during the end of last financial year and the government could ill afford such an adventure. When the career members protested at this appointment, they were sidelined. This year too, just four months before the end of the financial year, the previous head of FBR has been replaced by a new generalist officer. The appointment of a generalist as head of a technical and professional organisation reflects total disregard of national interests, particularly at this critical time.
Such an attitude appears to be a deliberate attempt to erode national institutions which is a classic example of bad governance. The undeniable fact is that FBR has been failing in raising its tax-to-GDP ratio due to: (a) excessive experimentation and resultant erosion of intuitions; and (b) little importance given to career offices and tax experts in policy making and top postings.
Current state of affairs:
(1) The budget target of the FBR was fixed at Rs1,630 billion which was revised and re-fixed at Rs1,588 billion. With two months left, FBRís total collection up to April 2011 was Rs1,147 billion, leaving Rs441 billion balance to be collected. Collection of such a huge amount does not appear to be possible. The policy makers not only banked heavily on foreign borrowings but had no definite plan for the economy despite energy crisis, slash in PSDP (twice) and substantial interest payments on foreign debt amounting to Rs1,300 billion, which consumed a large proportion of the national resources together with expenditure on war on terror.
The quality of economic analysis and research of our financial experts can be found in Economic Survey 2009-10. The information and figures spread over various pages lack any descriptive scrutiny leading to no direction. As a whole the survey appears to have been prepared with no thought or effort. If such is the government's priority then one should not be surprised if the revenue system today is in such a mess.
(2) As pointed out earlier, our income tax system today is heavily concession oriented, but despite that the tax base has not expanded adequately and the tax-to-GDP ratio is still plummeting.
Taxpayers must be provided a guarantee of stability in tax rates and procedure of the system. Legal guarantee of Universal Self Assessment has been provided through statutory provisions in the Income Tax Ordinance 2001. Every return of income filed by a taxpayer is to be accepted irrespective of declared figure of income or loss. The rates of income tax were also to be reduced with some variation and the minimum rate should be half per cent and maximum twenty per cent for every taxpayer including the corporate sector. This would have reduced evasion, malpractices and corruption, resulting in expansion of the tax base. But the government fixed the rate at 35 per cent on corporate sector whereas on salary income, the maximum rate was reduced to 20 per cent. The FBR has again failed to appreciate the role of continuity and credibility of tax laws. Having failed to broaden the tax base, tax rates have been increased on all classes of income with complicated methods.
(3) The government on the advice of non-technical consultants and advisors has constantly been introducing whitening schemes, despite the fact that foreign remittances through banking channels were a constant source of whitening the untaxed money. The latest adventure by the government was that only two per cent tax was to be paid through a whitening scheme for whitening any amount of assets or black money, but the response was a paltry payment of Rs3.2 billion income tax for whitening assets, just 1.23 per cent of the total size of economy. This sorry state of affairs in the presence of every concession allowed by the government is most unfortunate and speaks loudly of the apathy of the policy makers. This also shows that the government would not want FBR to be an independent stable institution run by experts and experienced tax officers. Obviously the first priority of the government must be that highly experienced career officers of tax service be posted to top management levels of FBR and there should be no room for any mediocrity.
(4) Back in 1998 the number of taxpayers stood at 961,090. These taxpayers included salaried persons (411,000) and business class (534,000). After eleven years the position as on 30-06-2009 and 30-06-2010 was as shown in Table-1.
The figures in table 1 clearly reflect the dismal performance of the policy makers. The documented sector (or corporate sector) is very small which mainly bears the brunt of tax collection. Top one hundred taxpayers paid Rs174 billion in 2010 besides deduction at source and advance tax (mostly paid by petroleum, banking and manufacturing sectors). Other than the active registered companies and salaried class, the number of business taxpayers is quite low. Their share in the income tax collection is less than 10 per cent of the gross collection whereas the share of a salaried person is 7 per cent. After deducting the collection of tax paid by corporate sector at Rs176 billion plus gross withholding tax (with CVT collection), the balance amount left is Rs15 billion only which is around 3 per cent of total tax collection. It is argued that the business community pays withholding tax on almost each item, but the same is true of the whole population including the large majority of poor people. The common man pays withholding tax on mobile phones and other items (including CVT), which was almost 54 per cent of the gross income tax collection in 2009. It may also be added that corporate sector, government corporations, banks and some multinational companies including oil companies, have been paying bulk of the tax revenue. Almost the same number of companies (one hundred) paid over 80 per cent of indirect taxes. Obviously the number of regular business taxpayers who filed returns of income could not increase.
(5) Overall collection of FBR as on 30-06-09 and 30-06-10 shows an unpromising situatio. (see Table-2)
The figures in table 2 indicate that the amount of withholding income tax, sales tax on imports and federal excise on imports and customs duties works out to be 51 per cent and 63 per cent in both years, respectively. Major source of even domestic sales tax and federal excise duty comprises of:-
(a) Consumption of sugar and products of edible and medicine, etc.
(b) Utility bills and excise duty on bank transaction.
(c) Purchases by government and semi-government organisations, corporations and various contracts. Add to it the withholding tax on almost every item and it would be clear that the burden of 70 per cent of all taxes is being borne by the common man through indirect imposition of taxes.
It is a matter of grave concern that the situation is deteriorating. The tax-to-GDP rate has plunged to 8.8 per cent. The number of income tax business returns received during the last two years was quite unsatisfactory.
As regards to sales tax, the situation is worse. The number of enrolled sales taxpayers is merely 102,167 and only 90,204 returns are now regularly being filed. During the financial year ending on 30.06.2010, only one hundred corporate taxpayers paid 81 per cent sales tax (Rs240 billion) out of a total collection of Rs295 billion domestic sales tax. A major amount of domestic federal excise duty was also paid by only twenty four corporate taxpayers (mostly petroleum companies).
Solution:
The past experience of over three decades leads us to the conclusion that frequent experimentation and outside interference has caused erosion of the FBR as a stable tax collecting institution, with severe repercussions for the taxpayers and officials alike. The Central Board of Revenue was re-designated as Federal Board of Revenue through an act of parliament with effect from November 1, 2007 as a semi autonomous body after years of deliberations and efforts. The newly established organisationís performance was affected by mindless experimentation and appointment of non professional individuals at the helm of affairs. The FBR appears to lack direction and functions without proper coordination among various tiers of its departments. There is great deal of confusion and dissatisfaction all around.
If the government is really serious in tackling the issue of tax revenue collection, it must consider the FBR as an essential state institution. The right people for the right job must be a permanent feature with well defined career- oriented expertise in the organisational hierarchy. In areas like reforms and restructuring, the task must be left to experienced and senior officers of FBR only, who can reexamine every aspect of structural anomaly according to the actual requirements and ground realities. It must be emphasised that the FBR needs to be strengthened as an organisation based on professional competence.
The following measures, therefore, need to be adopted for immediate and long-term stability and efficiency of the taxation system, which would also help to expand the tax base and increase revenue:
A - (1) FBR is traditionally plagued with political pressure and bureaucratic (vested interest) influence. The first step should be to select chairman of FBR on merit. For this purpose, the post of chairman should be advertised for selection through Public Service Commission for a fixed tenure of four years based on academic qualification and professional experience. Such a step would go a long way in stability and efficiency of the FBR with no apprehension of political interference.
(2) Job classification with career planning must be clearly defined with strict application at all levels for postings and transfers. Job performance of various sections of FBR needs to be revamped for better coordination and only those officers should be posted in FBR who have sufficient field experience turn by turn for a fixed period.
(3) A full fledged research and development wing needs to be established to guide the FBR in the tax policy matters and suggest practical ways for effective coordination between FBR and field formations in the light of ever emerging new situations.
(4) Systems of appraisement of customs duty and Pakistan Customs Computerised Systems (PACCs) and system of sales tax processing and Sales Tax Automated Refund Repository System (STARR) should not be closed, but upgraded for application in all the dry ports and sea ports to make them transparent and less time consuming. Only fully trained and honest officers should be empowered to appraise and assess tax liabilities in accordance with best practices principle.
(5) Smuggling is perhaps the most lucrative and organised business in Pakistan and smuggled goods are sold openly everywhere particularly due to misuse of Afghan Transit Trade (ATT). Many departments including Federal Investigation Agency, commerce ministry, and foreign office deal in anti-smuggling cases. Other agencies like Coast Guards, Frontier Constabulary, Levies and even the police department have been given anti-smuggling powers. It not only creates overlapping and delay in taking proper action, but it also becomes a source of organised corruption which explains why smuggled goods are available not only in big cities but also in small towns. These agencies mostly run after tracing smuggled goods for corrupt practices and they do not focus on their own duties. A single agency fully trained and equipped must be empowered in dealing with anti-smuggling in an effective and transparent manner.
(6) All exemptions from sales and income tax should be withdrawn. The chief commissioner should be empowered to allow exemption in genuine cases for a specified period.
(7) At present only one hundred taxpayers of the corporate sector pay 90 per cent of sales tax on imported and domestic items. To make it acceptable within the business community, sales tax or RGST should be considerably reduced to 5 per cent starting from a fixed rate of 1 per cent or Rs100 on specified monthly sales (gradually increasing up to 5 per cent which should be adjustable). Sales tax at the rate of 1 per cent should also be imposed on defence purchases as well as on all medicines which should be non-adjustable. International tenders should also be taxed 1 per cent non-adjustable sales tax.
(8) Federal excise duty should be merged with sales tax to reduce the number of taxes and hassle for the taxpayers. The sales tax system must not only be fully automated to minimise delays and corruption, however a strict system of audit should also be put in place to eliminate the misuse of the system.
(9) Claim of refund on account of input cost has been a major source of corruption and malpractice. This can be curbed by reducing sales tax rates and abolishing exemptions. Instead alternate incentives can be offered to exporters including exemption of income tax and other taxes/levies on exported goods.
B - (1) Tax revenue enhancing measures:
For expanding the tax base, some provisions of law need to be amended / added to ensure that:
(a) All property transactions involving plots of 2 kanals and above in the urban areas of big cities should be registered only after verification of national tax number (NTN) of seller and purchaser;
(b) Similar method should be adopted for sale and purchase of commercial property of any size in big cities;
(c) All types of vehicles with market value of one million rupees or above should be registered/transferred after verification of NTN from the tax officer;
(d) Every person traveling abroad, except students and foreign nationals should be required to obtain NTN from the income tax department. This should also include travel for Umrah, Hajj or Ziarat, medical treatment and personal visits;
(e) Expenditure on lavish functions, including marriage and social/political gatherings and conferences should be taxed either at a fixed rate or booked for assessment of income after verification of NTN of the person concerned;
(f) Services sector is highly under taxed, particularly the income of surgeons, physicians, advocates and professionals rendering consultancy services. Surgeons earn an average of Rs0.5 million to Rs20 million per month. A specialistís income ranges from Rs0.2 million to Rs1.5 million per month, whereas their annual declared income is generally even less than their monthly income. Fees of private professional colleges and schools are also very high. Their share in revenue is nominal but no meaningful audit has ever been conducted. A mechanism needs to be adopted to properly tap this very important under taxed source of revenue;
(g) For better compliance, tax returns should be prepared in Urdu together with pamphlets for proper guidance of taxpayers.
(2) Making the tax laws equitable:
(a) The most frequently raised objection by the business community in particular and public in general is that politicians are selected by the people to safeguard their rights and are supposed to make laws in the best interests of the populace. Nonetheless, our politicians violate the law themselves when it comes to paying tax. Statistics show that very few legislatures of the national, senate and provincial assemblies are on tax rolls; and those who have a NTN pay an insignificant amount compared to their lavish expenses. It should be made mandatory under the law for every person contesting in the election (at any level) to get a NTN and file their return of income and wealth statement. Any person found guilty of tax evasion must immediately be disqualified. Such a step will give substantial boost to payment of taxes as leaders of the people will become a role model for them, dispelling the public perception that they consider themselves above the law.
(b) Due to a powerful lobby of authoritative landowners, agricultural income is exempt from income tax as it is a provincial subject under the constitution. Tax exemption to such a large section of economy reflects a huge distortion and the tax laws appear as inequitable. Taxing the agriculture income will make the taxation system not only equitable but it will greatly help boost the low tax-to-GDP ratio. Three steps should be taken in this direction:
(i) Agriculture land up to 15 acres should be exempted from income tax.
(ii) Income tax rates should be reduced (even for other taxpayers) to make the tax acceptable and to reduce the tendency of evasion.
(iii) Agriculturists can be compensated by provision of cheap fertilisers, electricity and irrigation water
(c) At present the FBR has not devised a worthwhile effective procedure of audit both for income and sales tax. There is no practical deterrence against evasion of tax after introduction of Universal Self Assessment Scheme. There needs to be a transparent provision in law that each case shall be audited on its turn after every third or fourth year (unless caught earlier on account of some definite evasion).
(d) Typically traditional bureaucratic method for raising revenues is to increase the rate of tax and number of taxes, which is counter-productive as such a method encourages tax theft and makes the tax base shrink. Not only the minimum rate should start from the lowest slab, but the maximum rate of income tax should not be more than 20 per cent, as no one would willingly pay tax more than that. Instead of promoting short-term interests, the FBR must bring the tax rates to a reasonably acceptable level so that measures adopted for increasing the number of taxpayers and revenue become fruitful. Lower tax rates can be a better tool of persuasion for taxing agriculture income. Moreover, another very important advantage of lower tax rates would be that it can help in introducing sales tax even at the retail level. The traders dislike documentation due to fear of paying income tax. If they can declare maximum receipts and incomes because of lower tax rates, the resistance to the imposition of sales tax would be minimised.
(3) Wealth tax:
(a) Wealth tax was abolished in 2000 under the pressure of powerful lobbyists, comprising mostly of civil and military bureaucracy, who did not want to pay wealth tax on their properties and plots. Tax on wealth is an important instrument of a fiscal policy which endeavours to establish an equitable economic system. Due to rising trend of investment in non-productive sector like properties, it would be advisable to impose wealth tax on all immovable properties at a fixed rate to be paid at the time of purchase/transfer. Wealth tax on each property measuring 2 kanals and above should also be charged annually. Other assets including costly vehicles can also be taxed accordingly.
(b) All the measures require the will of the government to enforce the law in letter and spirit. Successive governments have been bullied by apprehension of tradersí strikes, and they have wrongly considered them their decisive political constituency. A few hundred thousand traders can never change the fate of a government or political party if it remains more sensitive to the well being of the large population of 180 million people. Moreover, the ruling elite itself sometimes proves to be biggest hurdle in the enforcement of law. A tax collector sent his officials to monitor sales of one restaurant in Lahore, which incidentally belonged to the minister of state for finance. The collector was immediately made officer on special duty (OSD) and the whole campaign resulted in a fiasco. The political leaders in general and the party in power in particular consider themselves above the law. Such a mindset would never enable us to stand on our own feet.
C - Special incentives for taxpayers:
Our present system has not envisaged any provision of incentives to the taxpayers. To promote tax culture, the government must provide some special incentives to them. For instance, a certain limit of payment of tax (say Rs200,000) can be fixed for an individual taxpayer for one year, and if a taxpayer pays tax (of that amount or above), then he should be allowed some privileges for that year. For instance:
(i) Power to attest certain documents that year; (ii) Recommendation to issue specified number of armed licenses in that year; (iii) Recommendation to issue national identity cards and domicile certificates etc; (iv) Status of honourary magistrate and power to check and challan the traffic violators for one year by fixing a threshold of tax payment for this purpose. This will ensure additional advantage of effective control to regulate the otherwise quite unwieldy traffic throughout the country; (v) Priority in obtaining telephone, electricity, sui-gas connections; (vi) VIP treatment in hospitals and in courts of law; (vii) Some social security system should be introduced for regular taxpayers and incase of old age or disability, they should be paid some percentage of amount out of the tax already paid by them over the years; and (viii) Highest taxpayers should be offered honourary seats in legislation and government corporations. They should be guest of honour in certain local, provincial or national ceremonies/functions.
TABLE - 1
S. No. Total Number of Tax Payers Year ending Year ending
30-06-09 30-06-10
1 Number of companies 18973 19755
2 AOP Cases 28779 31135
3 Salaried Cases 145019 196101
4 Non corporate business 549252 638633
5 Number of return filers 765461 1444389
6 No. of persons shown in statements,
certificates of salaries, imports and exports, etc. 1766998 2313606
TABLE - 2
Taxes Year ending 30-06-09 Year ending 30-06-10
Sales Tax (total) 478284m 516348m
(1) Sale Tax on imports 203323m 247246m
(2) Sale Tax on domestic 274961m 269102m
Federal Excise (total) 113715m 124784m
(1) FED on imports 14617m 13557m
(2) FED on domestic 99098m 111227m
Customs (Net) 155905m 160273m
Income Tax (Net) 480487m 525977m
(Including withholding tax + CVT)
By Sardar Irshad Shaheen
Collection of taxes has been the most vital source to generate revenue in almost every society of human history, and a taxation system is the lifeblood for socio-economic development of a modern state. A developed tax system helps establish a fair society through equitable distribution of economic benefits. Such a system must be business friendly to attract and encourage investment at all levels of business activities. But if a tax system remains regressive and inelastic, it discourages properly documented investment with its social implications compelling the country to rely heavily on other revenue generation sources, including foreign assistance with wholly unfamiliar and irrelevant recipes.
High tax rates and an overall complicated tax system in Pakistan are the main causes of black economy and tax evasion, non documentation and corruption. The informal sector is thriving due to unchecked illegal activities such as smuggling, black marketing, and drug trafficking that are taking place in major parts of the country to the advantage of pressure groups who are helped by powerful mafias and vested interests. They are further promoted and protected by politico- bureaucratic amalgam through erosion of institutional stability and hollow cosmetic measures.
Unfortunately, this state of affairs is not only allowed to continue but it is being strengthened by defeating professionalism to accommodate manipulating groups and incompetent individuals.
It is a proven fact that all taxes in any shape are unwelcome, but income tax is the most unpleasant of all taxes, and it remains so in whatever from it is introduced anywhere in the world. A chief reason for its unacceptability is that it does not provide any direct return or benefit to the taxpayer. That explains why Zakat even at a very low flat rate of 2.5 per cent was refused at a very early stage of Islamic history (during the period of first Caliph).
A country’s tax system can be successful only if it has:
(1) Clarity of law and communicable simplicity of procedure.
(2) Stability in institution building and continuity of policies for promoting tax culture, in accordance with the stage of development of a society.
(3) Specialised and professional top management equipped with practical experience in tax field.
(4) Enforcement of law in letter and spirit.
(5) Provision of incentives to the taxpayers with some direct social and material advantages.
Simplicity of tax law and procedure will not succeed unless the number and rate of taxes are reduced to a reasonable level. A few years back more than hundred different taxes were in operation in our country out of which the most frequently charged 77 taxes included; 20 federal taxes, 19 provisional taxes, 14 local taxes and 24 other levies and surcharges. The businessmen were entirely at the mercy of various government departments. The tax rates were also unreasonably high since it was an easy way to increase revenues by increasing the number or rate of taxes.
Simplifying tax laws through experimentation:
Legal provisions under the Income Tax Act 1922 were considered quite complex particularly due to new requirements faced by taxpayers in the emerging business environment. This act was replaced by Income Tax Ordinance, 1979, in which legal provisions and procedures were re-arranged in a much simplified manner. It was welcomed by all the stakeholders. There was no strong demand to replace this law by a new one. The only demand of the taxpayers then was that Universal Self Assessment Scheme be given legal cover instead of changing it every year through circulars.
Nevertheless to the amazement of every stakeholder, a new law was drafted not by local experts, but by a foreign expert- completely oblivious to the local conditions ñ purely on the pattern of a developed economy. This law became operative as the Income Tax Ordinance, 2001. Even senior field officers were not taken into confidence and the entire exercise was done under the compulsion of IMF and World Bank. In the name of reforms every detail was prepared by IMF through a ìconfidentialî paper in which the designation, nomenclature, the design of offices and number of officers and employees were proposed by foreigners. The dominant role allowed to the World Bank and IMF made many field officers believe for quite some time that funds for reforms supplied by these institutions were grants and not loans. Not only was the road map prepared by IMF followed literally, but the loan money had been squandered recklessly. After the promulgation of Income Tax Ordinance 2001, more than four hundred amendments had to be made in it during the first month alone. Over two thousand amendments have so far been made in Income Tax Ordinance, 2001 as it was not in tune with the domestic requirements. It was an unnecessary exercise of mere experimentation which greatly eroded the institutional fabric of the tax organisation and added a great deal of confusion.
After the operation of Income Tax Ordinance 2001, repeated concessions were allowed to taxpayers some of which were not even demanded by them. Our system of income tax today is one of the most concession-orientated systems in the world. But compliance of tax laws has shown no improvement.
In comparison, India redrafted the Income Tax Act 1922 in 1961 and income tax laws have been enacted under Income Tax Act 1961 with effect from 13-09-1961. In this act amendments have been made through 109 finance acts so far. These amendments have been smoothly made by adding additional sections and sub sections without drafting new laws again and again. For instance in Chapter-VI A dealing with some deductions, section 80A has 67 additional sections (besides sub sections) from section 80A to 80 VVA, and section 115 has 75 additional sections from 115A to 115WL. Indian income tax rules revised in 1962 are still operative. We replaced the Income Tax Act 1922 with Income Tax Ordinance 1979, which was repealed and replaced by Income Tax Ordinance 2001 drafted by a foreign expert based on the model of an advanced country.
The Indian tax system had the closest affinity with our business and social environment since both countries inherited the Income Tax Act, 1922. But instead of sharing common experience with Indian tax laws, we preferred aping a model of a distant advanced country having little relevance to our ground realities.
Erosion of FBR as an institution:
An imported finance minister (later prime minister) had managed to thrust upon the FBR five members from the private sector who had little working expertise in a taxation department. Huge amounts were spent on them as perks with hardly any positive achievements. All this was done in the name of reforms and introduction of fresh (but alien) experience in this specialised organisation. These members could hardly match the career tax officers having over 30 years of practical field experience. The officers and workforce remained disillusioned and no positive long lasting result could be achieved. Major attention was focused on withholding tax which has been imposed on nearly every consumable item or receipt, and income tax got converted into an indirect tax which is suicidal for the very spirit of direct tax system. Even the formulation of the budget has been artificial as major chunk of revenue came from sales tax, customs duties and withholding tax on constantly increasing imports. So when these sources fell, the budget target also fell significantly. As if this was not enough, the federal government appointed a generalist as chairman FBR last year (who was junior to 38 officers of FBR). This was done at the most crucial time, when collection of revenue was most needed during the end of last financial year and the government could ill afford such an adventure. When the career members protested at this appointment, they were sidelined. This year too, just four months before the end of the financial year, the previous head of FBR has been replaced by a new generalist officer. The appointment of a generalist as head of a technical and professional organisation reflects total disregard of national interests, particularly at this critical time.
Such an attitude appears to be a deliberate attempt to erode national institutions which is a classic example of bad governance. The undeniable fact is that FBR has been failing in raising its tax-to-GDP ratio due to: (a) excessive experimentation and resultant erosion of intuitions; and (b) little importance given to career offices and tax experts in policy making and top postings.
Current state of affairs:
(1) The budget target of the FBR was fixed at Rs1,630 billion which was revised and re-fixed at Rs1,588 billion. With two months left, FBRís total collection up to April 2011 was Rs1,147 billion, leaving Rs441 billion balance to be collected. Collection of such a huge amount does not appear to be possible. The policy makers not only banked heavily on foreign borrowings but had no definite plan for the economy despite energy crisis, slash in PSDP (twice) and substantial interest payments on foreign debt amounting to Rs1,300 billion, which consumed a large proportion of the national resources together with expenditure on war on terror.
The quality of economic analysis and research of our financial experts can be found in Economic Survey 2009-10. The information and figures spread over various pages lack any descriptive scrutiny leading to no direction. As a whole the survey appears to have been prepared with no thought or effort. If such is the government's priority then one should not be surprised if the revenue system today is in such a mess.
(2) As pointed out earlier, our income tax system today is heavily concession oriented, but despite that the tax base has not expanded adequately and the tax-to-GDP ratio is still plummeting.
Taxpayers must be provided a guarantee of stability in tax rates and procedure of the system. Legal guarantee of Universal Self Assessment has been provided through statutory provisions in the Income Tax Ordinance 2001. Every return of income filed by a taxpayer is to be accepted irrespective of declared figure of income or loss. The rates of income tax were also to be reduced with some variation and the minimum rate should be half per cent and maximum twenty per cent for every taxpayer including the corporate sector. This would have reduced evasion, malpractices and corruption, resulting in expansion of the tax base. But the government fixed the rate at 35 per cent on corporate sector whereas on salary income, the maximum rate was reduced to 20 per cent. The FBR has again failed to appreciate the role of continuity and credibility of tax laws. Having failed to broaden the tax base, tax rates have been increased on all classes of income with complicated methods.
(3) The government on the advice of non-technical consultants and advisors has constantly been introducing whitening schemes, despite the fact that foreign remittances through banking channels were a constant source of whitening the untaxed money. The latest adventure by the government was that only two per cent tax was to be paid through a whitening scheme for whitening any amount of assets or black money, but the response was a paltry payment of Rs3.2 billion income tax for whitening assets, just 1.23 per cent of the total size of economy. This sorry state of affairs in the presence of every concession allowed by the government is most unfortunate and speaks loudly of the apathy of the policy makers. This also shows that the government would not want FBR to be an independent stable institution run by experts and experienced tax officers. Obviously the first priority of the government must be that highly experienced career officers of tax service be posted to top management levels of FBR and there should be no room for any mediocrity.
(4) Back in 1998 the number of taxpayers stood at 961,090. These taxpayers included salaried persons (411,000) and business class (534,000). After eleven years the position as on 30-06-2009 and 30-06-2010 was as shown in Table-1.
The figures in table 1 clearly reflect the dismal performance of the policy makers. The documented sector (or corporate sector) is very small which mainly bears the brunt of tax collection. Top one hundred taxpayers paid Rs174 billion in 2010 besides deduction at source and advance tax (mostly paid by petroleum, banking and manufacturing sectors). Other than the active registered companies and salaried class, the number of business taxpayers is quite low. Their share in the income tax collection is less than 10 per cent of the gross collection whereas the share of a salaried person is 7 per cent. After deducting the collection of tax paid by corporate sector at Rs176 billion plus gross withholding tax (with CVT collection), the balance amount left is Rs15 billion only which is around 3 per cent of total tax collection. It is argued that the business community pays withholding tax on almost each item, but the same is true of the whole population including the large majority of poor people. The common man pays withholding tax on mobile phones and other items (including CVT), which was almost 54 per cent of the gross income tax collection in 2009. It may also be added that corporate sector, government corporations, banks and some multinational companies including oil companies, have been paying bulk of the tax revenue. Almost the same number of companies (one hundred) paid over 80 per cent of indirect taxes. Obviously the number of regular business taxpayers who filed returns of income could not increase.
(5) Overall collection of FBR as on 30-06-09 and 30-06-10 shows an unpromising situatio. (see Table-2)
The figures in table 2 indicate that the amount of withholding income tax, sales tax on imports and federal excise on imports and customs duties works out to be 51 per cent and 63 per cent in both years, respectively. Major source of even domestic sales tax and federal excise duty comprises of:-
(a) Consumption of sugar and products of edible and medicine, etc.
(b) Utility bills and excise duty on bank transaction.
(c) Purchases by government and semi-government organisations, corporations and various contracts. Add to it the withholding tax on almost every item and it would be clear that the burden of 70 per cent of all taxes is being borne by the common man through indirect imposition of taxes.
It is a matter of grave concern that the situation is deteriorating. The tax-to-GDP rate has plunged to 8.8 per cent. The number of income tax business returns received during the last two years was quite unsatisfactory.
As regards to sales tax, the situation is worse. The number of enrolled sales taxpayers is merely 102,167 and only 90,204 returns are now regularly being filed. During the financial year ending on 30.06.2010, only one hundred corporate taxpayers paid 81 per cent sales tax (Rs240 billion) out of a total collection of Rs295 billion domestic sales tax. A major amount of domestic federal excise duty was also paid by only twenty four corporate taxpayers (mostly petroleum companies).
Solution:
The past experience of over three decades leads us to the conclusion that frequent experimentation and outside interference has caused erosion of the FBR as a stable tax collecting institution, with severe repercussions for the taxpayers and officials alike. The Central Board of Revenue was re-designated as Federal Board of Revenue through an act of parliament with effect from November 1, 2007 as a semi autonomous body after years of deliberations and efforts. The newly established organisationís performance was affected by mindless experimentation and appointment of non professional individuals at the helm of affairs. The FBR appears to lack direction and functions without proper coordination among various tiers of its departments. There is great deal of confusion and dissatisfaction all around.
If the government is really serious in tackling the issue of tax revenue collection, it must consider the FBR as an essential state institution. The right people for the right job must be a permanent feature with well defined career- oriented expertise in the organisational hierarchy. In areas like reforms and restructuring, the task must be left to experienced and senior officers of FBR only, who can reexamine every aspect of structural anomaly according to the actual requirements and ground realities. It must be emphasised that the FBR needs to be strengthened as an organisation based on professional competence.
The following measures, therefore, need to be adopted for immediate and long-term stability and efficiency of the taxation system, which would also help to expand the tax base and increase revenue:
A - (1) FBR is traditionally plagued with political pressure and bureaucratic (vested interest) influence. The first step should be to select chairman of FBR on merit. For this purpose, the post of chairman should be advertised for selection through Public Service Commission for a fixed tenure of four years based on academic qualification and professional experience. Such a step would go a long way in stability and efficiency of the FBR with no apprehension of political interference.
(2) Job classification with career planning must be clearly defined with strict application at all levels for postings and transfers. Job performance of various sections of FBR needs to be revamped for better coordination and only those officers should be posted in FBR who have sufficient field experience turn by turn for a fixed period.
(3) A full fledged research and development wing needs to be established to guide the FBR in the tax policy matters and suggest practical ways for effective coordination between FBR and field formations in the light of ever emerging new situations.
(4) Systems of appraisement of customs duty and Pakistan Customs Computerised Systems (PACCs) and system of sales tax processing and Sales Tax Automated Refund Repository System (STARR) should not be closed, but upgraded for application in all the dry ports and sea ports to make them transparent and less time consuming. Only fully trained and honest officers should be empowered to appraise and assess tax liabilities in accordance with best practices principle.
(5) Smuggling is perhaps the most lucrative and organised business in Pakistan and smuggled goods are sold openly everywhere particularly due to misuse of Afghan Transit Trade (ATT). Many departments including Federal Investigation Agency, commerce ministry, and foreign office deal in anti-smuggling cases. Other agencies like Coast Guards, Frontier Constabulary, Levies and even the police department have been given anti-smuggling powers. It not only creates overlapping and delay in taking proper action, but it also becomes a source of organised corruption which explains why smuggled goods are available not only in big cities but also in small towns. These agencies mostly run after tracing smuggled goods for corrupt practices and they do not focus on their own duties. A single agency fully trained and equipped must be empowered in dealing with anti-smuggling in an effective and transparent manner.
(6) All exemptions from sales and income tax should be withdrawn. The chief commissioner should be empowered to allow exemption in genuine cases for a specified period.
(7) At present only one hundred taxpayers of the corporate sector pay 90 per cent of sales tax on imported and domestic items. To make it acceptable within the business community, sales tax or RGST should be considerably reduced to 5 per cent starting from a fixed rate of 1 per cent or Rs100 on specified monthly sales (gradually increasing up to 5 per cent which should be adjustable). Sales tax at the rate of 1 per cent should also be imposed on defence purchases as well as on all medicines which should be non-adjustable. International tenders should also be taxed 1 per cent non-adjustable sales tax.
(8) Federal excise duty should be merged with sales tax to reduce the number of taxes and hassle for the taxpayers. The sales tax system must not only be fully automated to minimise delays and corruption, however a strict system of audit should also be put in place to eliminate the misuse of the system.
(9) Claim of refund on account of input cost has been a major source of corruption and malpractice. This can be curbed by reducing sales tax rates and abolishing exemptions. Instead alternate incentives can be offered to exporters including exemption of income tax and other taxes/levies on exported goods.
B - (1) Tax revenue enhancing measures:
For expanding the tax base, some provisions of law need to be amended / added to ensure that:
(a) All property transactions involving plots of 2 kanals and above in the urban areas of big cities should be registered only after verification of national tax number (NTN) of seller and purchaser;
(b) Similar method should be adopted for sale and purchase of commercial property of any size in big cities;
(c) All types of vehicles with market value of one million rupees or above should be registered/transferred after verification of NTN from the tax officer;
(d) Every person traveling abroad, except students and foreign nationals should be required to obtain NTN from the income tax department. This should also include travel for Umrah, Hajj or Ziarat, medical treatment and personal visits;
(e) Expenditure on lavish functions, including marriage and social/political gatherings and conferences should be taxed either at a fixed rate or booked for assessment of income after verification of NTN of the person concerned;
(f) Services sector is highly under taxed, particularly the income of surgeons, physicians, advocates and professionals rendering consultancy services. Surgeons earn an average of Rs0.5 million to Rs20 million per month. A specialistís income ranges from Rs0.2 million to Rs1.5 million per month, whereas their annual declared income is generally even less than their monthly income. Fees of private professional colleges and schools are also very high. Their share in revenue is nominal but no meaningful audit has ever been conducted. A mechanism needs to be adopted to properly tap this very important under taxed source of revenue;
(g) For better compliance, tax returns should be prepared in Urdu together with pamphlets for proper guidance of taxpayers.
(2) Making the tax laws equitable:
(a) The most frequently raised objection by the business community in particular and public in general is that politicians are selected by the people to safeguard their rights and are supposed to make laws in the best interests of the populace. Nonetheless, our politicians violate the law themselves when it comes to paying tax. Statistics show that very few legislatures of the national, senate and provincial assemblies are on tax rolls; and those who have a NTN pay an insignificant amount compared to their lavish expenses. It should be made mandatory under the law for every person contesting in the election (at any level) to get a NTN and file their return of income and wealth statement. Any person found guilty of tax evasion must immediately be disqualified. Such a step will give substantial boost to payment of taxes as leaders of the people will become a role model for them, dispelling the public perception that they consider themselves above the law.
(b) Due to a powerful lobby of authoritative landowners, agricultural income is exempt from income tax as it is a provincial subject under the constitution. Tax exemption to such a large section of economy reflects a huge distortion and the tax laws appear as inequitable. Taxing the agriculture income will make the taxation system not only equitable but it will greatly help boost the low tax-to-GDP ratio. Three steps should be taken in this direction:
(i) Agriculture land up to 15 acres should be exempted from income tax.
(ii) Income tax rates should be reduced (even for other taxpayers) to make the tax acceptable and to reduce the tendency of evasion.
(iii) Agriculturists can be compensated by provision of cheap fertilisers, electricity and irrigation water
(c) At present the FBR has not devised a worthwhile effective procedure of audit both for income and sales tax. There is no practical deterrence against evasion of tax after introduction of Universal Self Assessment Scheme. There needs to be a transparent provision in law that each case shall be audited on its turn after every third or fourth year (unless caught earlier on account of some definite evasion).
(d) Typically traditional bureaucratic method for raising revenues is to increase the rate of tax and number of taxes, which is counter-productive as such a method encourages tax theft and makes the tax base shrink. Not only the minimum rate should start from the lowest slab, but the maximum rate of income tax should not be more than 20 per cent, as no one would willingly pay tax more than that. Instead of promoting short-term interests, the FBR must bring the tax rates to a reasonably acceptable level so that measures adopted for increasing the number of taxpayers and revenue become fruitful. Lower tax rates can be a better tool of persuasion for taxing agriculture income. Moreover, another very important advantage of lower tax rates would be that it can help in introducing sales tax even at the retail level. The traders dislike documentation due to fear of paying income tax. If they can declare maximum receipts and incomes because of lower tax rates, the resistance to the imposition of sales tax would be minimised.
(3) Wealth tax:
(a) Wealth tax was abolished in 2000 under the pressure of powerful lobbyists, comprising mostly of civil and military bureaucracy, who did not want to pay wealth tax on their properties and plots. Tax on wealth is an important instrument of a fiscal policy which endeavours to establish an equitable economic system. Due to rising trend of investment in non-productive sector like properties, it would be advisable to impose wealth tax on all immovable properties at a fixed rate to be paid at the time of purchase/transfer. Wealth tax on each property measuring 2 kanals and above should also be charged annually. Other assets including costly vehicles can also be taxed accordingly.
(b) All the measures require the will of the government to enforce the law in letter and spirit. Successive governments have been bullied by apprehension of tradersí strikes, and they have wrongly considered them their decisive political constituency. A few hundred thousand traders can never change the fate of a government or political party if it remains more sensitive to the well being of the large population of 180 million people. Moreover, the ruling elite itself sometimes proves to be biggest hurdle in the enforcement of law. A tax collector sent his officials to monitor sales of one restaurant in Lahore, which incidentally belonged to the minister of state for finance. The collector was immediately made officer on special duty (OSD) and the whole campaign resulted in a fiasco. The political leaders in general and the party in power in particular consider themselves above the law. Such a mindset would never enable us to stand on our own feet.
C - Special incentives for taxpayers:
Our present system has not envisaged any provision of incentives to the taxpayers. To promote tax culture, the government must provide some special incentives to them. For instance, a certain limit of payment of tax (say Rs200,000) can be fixed for an individual taxpayer for one year, and if a taxpayer pays tax (of that amount or above), then he should be allowed some privileges for that year. For instance:
(i) Power to attest certain documents that year; (ii) Recommendation to issue specified number of armed licenses in that year; (iii) Recommendation to issue national identity cards and domicile certificates etc; (iv) Status of honourary magistrate and power to check and challan the traffic violators for one year by fixing a threshold of tax payment for this purpose. This will ensure additional advantage of effective control to regulate the otherwise quite unwieldy traffic throughout the country; (v) Priority in obtaining telephone, electricity, sui-gas connections; (vi) VIP treatment in hospitals and in courts of law; (vii) Some social security system should be introduced for regular taxpayers and incase of old age or disability, they should be paid some percentage of amount out of the tax already paid by them over the years; and (viii) Highest taxpayers should be offered honourary seats in legislation and government corporations. They should be guest of honour in certain local, provincial or national ceremonies/functions.
TABLE - 1
S. No. Total Number of Tax Payers Year ending Year ending
30-06-09 30-06-10
1 Number of companies 18973 19755
2 AOP Cases 28779 31135
3 Salaried Cases 145019 196101
4 Non corporate business 549252 638633
5 Number of return filers 765461 1444389
6 No. of persons shown in statements,
certificates of salaries, imports and exports, etc. 1766998 2313606
TABLE - 2
Taxes Year ending 30-06-09 Year ending 30-06-10
Sales Tax (total) 478284m 516348m
(1) Sale Tax on imports 203323m 247246m
(2) Sale Tax on domestic 274961m 269102m
Federal Excise (total) 113715m 124784m
(1) FED on imports 14617m 13557m
(2) FED on domestic 99098m 111227m
Customs (Net) 155905m 160273m
Income Tax (Net) 480487m 525977m
(Including withholding tax + CVT)
Friday, August 20, 2010
Wednesday, June 16, 2010
Global Economic Crisis and Poverty in Pakistan
The Global Financial Crisis has impacted Pakistan through channels of Aid and FDI. To read more see paper by Vaqar Ahmed and Cathal O' Donoghue (published in the International Journal of Microsimulation).
Web: http://www.microsimulation.org/IJM/Articles/IJM_36.pdf
Web: http://www.microsimulation.org/IJM/Articles/IJM_36.pdf
Monday, March 15, 2010
Fiscal incentives for setting up business be provided to returning expatriates: study
KHALID ABBAS SAIF
FAISALABAD (March 11 2010): Economists have suggested that fiscal incentives should be provided to the returning Pakistani migrants who wish to set up small and/or medium-scale businesses.
In a study titled 'Remittances and Household Welfare', prepared by Vaqar Ahmed, Deputy Chief of Macroeconomics Section of Planning Commission of Pakistan; Guntur Sugiyarto, Economist, Development Indicators and Policy Research Division, Economics and Research Department, Asian Development Bank, and Shikha Jha, Senior Economist, Macroeconomics and Finance Research Division, Economics and Research Department, ADB, observed that these incentives may take the form of tax breaks, or other related initial concessions.
Second, to ensure future remittances cash flows, a special exchange rate may be offered on remittances arriving in special savings accounts in domestic financial institutions.
Third, the banking sector should be more proactive to increase the speed and certainty of remittance transactions to encourage more migrants to send their money through official banking channels, they added.
The economists said that this step would help in the development of the financial sector in the economy and contribute to the stability of macroeconomic fundamentals, in particular the balance of payments. It is also a challenge for the government to make remittances more redistributive by making the tax system more progressive to help low income households. It is important to note, however, that the tax structure, related to remittances, should provide incentives for migrants to send more through the formal channels. This may require amendments to the current Income Tax Ordinance, they added.
They pointed out that the challenge for Pakistan is to channel the remittance flows toward long-term investments that can contribute toward sustained growth in the real sector, while at the same time leveraging the economy away from consumption-led growth. In this regard, several key measures that have been seen across the developing world have also been considered for Pakistan. It is also a challenge for the government to make remittances more redistributive by making the tax system more progressive to help low-income households. It is important to note however that the tax structure related to remittances should provide incentives for migrants to send more through the formal channels. This may require amendments to the current Income Tax Ordinance.
In "Key Findings and Policy Implications", Economists revealed that with around two million Pakistani migrants in the Gulf region and almost the same number spread in North America, UK, and other countries, remittances from abroad have contributed significantly to the economy. The current contribution of foreign remittances is more than 4percent of GDP, and in some periods, they have become the major source of foreign exchange reserves. This paper examines the impact of remittances on the macro economy and household welfare in Pakistan using a CGE model and micro-econometric analysis. They said that the first approach is to highlight the macroeconomic and distributional effects of a reduction in remittances, while the second method is to show how remittances decrease the probability of being poor and affect the household consumption expenditure and hence poverty.
They pointed out the key findings are as follows:
(i) Descriptive analysis from survey data indicates that the mean income of a migrant household is 17.3 higher than a non-migrant household. The share of remittances in the total income increases as the household moves to a higher income group. Remittances also contribute more to rural household incomes than to urban household incomes. The share of remittances in rural households increased from 3 percent to 5 percent during 2002-06, while in urban areas it remained stable at around 4 percent. Regional characteristics also affect significantly the pattern of migration and therefore the flows of remittances in Pakistan.
(ii) The CGE simulation analysis shos that a 50 percent reduction in remittances adversely impacts real GDP growth by -0.74, real investment by -7.7percent, and total household consumption by -2.8 percent. As a result, poverty headc ount increases by 6.35 percent.
The reductions in consumption levels of rural non-farm and landless agricultural households shows the largest cut because of the remittance drop.
The poverty impact is much stronger in rural than urban areas, showing the stronger link between migration/remittance and poverty in rural compared to urban areas. This further highlights that many migrants from Pakistan are still low-skilled workers coming from agricultural backgrounds.
(iii) Results show that the probability of becoming poor declines by 12.7 percent if the household receives remittances from abroad. An increase in the household size and number of persons with secondary education lead to an increase in the probability of household member migrating. On the other hand, increasing the number of males over 15 years of age, living in urban areas, and having more household members with university education lead to a decrease in the probability of the household member going abroad.
(iv) The shares of household expenditures on food, education, clothing, and recreation increase with the availability of remittances. The predicted mean expenditure of migrant households is 41 percent higher than nonmigrant households. The highest increase is in the expenditure share on durables, ie, 74 percent. The budget share for education increases only by 2.9 percent for migrant households.
(v) The poverty headcount ratio and Gini coefficient decline by 7.8 percent and 4.8 percent, respectively, for households receiving remittances. Due to the global financial crisis, developing countries such as Pakistan, have witnessed a brief reverse migration following the laying off of workers abroad due to business closures and a general lack of demand. Pakistani overseas workers have returned home with their accumulated savings that increased remittance flows.
Furthermore, according to the Study, statistics shows the poverty estimates for both migrant and non-migrant households. The results suggest that poverty declines by 7.8 percent if the households receive remittances from abroad. This substantial reduction in poverty level signifies the importance of remittances received by households in Pakistan.
Similarly, the poverty gap and poverty severity also decline even by higher rates, ie, 11.5 percent and 14.9 percent, respectively. This implies that some of the remittance recipients are actually the poor households so that remittances reduce the poverty gap and poverty severity. Moreover, the income distribution of migrant households is actually better than non-migrant households. The Gini coefficient of migrant household is 4.8 percent lower than non-migrant households, study report said.
Copyright Business Recorder, 2010
FAISALABAD (March 11 2010): Economists have suggested that fiscal incentives should be provided to the returning Pakistani migrants who wish to set up small and/or medium-scale businesses.
In a study titled 'Remittances and Household Welfare', prepared by Vaqar Ahmed, Deputy Chief of Macroeconomics Section of Planning Commission of Pakistan; Guntur Sugiyarto, Economist, Development Indicators and Policy Research Division, Economics and Research Department, Asian Development Bank, and Shikha Jha, Senior Economist, Macroeconomics and Finance Research Division, Economics and Research Department, ADB, observed that these incentives may take the form of tax breaks, or other related initial concessions.
Second, to ensure future remittances cash flows, a special exchange rate may be offered on remittances arriving in special savings accounts in domestic financial institutions.
Third, the banking sector should be more proactive to increase the speed and certainty of remittance transactions to encourage more migrants to send their money through official banking channels, they added.
The economists said that this step would help in the development of the financial sector in the economy and contribute to the stability of macroeconomic fundamentals, in particular the balance of payments. It is also a challenge for the government to make remittances more redistributive by making the tax system more progressive to help low income households. It is important to note, however, that the tax structure, related to remittances, should provide incentives for migrants to send more through the formal channels. This may require amendments to the current Income Tax Ordinance, they added.
They pointed out that the challenge for Pakistan is to channel the remittance flows toward long-term investments that can contribute toward sustained growth in the real sector, while at the same time leveraging the economy away from consumption-led growth. In this regard, several key measures that have been seen across the developing world have also been considered for Pakistan. It is also a challenge for the government to make remittances more redistributive by making the tax system more progressive to help low-income households. It is important to note however that the tax structure related to remittances should provide incentives for migrants to send more through the formal channels. This may require amendments to the current Income Tax Ordinance.
In "Key Findings and Policy Implications", Economists revealed that with around two million Pakistani migrants in the Gulf region and almost the same number spread in North America, UK, and other countries, remittances from abroad have contributed significantly to the economy. The current contribution of foreign remittances is more than 4percent of GDP, and in some periods, they have become the major source of foreign exchange reserves. This paper examines the impact of remittances on the macro economy and household welfare in Pakistan using a CGE model and micro-econometric analysis. They said that the first approach is to highlight the macroeconomic and distributional effects of a reduction in remittances, while the second method is to show how remittances decrease the probability of being poor and affect the household consumption expenditure and hence poverty.
They pointed out the key findings are as follows:
(i) Descriptive analysis from survey data indicates that the mean income of a migrant household is 17.3 higher than a non-migrant household. The share of remittances in the total income increases as the household moves to a higher income group. Remittances also contribute more to rural household incomes than to urban household incomes. The share of remittances in rural households increased from 3 percent to 5 percent during 2002-06, while in urban areas it remained stable at around 4 percent. Regional characteristics also affect significantly the pattern of migration and therefore the flows of remittances in Pakistan.
(ii) The CGE simulation analysis shos that a 50 percent reduction in remittances adversely impacts real GDP growth by -0.74, real investment by -7.7percent, and total household consumption by -2.8 percent. As a result, poverty headc ount increases by 6.35 percent.
The reductions in consumption levels of rural non-farm and landless agricultural households shows the largest cut because of the remittance drop.
The poverty impact is much stronger in rural than urban areas, showing the stronger link between migration/remittance and poverty in rural compared to urban areas. This further highlights that many migrants from Pakistan are still low-skilled workers coming from agricultural backgrounds.
(iii) Results show that the probability of becoming poor declines by 12.7 percent if the household receives remittances from abroad. An increase in the household size and number of persons with secondary education lead to an increase in the probability of household member migrating. On the other hand, increasing the number of males over 15 years of age, living in urban areas, and having more household members with university education lead to a decrease in the probability of the household member going abroad.
(iv) The shares of household expenditures on food, education, clothing, and recreation increase with the availability of remittances. The predicted mean expenditure of migrant households is 41 percent higher than nonmigrant households. The highest increase is in the expenditure share on durables, ie, 74 percent. The budget share for education increases only by 2.9 percent for migrant households.
(v) The poverty headcount ratio and Gini coefficient decline by 7.8 percent and 4.8 percent, respectively, for households receiving remittances. Due to the global financial crisis, developing countries such as Pakistan, have witnessed a brief reverse migration following the laying off of workers abroad due to business closures and a general lack of demand. Pakistani overseas workers have returned home with their accumulated savings that increased remittance flows.
Furthermore, according to the Study, statistics shows the poverty estimates for both migrant and non-migrant households. The results suggest that poverty declines by 7.8 percent if the households receive remittances from abroad. This substantial reduction in poverty level signifies the importance of remittances received by households in Pakistan.
Similarly, the poverty gap and poverty severity also decline even by higher rates, ie, 11.5 percent and 14.9 percent, respectively. This implies that some of the remittance recipients are actually the poor households so that remittances reduce the poverty gap and poverty severity. Moreover, the income distribution of migrant households is actually better than non-migrant households. The Gini coefficient of migrant household is 4.8 percent lower than non-migrant households, study report said.
Copyright Business Recorder, 2010
Monday, February 22, 2010
Collection of taxes: Parliamentarians, experts support provincial autonomy
RECORDER REPORT
ISLAMABAD (February 19 2010): Parliamentarians and tax experts strongly supported provincial autonomy for collection of taxes to broaden the tax-base and raising tax-to-GDP ratio in the country. During a seminar on pre-budget public consultation by NA committee on Finance and Revenue on Change in Collective National Behaviour.
"How to expand the Tax base in Pakistan: Ideas for the budget 2010-2011", most of the parliamentarians agreed that tax culture is necessary for expanding the tax-base. Experts pointed out that rich people in rural area are paying 14 percent less income tax as compared to those in urban areas. To remove this distortion, there is a need to impose tax on agricultural income to make income tax enforcement equitable in the country.
Most of the participants including the members of the Parliament suggested to bring agriculture, real estate and stock exchanges into the tax net. Other recommendations of the seminar included setting up of tax intelligence unit in FBR, data warehouse and the introduction of the subject on tax in the school classes for developing awareness about paying taxes among the masses.
While strongly supporting agriculture income tax, Senator Haji Adeel said that the depressed salaried class in urban areas is paying tax, than why the income from agriculture is not being taxed by the government. Senator Ilyas Bilour opined that agriculture tax would be considered as a potential area for increase in tax base. The provincial autonomy would have a good impact on tax to GDP ratio and broadening the tax base.
Former FBR Member Dr Ather Masood Ahmed shared vital data about taxes that only five major commodities contribute 50 percent of the taxes. If taxes are abolished on the POL, major chunk of revenue would not be collected. The compliance level needs to be improved before expanding the tax base.
Former FBR Chairman Abdulla Yusuf presented viable proposals for raising Tax-to-GDP ratio to implement the Turkish taxation system in Pakistan. The Turkey has managed to double the Tax-to-GDP ratio in a short span of time. Under the Turkish Tax Model, the tax department draft return on the behalf of the taxpayers and the same was sent to the registered units to amend the returns, if require.
Turkish tax department has all necessary data of the taxpayers and they have the capability to draft the return. However, taxpayer has given the opportunity to revise the return on the basis of data maintained by the unit. He said that tax gap of around 700 billion exists, which needs to be tapped. He referred to the example of Chilli where tax-to-GDP ratio jumped from 15-30 percent to 100 percent due to automation and tax administration reforms.
He opined that the State Bank of Pakistan (SBP) profits is not subjected to tax, which is a distortion in the tax system. The government should amend the Banking Companies Ordinance, 1962 and Protection of Economic Reforms Act, 1992 to access accountholder's information by the tax department. It is necessary to end such kind of secrecy under the banking laws to check the business transactions for brining potential taxpayers into the tax net.
There is a need to abolish the clause of bank secrecy law that is prohibiting access of tax authorities from bank accounts of taxpayers. Country like Switzerland has authorised its authorities access to the information of bank accounts of taxpayers and why not in Pakistan.
Responding to a query, he said that the President, Prime Minister and other policy makers have never intervened into the working of the FBR. He strongly dispelled impression that influence has been used in the transfers and postings of the tax officials. He suggested that the Data Warehouse is the most important tool for broadening the tax-base. The third party data from all potential sources has been matched with the information declared by the registered unit under the Data Warehouse concept.
Abdullah Yusuf further said that the tax department should be in a position to offer the taxpayers a tax return prepared by its officers based on income and expenditures of taxpayers on the basis of third party information.
Muhammad Sabir, Principle Economist, Social Policy and Development (SPDC) Karachi proposed increase in capital value tax on investment in long term assets like property and real estate. This investment should go in job creating areas like industrialisation and other productive sectors.
He suggested that FBR should setup a Tax Intelligence Unit to check the income and expenditures of the elite class for recovery of due tax from buyers and sellers of property, owners of luxurious cars and those involved in transaction different businesses from different bank accounts.
People are regularly arranging lavished parties and expenditures should be proposed in such cases. Riaz Fatiayana MNA proposed tax on spiritual practitioners (Peers and Faqeers), who are making money in major cities and their income should be taxed.
Shahid Khakan Abbasi, MNA proposed to abolish income tax as this levy is only targeting salaried class and few industrialists and majority of the rich are not under its ambit. Mian Abdul Sattar, PPP MNA suggested the FBR to auction the tax collection targets at the level of Union Council to bring in the tax net those people who are not paying the tax.
Chairperson Fauzia Wahab said that out of 170 million population only 1.7 million are taxpayers. She said that the Federal Cabinet's decision of February 10 to present Budget proposals to Parliamentary Committees by May 2010 to allow in-depth budget review and input by Parliamentary Committees was a triumph of efforts of all Parliamentarians over the years to reform the Parliamentary Budget Process.
Some of the members of National Assembly Standing Committee on Finance opposed tax exemptions given to army personnel. They claimed that land within the jurisdiction of the cantonment areas belongs to the federal government.
It was granted to the armed forces for construction of defence related buildings and establishments like barracks, but cantonment boards have been converted into commercial property. Tax should be applicable on the residential and commercial properties in the cantonment boards. Senator Haji Mohammad Adeel pointed out that land of the cantonment areas belong to the federal government and the army personnel should pay taxes on the same.
The armed forces should play their role in increasing the Tax-to-GDP ratio. In this regard, the Land Procurement Board Act in the cantonment areas needs to be revised. MNA Kashmala Tariq of PML-Q was of the view army personnel having more than one house should be liable to taxation. In this way, armed forces could help in increasing Tax-to-GDP ratio.
Copyright Business Recorder, 2010
ISLAMABAD (February 19 2010): Parliamentarians and tax experts strongly supported provincial autonomy for collection of taxes to broaden the tax-base and raising tax-to-GDP ratio in the country. During a seminar on pre-budget public consultation by NA committee on Finance and Revenue on Change in Collective National Behaviour.
"How to expand the Tax base in Pakistan: Ideas for the budget 2010-2011", most of the parliamentarians agreed that tax culture is necessary for expanding the tax-base. Experts pointed out that rich people in rural area are paying 14 percent less income tax as compared to those in urban areas. To remove this distortion, there is a need to impose tax on agricultural income to make income tax enforcement equitable in the country.
Most of the participants including the members of the Parliament suggested to bring agriculture, real estate and stock exchanges into the tax net. Other recommendations of the seminar included setting up of tax intelligence unit in FBR, data warehouse and the introduction of the subject on tax in the school classes for developing awareness about paying taxes among the masses.
While strongly supporting agriculture income tax, Senator Haji Adeel said that the depressed salaried class in urban areas is paying tax, than why the income from agriculture is not being taxed by the government. Senator Ilyas Bilour opined that agriculture tax would be considered as a potential area for increase in tax base. The provincial autonomy would have a good impact on tax to GDP ratio and broadening the tax base.
Former FBR Member Dr Ather Masood Ahmed shared vital data about taxes that only five major commodities contribute 50 percent of the taxes. If taxes are abolished on the POL, major chunk of revenue would not be collected. The compliance level needs to be improved before expanding the tax base.
Former FBR Chairman Abdulla Yusuf presented viable proposals for raising Tax-to-GDP ratio to implement the Turkish taxation system in Pakistan. The Turkey has managed to double the Tax-to-GDP ratio in a short span of time. Under the Turkish Tax Model, the tax department draft return on the behalf of the taxpayers and the same was sent to the registered units to amend the returns, if require.
Turkish tax department has all necessary data of the taxpayers and they have the capability to draft the return. However, taxpayer has given the opportunity to revise the return on the basis of data maintained by the unit. He said that tax gap of around 700 billion exists, which needs to be tapped. He referred to the example of Chilli where tax-to-GDP ratio jumped from 15-30 percent to 100 percent due to automation and tax administration reforms.
He opined that the State Bank of Pakistan (SBP) profits is not subjected to tax, which is a distortion in the tax system. The government should amend the Banking Companies Ordinance, 1962 and Protection of Economic Reforms Act, 1992 to access accountholder's information by the tax department. It is necessary to end such kind of secrecy under the banking laws to check the business transactions for brining potential taxpayers into the tax net.
There is a need to abolish the clause of bank secrecy law that is prohibiting access of tax authorities from bank accounts of taxpayers. Country like Switzerland has authorised its authorities access to the information of bank accounts of taxpayers and why not in Pakistan.
Responding to a query, he said that the President, Prime Minister and other policy makers have never intervened into the working of the FBR. He strongly dispelled impression that influence has been used in the transfers and postings of the tax officials. He suggested that the Data Warehouse is the most important tool for broadening the tax-base. The third party data from all potential sources has been matched with the information declared by the registered unit under the Data Warehouse concept.
Abdullah Yusuf further said that the tax department should be in a position to offer the taxpayers a tax return prepared by its officers based on income and expenditures of taxpayers on the basis of third party information.
Muhammad Sabir, Principle Economist, Social Policy and Development (SPDC) Karachi proposed increase in capital value tax on investment in long term assets like property and real estate. This investment should go in job creating areas like industrialisation and other productive sectors.
He suggested that FBR should setup a Tax Intelligence Unit to check the income and expenditures of the elite class for recovery of due tax from buyers and sellers of property, owners of luxurious cars and those involved in transaction different businesses from different bank accounts.
People are regularly arranging lavished parties and expenditures should be proposed in such cases. Riaz Fatiayana MNA proposed tax on spiritual practitioners (Peers and Faqeers), who are making money in major cities and their income should be taxed.
Shahid Khakan Abbasi, MNA proposed to abolish income tax as this levy is only targeting salaried class and few industrialists and majority of the rich are not under its ambit. Mian Abdul Sattar, PPP MNA suggested the FBR to auction the tax collection targets at the level of Union Council to bring in the tax net those people who are not paying the tax.
Chairperson Fauzia Wahab said that out of 170 million population only 1.7 million are taxpayers. She said that the Federal Cabinet's decision of February 10 to present Budget proposals to Parliamentary Committees by May 2010 to allow in-depth budget review and input by Parliamentary Committees was a triumph of efforts of all Parliamentarians over the years to reform the Parliamentary Budget Process.
Some of the members of National Assembly Standing Committee on Finance opposed tax exemptions given to army personnel. They claimed that land within the jurisdiction of the cantonment areas belongs to the federal government.
It was granted to the armed forces for construction of defence related buildings and establishments like barracks, but cantonment boards have been converted into commercial property. Tax should be applicable on the residential and commercial properties in the cantonment boards. Senator Haji Mohammad Adeel pointed out that land of the cantonment areas belong to the federal government and the army personnel should pay taxes on the same.
The armed forces should play their role in increasing the Tax-to-GDP ratio. In this regard, the Land Procurement Board Act in the cantonment areas needs to be revised. MNA Kashmala Tariq of PML-Q was of the view army personnel having more than one house should be liable to taxation. In this way, armed forces could help in increasing Tax-to-GDP ratio.
Copyright Business Recorder, 2010
Sunday, February 21, 2010
Saturday, February 20, 2010
A laudable initiative by Yusuf H Shirazi
The News
Thursday, February 11, 2010
Yusuf H Shirazi
The “Aman ki Asha” initiative of the Jang Group and the Times of India group is indeed laudable. It is a step in the right direction. The people of India and Pakistan have long aspired for peace. However, the realisation of this ‘Asha’ is not possible without the two governments sharing. Peace, and thus the welfare for the people of the subcontinent, lies in political, economic and social harmony between the two countries.
Whichever way one may wish to interpret the history of the two countries’ independence, in the present situation it is only political, economic and social harmony which can bring peace between the two countries.
While India has been a democracy since gaining its independence from the British, Pakistan has witnessed dictatorship for half its existence. Pakistan has thus been vacillating between dictatorships and political governments. The founding fathers, first Jinnah and then Liaquat Ali Khan, died soon after the creation of Pakistan. Hence, tragically, they could not oversee the promulgation of a constitution nor develop the three pillars of government – executive, legislative and judiciary. The result was that the political, social and economic development of Pakistan has been topsy-turvy.
On the other hand, India has developed into the largest democracy of the world. While the Indian constitution remained intact, Pakistan’s constitutions were abrogated time and again. Unfortunately, the judiciary too endorsed their abrogation, under the infamous “law of necessity.” By abrogating the constitution in the Maulvi Tamizuddin case, Chief Justice Munir set a dangerous precedent. This allowed his successors to also justify martial law under the nonsensical “law of necessity.” The course of this country may well have been different but for Justice Munir succumbing to political pressures. India went on developing politically, economically and socially. Pakistan meanwhile struggled through a variety of civilian and army rules.
India started with a better economic framework in terms of industry, agriculture and services. Pakistan, however, inherited just one textile mill – Delhi Textile Mill Lyallpur (now Faisalabad) – and continued to be basically an agrarian economy. India had an engineering industry, among others, and was exporting steel even in those days. India continued with Nehru’s philosophy of localising of investment, production and export as a means of GDP growth and employment. Pakistan, on the other hand, had a weaker political and socio-economic structure. While Pakistan followed the developed world’s dictum of liberalisation, privatisation and deregulation, India continued to protect its economy through trade barriers. Pakistan thus became the victim of globalisation, which was the developed world’s mechanism for development.
The economies of India and Pakistan can benefit from each another. Trade with India may be in the interest of Pakistan, because India is a market of more than one billion people as against Pakistan’s 170 million. So Pakistan will have to harmonise its economy with India’s, and vice versa: otherwise, Pakistan will be the loser.
India’s rupee-dollar parity, for example, is Rs45 against Pakistan’s Rs85. In India, sales tax is five to seven percent, and only in a few states is it as high as 12 percent. The sales tax in Pakistan is 15 to 18 percent. Corporate tax in India is less than 20 percent, as against 35 percent in Pakistan. This is not to mention the presumptive tax at about six percent, whether the income is liable to tax or not. In India, there is no such tax at all. The socio-physical infrastructure cost in India is two-thirds that in Pakistan.
India does not rely on foreign loans and credits – it does not borrow from the IMF, whereas Pakistan is subject to the IMF’s strict and severe conditionalities, sometimes at the cost of fulfilment of socio-economic objectives. India also relies on large-scale industries as against Pakistan’s focus on small- and medium-sized enterprises. India’s exports per month are equal to Pakistan’s annual exports. Indian foreign exchange reserves are close to $300 billion, as against Pakistan’s $15 billion, which have been recently inflated due to Pakistan’s IMF loan arrangement.
As for the dismantling of all imports and export barriers between the two countries, India does not permit import of products that are locally available. Industrial policies need to be dovetailed with local priorities, so that employment, technology transfers are generated and foreign exchange is saved. India follows this religiously. The reverse is the case in Pakistan. As in India, the Malaysian experience shows that as long as a country has sufficient reserves, an industrial policy can be formulated that simultaneously promotes export-based industries, nurtures import substitution industry and protects strategic industries. Industry and especially hi-tech manufacturing industry can be nurtured and promoted to become globally competitive.
There is revenue shortfall and unemployment in Pakistan. Further, actual inflation is above 15 per cent, much higher than in India. The remedy lies in industry, manufacturing, in particular. In India, the basic industry is now one of the top tax generators for the government. The Indians did it by focusing on manufacturing and value-addition, and not packaging or assembly as in Pakistan.
Inconsistent economic policies in Pakistan have discouraged investment, production, export and employment. The Pakistan policies need to be catered to harmonise local aspirations. The remedy, as evident in India’s success, lies in industry. A balance must be struck irrespective of external pressures. Reliance on these policies would be in the larger national interest and the socio-politico-economic sovereignty of Pakistan.
All this is a prerequisite to “Aman ki Asha.” Without this any such endeavour would be a pipedream, a desire unfulfilled. If Pakistan becomes the architect of its own policies rather than have them imposed on it by the developed world, the peace initiative will indeed lead to not only political harmony but also socio-economic harmony between Pakistan and India. For we surely have inherited the same or similar culture.
Soon after the creation of Pakistan, Jinnah was asked, if Hindustan is attacked, what would Pakistan do? Jinnah was quiet for a moment, and then said, Pakistan will support Hindustan. Why, he was asked. Jinnah said, “Blood is thicker than water.”
The writer is the founder/chairman of the Atlas Group of companies. Email: yhs@ atlas.com.pk
Thursday, February 11, 2010
Yusuf H Shirazi
The “Aman ki Asha” initiative of the Jang Group and the Times of India group is indeed laudable. It is a step in the right direction. The people of India and Pakistan have long aspired for peace. However, the realisation of this ‘Asha’ is not possible without the two governments sharing. Peace, and thus the welfare for the people of the subcontinent, lies in political, economic and social harmony between the two countries.
Whichever way one may wish to interpret the history of the two countries’ independence, in the present situation it is only political, economic and social harmony which can bring peace between the two countries.
While India has been a democracy since gaining its independence from the British, Pakistan has witnessed dictatorship for half its existence. Pakistan has thus been vacillating between dictatorships and political governments. The founding fathers, first Jinnah and then Liaquat Ali Khan, died soon after the creation of Pakistan. Hence, tragically, they could not oversee the promulgation of a constitution nor develop the three pillars of government – executive, legislative and judiciary. The result was that the political, social and economic development of Pakistan has been topsy-turvy.
On the other hand, India has developed into the largest democracy of the world. While the Indian constitution remained intact, Pakistan’s constitutions were abrogated time and again. Unfortunately, the judiciary too endorsed their abrogation, under the infamous “law of necessity.” By abrogating the constitution in the Maulvi Tamizuddin case, Chief Justice Munir set a dangerous precedent. This allowed his successors to also justify martial law under the nonsensical “law of necessity.” The course of this country may well have been different but for Justice Munir succumbing to political pressures. India went on developing politically, economically and socially. Pakistan meanwhile struggled through a variety of civilian and army rules.
India started with a better economic framework in terms of industry, agriculture and services. Pakistan, however, inherited just one textile mill – Delhi Textile Mill Lyallpur (now Faisalabad) – and continued to be basically an agrarian economy. India had an engineering industry, among others, and was exporting steel even in those days. India continued with Nehru’s philosophy of localising of investment, production and export as a means of GDP growth and employment. Pakistan, on the other hand, had a weaker political and socio-economic structure. While Pakistan followed the developed world’s dictum of liberalisation, privatisation and deregulation, India continued to protect its economy through trade barriers. Pakistan thus became the victim of globalisation, which was the developed world’s mechanism for development.
The economies of India and Pakistan can benefit from each another. Trade with India may be in the interest of Pakistan, because India is a market of more than one billion people as against Pakistan’s 170 million. So Pakistan will have to harmonise its economy with India’s, and vice versa: otherwise, Pakistan will be the loser.
India’s rupee-dollar parity, for example, is Rs45 against Pakistan’s Rs85. In India, sales tax is five to seven percent, and only in a few states is it as high as 12 percent. The sales tax in Pakistan is 15 to 18 percent. Corporate tax in India is less than 20 percent, as against 35 percent in Pakistan. This is not to mention the presumptive tax at about six percent, whether the income is liable to tax or not. In India, there is no such tax at all. The socio-physical infrastructure cost in India is two-thirds that in Pakistan.
India does not rely on foreign loans and credits – it does not borrow from the IMF, whereas Pakistan is subject to the IMF’s strict and severe conditionalities, sometimes at the cost of fulfilment of socio-economic objectives. India also relies on large-scale industries as against Pakistan’s focus on small- and medium-sized enterprises. India’s exports per month are equal to Pakistan’s annual exports. Indian foreign exchange reserves are close to $300 billion, as against Pakistan’s $15 billion, which have been recently inflated due to Pakistan’s IMF loan arrangement.
As for the dismantling of all imports and export barriers between the two countries, India does not permit import of products that are locally available. Industrial policies need to be dovetailed with local priorities, so that employment, technology transfers are generated and foreign exchange is saved. India follows this religiously. The reverse is the case in Pakistan. As in India, the Malaysian experience shows that as long as a country has sufficient reserves, an industrial policy can be formulated that simultaneously promotes export-based industries, nurtures import substitution industry and protects strategic industries. Industry and especially hi-tech manufacturing industry can be nurtured and promoted to become globally competitive.
There is revenue shortfall and unemployment in Pakistan. Further, actual inflation is above 15 per cent, much higher than in India. The remedy lies in industry, manufacturing, in particular. In India, the basic industry is now one of the top tax generators for the government. The Indians did it by focusing on manufacturing and value-addition, and not packaging or assembly as in Pakistan.
Inconsistent economic policies in Pakistan have discouraged investment, production, export and employment. The Pakistan policies need to be catered to harmonise local aspirations. The remedy, as evident in India’s success, lies in industry. A balance must be struck irrespective of external pressures. Reliance on these policies would be in the larger national interest and the socio-politico-economic sovereignty of Pakistan.
All this is a prerequisite to “Aman ki Asha.” Without this any such endeavour would be a pipedream, a desire unfulfilled. If Pakistan becomes the architect of its own policies rather than have them imposed on it by the developed world, the peace initiative will indeed lead to not only political harmony but also socio-economic harmony between Pakistan and India. For we surely have inherited the same or similar culture.
Soon after the creation of Pakistan, Jinnah was asked, if Hindustan is attacked, what would Pakistan do? Jinnah was quiet for a moment, and then said, Pakistan will support Hindustan. Why, he was asked. Jinnah said, “Blood is thicker than water.”
The writer is the founder/chairman of the Atlas Group of companies. Email: yhs@ atlas.com.pk
Tuesday, February 16, 2010
A story of incompetence (Taxation)
Huzaima Bukhari and Dr. Ikramul Haq
The NEWS
The Federal Board of Revenue (FBR) is in for criticism for inefficiency and indiscipline. It has failed on all fronts: collection targets, widening of tax base, countering tax evasion and avoidance, recovery of arrears, voluntary compliance, reform process and what not.
At the end of the five-year Tax Administration Reform Project (TARP), the tax-to-GDP ratio dipped to 8.2 percent from 10.6 percent. The borrowed funds of millions of dollars were ruthlessly wasted. The standing committee of parliament on finance must conduct a thorough probe in the matter and seek the assistance of tax experts to determine the amount of loss caused to national exchequer by the FBR stalwarts during the last two decades.
Despite an expensive media campaign, FBR could not make 25 million potential taxpayers to file tax declarations by the extended date — 25 January 2010. The majority of non-filers are rich and mighty bureaucrats, corrupt politicians, and unscrupulous businessmen. FBR has not only failed to tap the actual tax potential — not less than Rs4 trillion — but is also guilty of shifting tax burden from the rich to the poorer segments of society. According to FBR, on admission, 1,916,300 income tax returns and statements were received from July-January of the current fiscal year (2009-10) as compared with 1,797,000 returns and statements in the same period of last fiscal year (2008-09). Total number of income tax returns received up to 25 January 2010 is only 755,671, the rest are statements under section 115(4) — last year 642,777 returns were received — indicating an increase of 112,849 returns. According to the FBR Press release as of January 25, 2010, FBR has received 16,281 corporate sector income tax returns as against 14,903 returns in the same period of last fiscal year, projecting an increase of 1,378 returns.
Firms — registered and unregistered — filed just 41,863 returns. Salaried persons filed 114,495 returns for tax year 2009 as against 119,759 last year showing a decline of 5,264. Non-salaried individuals filed 583,032 returns compared to 481,961 filed last year. Salary certificates received are 18,828 as against 20,745 filed last year. Number of employees covered in statements under section 115(4) are 1,053,708 this year as compared with 1,055,954 last year. Number of importers who filed their statements is 12,262 whereas some 11,510 importers filed their statements last fiscal year. By January 25, 2010 some 8,473 exporters filed their statements as against 8,050 exporters in the same period of last fiscal year. Some 13,332 retailers having up to Rs5 million annual turnover filed their statements during July-January 2010 period of this fiscal year as compared with 18,272 retailers in the same period of last fiscal year. 581 retailers having over Rs5 million annual turnover filed their statements this year as against 830 such retailers in the last fiscal year. 24,378 contractors and suppliers filed statements during this year as against 24,030 during the last year.
It is admitted by FBR that even after "great efforts" less than 2 million Pakistanis have filed income tax declarations for tax year 2009. FBR has failed to implement law even in Islamabad as out of 43000 commercial and residential rental properties in Islamabad, only 7000 owners are filing returns. In Pakistan, the number of mobile users alone, who pay more than Rs100,000 as annual bill, is about 25 million. Why have they not been compelled to file returns? FBR is taking credit of extra 119,300 declarations filed this year. However, it is completely silent about its failure to expand the tax net — we have at least 25 million persons earning taxable income, but who are not filing tax declarations.
For a long time now, FBR has been apologetic (specifically before the IMF and the World Bank) that total income tax payers (referring to registered only) in Pakistan are just 2 million in a population of 170 million. This is a myth. The reality is that since July 1, 1992 all commercial electricity consumers (including about 3.2. million retail outlets in urban areas), irrespective of whether their income is chargeable to tax or not, are paying minimum income tax of Rs60 per month.
The total number of persons earning interest on bank deposits is not less than 30 million. They pay 10 percent mandatory withholding tax irrespective of their quantum of income. Total number of mobile and land-line telephone users, subjected to withholding tax, in the country, is in excess of 60 million — yet FBR claims that our tax base is narrow. The reality is that FBR is incompetent as a result of which it has failed to book/register a majority of these taxpayers. Had it been done, we could today have boasted of nearly 25 million registered taxpayers. Even a petty village shopkeeper (whose total income is much below the minimum taxable limit of Rs100,000) is paying tax as high as Rs720 per annum. On the contrary, big absentee landlords, earning millions by merely leasing out orchards/lands, are not paying even a single penny as personal income tax.
Out of total population of Pakistan, 43.1 percent are below the age of 15 years. The overwhelming majority of them will not have taxable income. Rural labour of 40 million earns meagre income. Thus, the total income tax paying population having taxable income of Rs100,001 can safely be around 25 million. The FBR is not only taxing all of them but even many of those whose incomes fall below taxable limits. The poor are paying not only indirect taxes but also income tax at source under various provisions of the Income Tax Ordinance, 2001 — section 148 to 156A, sections 234 to 236. Thus in reality the people — except the ruling trio — are over-taxed. In return they get nothing.
It was the duty of FBR to allot National Tax Numbers (NTNs) to all those who paid tax under sections 148,149,150,151,152,153,154,155,156, and 233, 234 and 235 of the Income Ordinance, 2001. Had the FBR just issued notices for filing of return to all commercial electricity consumers, mobile and land-line users (paying bill of Rs100,000 or more) and vehicle owners, today we would have over 25 million registered taxpayers. The FBR did not bother to prepare a database of such persons though millions of rupees were spent (rather wasted) on so-called automation.
FBR is guilty of criminal negligence in not taxing persons having taxable income, but extorting money from many who earn below taxable income. It has been misreporting the figures regarding income taxpayers in Pakistan. Its performance is abysmal in achieving a satisfactory tax-to-GDP ratio. It is just thriving on withholding taxes and voluntary payments — constituting 92 percent of total collection. The contribution of field officers [collection on demand through investigation or audit] is just 8 percent of total collection proving beyond any doubt how unproductive this organisation is.
The small business houses and salaried persons, already heavily taxed through withholding tax mechanism, are victims of highhandedness. It is high time that the FBR should put its own house in order and tax the rich and mighty tax evaders.
The writers, tax lawyers, are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS).
FBR version:
According to FBR, it has finally decided to bring all the persons earning taxable income in the tax net through its tax intelligence system. The Chairman of FBR referred to various proposals such as:
Tax legislation will be introduced for installation of electronic cash registers at the retail outlets. Prime Minister has agreed to provide free of cost electronic cash registers to retailers to document their sales.
Political support/will is requested for taxing black economy and brining informal sector into the tax net. Most of the housing schemes are involved in selling of files of plots. There is proposal to tax transfer of plots through sale of files that would be instrumental in generating additional revenues.
Under new Value Added Tax (VAT) regime retailers having annual turnover of Rs7.5 million would be registered—only essential food items and life saving drugs would remain exempt and 15 percent VAT would be imposed on all other goods from July 1, 2010.
The professional service providers e.g. doctors, lawyers, engineers and architects would also be brought under VAT from July 1, 2010. The implementation of the broad-based VAT would generate around Rs150-200 billion in next fiscal year. The revenue generation from VAT implementation would reach to around Rs600 billion in coming years.
The importers, wholesalers and big retailers are paying Rs125 billion, which is below the actual potential. In most of the cases they deposit withholding tax collected from the consumers and do not declare their actual income, thus presumptive tax regime will be abolished.
The NEWS
The Federal Board of Revenue (FBR) is in for criticism for inefficiency and indiscipline. It has failed on all fronts: collection targets, widening of tax base, countering tax evasion and avoidance, recovery of arrears, voluntary compliance, reform process and what not.
At the end of the five-year Tax Administration Reform Project (TARP), the tax-to-GDP ratio dipped to 8.2 percent from 10.6 percent. The borrowed funds of millions of dollars were ruthlessly wasted. The standing committee of parliament on finance must conduct a thorough probe in the matter and seek the assistance of tax experts to determine the amount of loss caused to national exchequer by the FBR stalwarts during the last two decades.
Despite an expensive media campaign, FBR could not make 25 million potential taxpayers to file tax declarations by the extended date — 25 January 2010. The majority of non-filers are rich and mighty bureaucrats, corrupt politicians, and unscrupulous businessmen. FBR has not only failed to tap the actual tax potential — not less than Rs4 trillion — but is also guilty of shifting tax burden from the rich to the poorer segments of society. According to FBR, on admission, 1,916,300 income tax returns and statements were received from July-January of the current fiscal year (2009-10) as compared with 1,797,000 returns and statements in the same period of last fiscal year (2008-09). Total number of income tax returns received up to 25 January 2010 is only 755,671, the rest are statements under section 115(4) — last year 642,777 returns were received — indicating an increase of 112,849 returns. According to the FBR Press release as of January 25, 2010, FBR has received 16,281 corporate sector income tax returns as against 14,903 returns in the same period of last fiscal year, projecting an increase of 1,378 returns.
Firms — registered and unregistered — filed just 41,863 returns. Salaried persons filed 114,495 returns for tax year 2009 as against 119,759 last year showing a decline of 5,264. Non-salaried individuals filed 583,032 returns compared to 481,961 filed last year. Salary certificates received are 18,828 as against 20,745 filed last year. Number of employees covered in statements under section 115(4) are 1,053,708 this year as compared with 1,055,954 last year. Number of importers who filed their statements is 12,262 whereas some 11,510 importers filed their statements last fiscal year. By January 25, 2010 some 8,473 exporters filed their statements as against 8,050 exporters in the same period of last fiscal year. Some 13,332 retailers having up to Rs5 million annual turnover filed their statements during July-January 2010 period of this fiscal year as compared with 18,272 retailers in the same period of last fiscal year. 581 retailers having over Rs5 million annual turnover filed their statements this year as against 830 such retailers in the last fiscal year. 24,378 contractors and suppliers filed statements during this year as against 24,030 during the last year.
It is admitted by FBR that even after "great efforts" less than 2 million Pakistanis have filed income tax declarations for tax year 2009. FBR has failed to implement law even in Islamabad as out of 43000 commercial and residential rental properties in Islamabad, only 7000 owners are filing returns. In Pakistan, the number of mobile users alone, who pay more than Rs100,000 as annual bill, is about 25 million. Why have they not been compelled to file returns? FBR is taking credit of extra 119,300 declarations filed this year. However, it is completely silent about its failure to expand the tax net — we have at least 25 million persons earning taxable income, but who are not filing tax declarations.
For a long time now, FBR has been apologetic (specifically before the IMF and the World Bank) that total income tax payers (referring to registered only) in Pakistan are just 2 million in a population of 170 million. This is a myth. The reality is that since July 1, 1992 all commercial electricity consumers (including about 3.2. million retail outlets in urban areas), irrespective of whether their income is chargeable to tax or not, are paying minimum income tax of Rs60 per month.
The total number of persons earning interest on bank deposits is not less than 30 million. They pay 10 percent mandatory withholding tax irrespective of their quantum of income. Total number of mobile and land-line telephone users, subjected to withholding tax, in the country, is in excess of 60 million — yet FBR claims that our tax base is narrow. The reality is that FBR is incompetent as a result of which it has failed to book/register a majority of these taxpayers. Had it been done, we could today have boasted of nearly 25 million registered taxpayers. Even a petty village shopkeeper (whose total income is much below the minimum taxable limit of Rs100,000) is paying tax as high as Rs720 per annum. On the contrary, big absentee landlords, earning millions by merely leasing out orchards/lands, are not paying even a single penny as personal income tax.
Out of total population of Pakistan, 43.1 percent are below the age of 15 years. The overwhelming majority of them will not have taxable income. Rural labour of 40 million earns meagre income. Thus, the total income tax paying population having taxable income of Rs100,001 can safely be around 25 million. The FBR is not only taxing all of them but even many of those whose incomes fall below taxable limits. The poor are paying not only indirect taxes but also income tax at source under various provisions of the Income Tax Ordinance, 2001 — section 148 to 156A, sections 234 to 236. Thus in reality the people — except the ruling trio — are over-taxed. In return they get nothing.
It was the duty of FBR to allot National Tax Numbers (NTNs) to all those who paid tax under sections 148,149,150,151,152,153,154,155,156, and 233, 234 and 235 of the Income Ordinance, 2001. Had the FBR just issued notices for filing of return to all commercial electricity consumers, mobile and land-line users (paying bill of Rs100,000 or more) and vehicle owners, today we would have over 25 million registered taxpayers. The FBR did not bother to prepare a database of such persons though millions of rupees were spent (rather wasted) on so-called automation.
FBR is guilty of criminal negligence in not taxing persons having taxable income, but extorting money from many who earn below taxable income. It has been misreporting the figures regarding income taxpayers in Pakistan. Its performance is abysmal in achieving a satisfactory tax-to-GDP ratio. It is just thriving on withholding taxes and voluntary payments — constituting 92 percent of total collection. The contribution of field officers [collection on demand through investigation or audit] is just 8 percent of total collection proving beyond any doubt how unproductive this organisation is.
The small business houses and salaried persons, already heavily taxed through withholding tax mechanism, are victims of highhandedness. It is high time that the FBR should put its own house in order and tax the rich and mighty tax evaders.
The writers, tax lawyers, are members of Adjunct Faculty of Lahore University of Management Sciences (LUMS).
FBR version:
According to FBR, it has finally decided to bring all the persons earning taxable income in the tax net through its tax intelligence system. The Chairman of FBR referred to various proposals such as:
Tax legislation will be introduced for installation of electronic cash registers at the retail outlets. Prime Minister has agreed to provide free of cost electronic cash registers to retailers to document their sales.
Political support/will is requested for taxing black economy and brining informal sector into the tax net. Most of the housing schemes are involved in selling of files of plots. There is proposal to tax transfer of plots through sale of files that would be instrumental in generating additional revenues.
Under new Value Added Tax (VAT) regime retailers having annual turnover of Rs7.5 million would be registered—only essential food items and life saving drugs would remain exempt and 15 percent VAT would be imposed on all other goods from July 1, 2010.
The professional service providers e.g. doctors, lawyers, engineers and architects would also be brought under VAT from July 1, 2010. The implementation of the broad-based VAT would generate around Rs150-200 billion in next fiscal year. The revenue generation from VAT implementation would reach to around Rs600 billion in coming years.
The importers, wholesalers and big retailers are paying Rs125 billion, which is below the actual potential. In most of the cases they deposit withholding tax collected from the consumers and do not declare their actual income, thus presumptive tax regime will be abolished.
FBS restructuring bill may be approved soon
Tuesday, February 16, 2010
By Israr Khan
The NEWS
ISLAMABAD: Parliament will soon approve a draft bill for restructuring and reorganisation of data collection organisations, which is aimed at making them more responsive to national requirements with increased autonomy and credibility, sources say.
The bill will establish Pakistan Bureau of Statistics (PBS) by merging Federal Bureau of Statistics (FBS) with Agriculture Census Organisation (ACO) and Population Census Organisation (PCO). The new body will have seven members — three from the government while four from the private sector.
Official sources told The News the restructuring bill had already got federal approval and would now go to parliament for final approval.
The restructuring of the statistics body had been due for the last several years, but pressure from the International Monetary Fund forced the government to step up efforts in that regard, a source said. It is expected that the World Bank will assist the government in the restructuring process.
The Statistics Division arranged a briefing for senior officials of the attached departments including FBS and PCO about the restructuring and reorganisation of the federal statistics system.
Speaking to the officers, Muhammad Uris Jumani, Deputy Director General of Statistics Division, said parliament was in the process of approving the draft bill.
“The government has approved restructuring of the federal statistics system to make it more responsive to national requirements with increased autonomy and credibility through merger of Federal Bureau of Statistics, Population Census Organisation, Agriculture Census Organisation and technical wing of the Statistics Division into a new autonomous body called the Pakistan Bureau of Statistics,” he said.
Jumani said the Statistics Division planned to hold such briefings in the provincial headquarters in order to introduce the new body.
He said main objectives of restructuring were to make the data collection system more relevant to national needs and to ensure capacity building, career planning of professional staff, upgrading of skills, fair use of resources through pooling of human and material resources and better coordination between different data collecting agencies.
Pakistan Bureau of Statistics will have an apex body namely the Governing Council with three government and four non-government representatives.
A National Users Council comprising data users will be formed to give advice on priorities for collection of statistical data in order to achieve efficiency and prompt results.
Provision has been made for release and dissemination of data by the statistics authority while protecting secrecy of individuals, firms and institutions.
The draft law also provides for establishment of a statistics fund to ensure financial autonomy to the bureau. Protection has been provided in the draft law to existing employees of the bureau in terms of service and they will be governed by the Civil Servants Act 1973 and its rules and will continue service on same terms and conditions.
Every person or employee will have the right to opt for work in the bureau as a civil servant or under new rules and regulations to be prepared by the management of PBS.
By Israr Khan
The NEWS
ISLAMABAD: Parliament will soon approve a draft bill for restructuring and reorganisation of data collection organisations, which is aimed at making them more responsive to national requirements with increased autonomy and credibility, sources say.
The bill will establish Pakistan Bureau of Statistics (PBS) by merging Federal Bureau of Statistics (FBS) with Agriculture Census Organisation (ACO) and Population Census Organisation (PCO). The new body will have seven members — three from the government while four from the private sector.
Official sources told The News the restructuring bill had already got federal approval and would now go to parliament for final approval.
The restructuring of the statistics body had been due for the last several years, but pressure from the International Monetary Fund forced the government to step up efforts in that regard, a source said. It is expected that the World Bank will assist the government in the restructuring process.
The Statistics Division arranged a briefing for senior officials of the attached departments including FBS and PCO about the restructuring and reorganisation of the federal statistics system.
Speaking to the officers, Muhammad Uris Jumani, Deputy Director General of Statistics Division, said parliament was in the process of approving the draft bill.
“The government has approved restructuring of the federal statistics system to make it more responsive to national requirements with increased autonomy and credibility through merger of Federal Bureau of Statistics, Population Census Organisation, Agriculture Census Organisation and technical wing of the Statistics Division into a new autonomous body called the Pakistan Bureau of Statistics,” he said.
Jumani said the Statistics Division planned to hold such briefings in the provincial headquarters in order to introduce the new body.
He said main objectives of restructuring were to make the data collection system more relevant to national needs and to ensure capacity building, career planning of professional staff, upgrading of skills, fair use of resources through pooling of human and material resources and better coordination between different data collecting agencies.
Pakistan Bureau of Statistics will have an apex body namely the Governing Council with three government and four non-government representatives.
A National Users Council comprising data users will be formed to give advice on priorities for collection of statistical data in order to achieve efficiency and prompt results.
Provision has been made for release and dissemination of data by the statistics authority while protecting secrecy of individuals, firms and institutions.
The draft law also provides for establishment of a statistics fund to ensure financial autonomy to the bureau. Protection has been provided in the draft law to existing employees of the bureau in terms of service and they will be governed by the Civil Servants Act 1973 and its rules and will continue service on same terms and conditions.
Every person or employee will have the right to opt for work in the bureau as a civil servant or under new rules and regulations to be prepared by the management of PBS.
Statistics reveal stunning increase in poverty
World Bank’s Task Force on Food Security says 40pc Pakistanis living below poverty line
Tuesday, February 16, 2010
By Ikram Hoti
The NEWS
ISLAMABAD: Statistics reveal stunning increase in poverty in Pakistan impacted by the prices of energy and food in the past three years.
These happen to be the worst years as far as the poverty situation in the country is concerned, data reveals.
The Federal Bureau of Statistics data updated for the Centre for Poverty Reduction and Social Policy Development (CPRSPD), Planning and Development Division, shared with The News indicates an upswing in the headcount poverty ratio for 2008-09.
The steep increase in the prices of petroleum products, electricity and natural gas as well as food items (especially flour, sugar and meat) began in 2007, while the situation worsened in 2008 with global increase in POL and commodity prices.
The financial meltdown followed as industry could not cope with the rising energy prices triggered sharp slowdown in growth and high inflation.
This situation impacted Pakistan’s economy generally and the poor households particularly, as the report indicates.
The government is yet to make this report public after its preparation is formalized and the relevant officials in high places approve its launch.
The News obtained salient figures from this report revealing that the increase in food and energy prices since late 2007 compelled the government to launch a household income and expenditure survey for assessment of poverty increase and vulnerability of the countryside and city-slum majority.
Survey to make such assessment got delayed for inexplicable reasons but the reports based on a 5-year old assessment got regularly updated for the federal cabinet’s appraisal.
The updated Planning Commission’s Interim Report based on 2004-05 poverty head count number of 23.9 percent put the increase in poverty at around 6 percent for the year 2008-09. The newly updated figures say this ratio must go as high as 29.9 percent.
The World Bank’s Task Force on Food Security had put the ratio at 29.2 percent in 2004-05, 33.8 percent in 2007-08 and 36.1 percent in 2008-09. Such estimates placed 62 million people of the country Below the Poverty Line (BPL) in 2008-09.
The new assessments say at least 20 million people might have joined the previous headcount on BPL population.
The poverty increase situation thus stood as follows: 22.3 percent of the population in 2005-06 to between 30-35 percent in 2008-09; now this population is beyond 40 percent.
The data is explained in a manner that the increase in BPL population in the rural areas is more tragic as people lost their small holdings to inflation and overall expenditure per family unit increased by more than 20 percent in the past 3 years.
Though the increase of inflation-hit population in the urban areas remained more pronounced, the net impact was far lower than in the rural areas.
More than 50 percent of the urban workforce underwent decrease in actual wages viz a viz inflation.
The high food prices undermined the government efforts for poverty reduction as food price hike severely eroded poor households’ purchasing power.
This situation indicates a serious risk of massive school dropouts at primary levels while fresh enrolments would also be on the decline.
The poorest households are compelled to spend more than 78 percent of incomes on food and other most essential expenditure, while health and education are tragically compromised areas.
Tuesday, February 16, 2010
By Ikram Hoti
The NEWS
ISLAMABAD: Statistics reveal stunning increase in poverty in Pakistan impacted by the prices of energy and food in the past three years.
These happen to be the worst years as far as the poverty situation in the country is concerned, data reveals.
The Federal Bureau of Statistics data updated for the Centre for Poverty Reduction and Social Policy Development (CPRSPD), Planning and Development Division, shared with The News indicates an upswing in the headcount poverty ratio for 2008-09.
The steep increase in the prices of petroleum products, electricity and natural gas as well as food items (especially flour, sugar and meat) began in 2007, while the situation worsened in 2008 with global increase in POL and commodity prices.
The financial meltdown followed as industry could not cope with the rising energy prices triggered sharp slowdown in growth and high inflation.
This situation impacted Pakistan’s economy generally and the poor households particularly, as the report indicates.
The government is yet to make this report public after its preparation is formalized and the relevant officials in high places approve its launch.
The News obtained salient figures from this report revealing that the increase in food and energy prices since late 2007 compelled the government to launch a household income and expenditure survey for assessment of poverty increase and vulnerability of the countryside and city-slum majority.
Survey to make such assessment got delayed for inexplicable reasons but the reports based on a 5-year old assessment got regularly updated for the federal cabinet’s appraisal.
The updated Planning Commission’s Interim Report based on 2004-05 poverty head count number of 23.9 percent put the increase in poverty at around 6 percent for the year 2008-09. The newly updated figures say this ratio must go as high as 29.9 percent.
The World Bank’s Task Force on Food Security had put the ratio at 29.2 percent in 2004-05, 33.8 percent in 2007-08 and 36.1 percent in 2008-09. Such estimates placed 62 million people of the country Below the Poverty Line (BPL) in 2008-09.
The new assessments say at least 20 million people might have joined the previous headcount on BPL population.
The poverty increase situation thus stood as follows: 22.3 percent of the population in 2005-06 to between 30-35 percent in 2008-09; now this population is beyond 40 percent.
The data is explained in a manner that the increase in BPL population in the rural areas is more tragic as people lost their small holdings to inflation and overall expenditure per family unit increased by more than 20 percent in the past 3 years.
Though the increase of inflation-hit population in the urban areas remained more pronounced, the net impact was far lower than in the rural areas.
More than 50 percent of the urban workforce underwent decrease in actual wages viz a viz inflation.
The high food prices undermined the government efforts for poverty reduction as food price hike severely eroded poor households’ purchasing power.
This situation indicates a serious risk of massive school dropouts at primary levels while fresh enrolments would also be on the decline.
The poorest households are compelled to spend more than 78 percent of incomes on food and other most essential expenditure, while health and education are tragically compromised areas.
Industrial competitiveness through quality
By Shaukat Hussain
The NEWS
The World Trade Organisation (WTO) is an international organisation established to supervise and liberalise international trade. WTO’s function is to ensure that trade between different countries flows as freely as possible, without any barriers.
The three technical partners, ISO (International Organisation for Standardisation), IEC (International Electrotechnical Commission) and ITU (International Telecommunication Union) have formed a strategic relationship with the WTO, to promote a free and fair global trading system. The political agreements reached within the structure of the WTO require reinforcement by technical agreements. ISO, IEC and ITU, as the three principal organisations in international standardisation have the complementary scope, the framework, the expertise and the experience to provide this technical support which is called ‘quality infrastructure or technical infrastructure,’ which leads towards global market growth.
The WTO since its existence in January 1995 imposes technical barriers to trade (TBT), to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. However, the agreement also recognises countries’ rights to adopt the standards they consider appropriate, for example, for human, animal or plant life, for the protection of the environment or to meet other consumer interests. In order to ensure safe production of food and animal products, a separate agreement on food safety and animal and plant health standards, the Sanitary and Phytosanitary Measures Agreement (SPS) sets out some basic rules. It allows countries to set their own standards, but it also says that regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life/health. Both these agreements of TBT and SPS rely upon efficient functioning of the technical infrastructure, to support the exchange of products worldwide. Therefore, metrology, standards, testing and quality through recognised accreditation system are essential elements of technical infrastructure. Quality infrastructure refers to all aspects of metrology, standardisation, testing, and quality management (MSTQ) or standardisation, quality assurance, accreditation and metrology (SQAM).
In the quality infrastructure system, accreditation plays a very vital role. It is a formal confirmation that a body is competent enough to perform certain tasks. It builds confidence in the work of testing laboratories, certification and inspection bodies, and facilitates mutual recognition of certificates, in addition to promotion of trade. The Asia Pacific Laboratory Accreditation Cooperation (APLAC) was initiated in 1992 as a forum for laboratory accreditation bodies in the Asia Pacific region. Its primary aim was to establish, develop and expand a mutual recognition arrangement (MRA) among accreditation bodies in the region. The International Laboratory Accreditation Cooperation (ILAC) is an international cooperation of laboratory and inspection accreditation bodies formed to help remove technical barriers to trade. The ultimate aim of the ILAC arrangement is the increased use and acceptance by industry, as well as regulators of the results from accredited laboratories and inspection bodies, including results from laboratories in other countries. In this way, the free-trade goal of 'product tested once and accepted everywhere' can be realised. The International Accreditation Forum, Inc. (IAF) is the world association of conformity assessment accreditation bodies and other bodies interested in conformity assessment in the fields of management systems, products, services, personnel and other similar programmes of conformity assessment. Its primary function is to develop a worldwide program of conformity assessment, which reduces risks for businesses and its customers by assuring them that accredited certificates may be relied upon. The achievement of this MRA is not an easy task. There are only two accreditation bodies in the South Asian Association for Regional Cooperation (SAARC) region, four in the Organisation of the Islamic Conference (OIC) countries, and only fifty one countries have this status in the world. Pakistan National Accreditation Council (PNAC) achieved this status on 21st May 2009. In addition to this, the Ministry of Science and Technology (MoST) has the entire essential quality infrastructure, which is necessary for competitiveness of industrial products. The infrastructure includes institutions like the National Physical and Standards Laboratories (NPSL) to provide accredited metrology services to industry and testing laboratories, Pakistan Standards and Quality Control Authority (PSQCA) to formulate and disseminate standards for the local industry and other stakeholders, and Pakistan Council of Scientific and Industrial Research (PCSIR) to provide internationally recognised testing services to the industry, regulators and consumers.
Though the impact of quality infrastructure seems invisible, it is however imperative because without it the world economy cannot possibly move forward. Quality infrastructure is necessary for eliminating technical barriers to trade. It thus plays a key role in integrating the trading partner countries into the international trade system.
The appropriate operation of quality infrastructure ensures benefits to various stakeholders as given below:
Producers
(a) Helps to demonstrate conformity of their products according to the requirements of the relevant standards.
(b) Provides a marketing tool to the business industry.
(c) Assist in overcoming technical barriers to trade by fulfilling the regulatory requirements of the importing country.
(d)Reduces product liability, if applicable in the intended country.
(e) Increases the confidence of industrialists through an assurance to produce high quality products.
Regulators
(a) Provides an assurance to regulators and government departments that they are using reliable testing, certification and inspection services.
(b) The products in the market are assumed to be tested by competent institutions of quality infrastructure. Therefore regulators have to select very few samples and it reduces the cost of market surveillance.
(c) Public, private and multinational companies can establish testing and inspection organisations duly verified by the national quality infrastructure. It reduces the burden on the government sector to establish laboratories and inspection bodies, and it serves as a de-regulation tool as well.
Consumers
(a) If the product has been tested by a competent institution of quality infrastructure, then it reduces the risk of it being of poor quality, hence quality Infrastructure is the source of a reliable service.
(b) The product purchased by consumers is worth the money and it is assured to be of top notch quality.
In order to provide awareness and training on technical quality matters, there is no such recognised institution in Pakistan. For this, certain steps should be taken, such as to start training courses in universities on quality infrastructure related activities in consultation with the Ministry of Science and Technology (MoST). A training program for the interpretation and implementation of specific international agreements, like SPS, TBT and its linkage with quality infrastructure may be introduced at the university level in consultation with the Higher Education Commission (HEC) and Ministry of Science and Technology. Public sector universities should be encouraged to launch laboratory proficiency testing programs in Pakistan. At this particular time period, even a single accredited laboratory scheme would be very helpful. A pool of trainers and consultants should be prepared. Last but not the least, there is a dire need to develop a strong linkage between the industries and quality infrastructure institutions so that our industries may benefit from the worldwide recognised quality infrastructure, which would definitely provide them a competitive edge in the global market.
The NEWS
The World Trade Organisation (WTO) is an international organisation established to supervise and liberalise international trade. WTO’s function is to ensure that trade between different countries flows as freely as possible, without any barriers.
The three technical partners, ISO (International Organisation for Standardisation), IEC (International Electrotechnical Commission) and ITU (International Telecommunication Union) have formed a strategic relationship with the WTO, to promote a free and fair global trading system. The political agreements reached within the structure of the WTO require reinforcement by technical agreements. ISO, IEC and ITU, as the three principal organisations in international standardisation have the complementary scope, the framework, the expertise and the experience to provide this technical support which is called ‘quality infrastructure or technical infrastructure,’ which leads towards global market growth.
The WTO since its existence in January 1995 imposes technical barriers to trade (TBT), to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. However, the agreement also recognises countries’ rights to adopt the standards they consider appropriate, for example, for human, animal or plant life, for the protection of the environment or to meet other consumer interests. In order to ensure safe production of food and animal products, a separate agreement on food safety and animal and plant health standards, the Sanitary and Phytosanitary Measures Agreement (SPS) sets out some basic rules. It allows countries to set their own standards, but it also says that regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life/health. Both these agreements of TBT and SPS rely upon efficient functioning of the technical infrastructure, to support the exchange of products worldwide. Therefore, metrology, standards, testing and quality through recognised accreditation system are essential elements of technical infrastructure. Quality infrastructure refers to all aspects of metrology, standardisation, testing, and quality management (MSTQ) or standardisation, quality assurance, accreditation and metrology (SQAM).
In the quality infrastructure system, accreditation plays a very vital role. It is a formal confirmation that a body is competent enough to perform certain tasks. It builds confidence in the work of testing laboratories, certification and inspection bodies, and facilitates mutual recognition of certificates, in addition to promotion of trade. The Asia Pacific Laboratory Accreditation Cooperation (APLAC) was initiated in 1992 as a forum for laboratory accreditation bodies in the Asia Pacific region. Its primary aim was to establish, develop and expand a mutual recognition arrangement (MRA) among accreditation bodies in the region. The International Laboratory Accreditation Cooperation (ILAC) is an international cooperation of laboratory and inspection accreditation bodies formed to help remove technical barriers to trade. The ultimate aim of the ILAC arrangement is the increased use and acceptance by industry, as well as regulators of the results from accredited laboratories and inspection bodies, including results from laboratories in other countries. In this way, the free-trade goal of 'product tested once and accepted everywhere' can be realised. The International Accreditation Forum, Inc. (IAF) is the world association of conformity assessment accreditation bodies and other bodies interested in conformity assessment in the fields of management systems, products, services, personnel and other similar programmes of conformity assessment. Its primary function is to develop a worldwide program of conformity assessment, which reduces risks for businesses and its customers by assuring them that accredited certificates may be relied upon. The achievement of this MRA is not an easy task. There are only two accreditation bodies in the South Asian Association for Regional Cooperation (SAARC) region, four in the Organisation of the Islamic Conference (OIC) countries, and only fifty one countries have this status in the world. Pakistan National Accreditation Council (PNAC) achieved this status on 21st May 2009. In addition to this, the Ministry of Science and Technology (MoST) has the entire essential quality infrastructure, which is necessary for competitiveness of industrial products. The infrastructure includes institutions like the National Physical and Standards Laboratories (NPSL) to provide accredited metrology services to industry and testing laboratories, Pakistan Standards and Quality Control Authority (PSQCA) to formulate and disseminate standards for the local industry and other stakeholders, and Pakistan Council of Scientific and Industrial Research (PCSIR) to provide internationally recognised testing services to the industry, regulators and consumers.
Though the impact of quality infrastructure seems invisible, it is however imperative because without it the world economy cannot possibly move forward. Quality infrastructure is necessary for eliminating technical barriers to trade. It thus plays a key role in integrating the trading partner countries into the international trade system.
The appropriate operation of quality infrastructure ensures benefits to various stakeholders as given below:
Producers
(a) Helps to demonstrate conformity of their products according to the requirements of the relevant standards.
(b) Provides a marketing tool to the business industry.
(c) Assist in overcoming technical barriers to trade by fulfilling the regulatory requirements of the importing country.
(d)Reduces product liability, if applicable in the intended country.
(e) Increases the confidence of industrialists through an assurance to produce high quality products.
Regulators
(a) Provides an assurance to regulators and government departments that they are using reliable testing, certification and inspection services.
(b) The products in the market are assumed to be tested by competent institutions of quality infrastructure. Therefore regulators have to select very few samples and it reduces the cost of market surveillance.
(c) Public, private and multinational companies can establish testing and inspection organisations duly verified by the national quality infrastructure. It reduces the burden on the government sector to establish laboratories and inspection bodies, and it serves as a de-regulation tool as well.
Consumers
(a) If the product has been tested by a competent institution of quality infrastructure, then it reduces the risk of it being of poor quality, hence quality Infrastructure is the source of a reliable service.
(b) The product purchased by consumers is worth the money and it is assured to be of top notch quality.
In order to provide awareness and training on technical quality matters, there is no such recognised institution in Pakistan. For this, certain steps should be taken, such as to start training courses in universities on quality infrastructure related activities in consultation with the Ministry of Science and Technology (MoST). A training program for the interpretation and implementation of specific international agreements, like SPS, TBT and its linkage with quality infrastructure may be introduced at the university level in consultation with the Higher Education Commission (HEC) and Ministry of Science and Technology. Public sector universities should be encouraged to launch laboratory proficiency testing programs in Pakistan. At this particular time period, even a single accredited laboratory scheme would be very helpful. A pool of trainers and consultants should be prepared. Last but not the least, there is a dire need to develop a strong linkage between the industries and quality infrastructure institutions so that our industries may benefit from the worldwide recognised quality infrastructure, which would definitely provide them a competitive edge in the global market.
Gas price hike and the common man
By Syeda Majeeda Aqeel
The NEWS
Recently the Oil and Gas Regulatory Authority (OGRA) increased the price of gas sold by gas utilities to different consumers with effect from January 1st, 2010. OGRA issued two notifications; first on 31st December 2009, which was somewhat dubious to consumers, so the authority came up with another notification on January 8th, 2010 in suppression to the previous one. In its first notification, the authority did not include minimum charges (the charges for being connected to the gas supply) to the consumers (i.e. domestic, commercial, industrial, CNG stations, cement, WAPDA and KESC power stations etc.), so minimum charges to be paid by consumers were added in the second notification. The said price hike was to increase the revenue of Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGC) as the global lenders demand from the government to keep the revenue of the two gigantic gas distributors at a certain level.
According to the notification, minimum charges for domestic consumers are Rs.128.15, while the commercial units are bound to pay Rs2189.28 per month. The commercial units include clinics, cinemas, laundries, barber shops, tea stalls, milk shops, bakeries, cafes etc. Similarly, the industrial sector is made to pay Rs12893.23 as minimum charges per month. While the CNG stations, cement, independent power producers (IPP) and captive power plants would pay Rs16,982.44, Rs18,087.77, Rs11,206.98 and Rs12,893.29 respectively. There was a total increase of Rs3000 in the minimum charges paid by consumers as compared to the June 30th, 2009 notification. (As shown in the table)
OGRA also fixed the price of natural gas sold by Pakistan Petroleum Limited to WAPDA’s gas tribune power station, located at Guddu, at Rs380.41 and Rs369.97 per mmbtu, respectively.
This increase of 18 per cent has come as a shock to the end users who happen to be the masses in all cases. Commercial, industrial and transport sectors quickly pass on the price hike to the common man. Domestic, industrial and transport sectors mainly consume more than 90 per cent of gas supply.
Transport sector consumes gas in the form of CNG, as a fuel. Pakistan has the world’s highest number of CNG vehicles i.e. over 2 million, and has the maximum number of CNG refueling stations i.e. 2,941 as of July 29th, 2009. The main reason is because gasoline (petrol) prices in Pakistan are the highest in the region. So during the recent years, our transport system has switched over to CNG, putting great pressure on this meager gas resource. Discouraging use of this source of energy through price hike is a foolish idea, especially when oil prices have started escalating again. The current CNG crisis in Punjab and in NWFP is handled through restricted supply which is not a long term solution.
Due to lack of effective planning and timely rectification, the gas sector is on the verge of collapse and if the ongoing decision to suspend gas supply for two days a week is not withdrawn, then the import bill of oil will swell, as CNG is presently replacing at least 3.7 billion liters of petrol per annum which is again a burden on the already huge budget deficit.
The industrial sector is the second largest sector of Pakistan’s economy in terms of output and employment. However, due to many factors both domestic and external, presently the sector is passing through a terrible period, and this decision is worsening the already fragile sector. The sector has already been destabilised by the weakness in domestic demand, excessive power shortage, structural problems, deterioration in law and order situation and decline in external demand emanating from the global recession. In this situation the suspension of gas supply to industries for two days a week is beyond one’s imagination. Non availability of electricity and gas has destroyed the industrial base and the government is not dealing with this particular crisis efficiently, rather it is playing the role of a silent spectator. The industrial area, which is the hub of production, is facing huge losses as a large number of industrial units have stopped production.
In order to tackle with the problem of gas shortage, the government is on its way to implement a risky project of Iran-Pakistan-India (IPI) gas pipeline. IPI, being a doubtful starter entails huge economic and political costs to the country. This project will benefit the seller Iran and the buyer India chiefly. Although Pakistan will be able to purchase 750 million to one billion cubic feet of gas per day, the project can be dicey due to the fact that Pakistan has a fragile relationship with India. The Iranian request clearly made on India’s demand for a guarantee by Pakistan to ensure uninterrupted gas supply to India is unreasonable. This should not happen in order to safeguard our interests.
Within a short time period, the change of autocratic government to the democratic one has caused havoc to the general population. Be it natural gas or CNG, the higher authorities have vested interests to extract maximum financial gains with little or no concern for the average man, who is suffering the most.
Our country is blessed with precious natural gas, but unfortunately due to mismanagement it is being wasted in the form of gas hoarding or theft. During the last financial year, SNGPL and SSGCL recorded a revenue loss of more than three billion rupees, as per OGRA’s annual report.
If squandering of gas is not checked immediately then the entire reserve will deplete within the next few decades, leaving nothing for the coming generation. Special emphasis needs to be laid on the exploration and development of the resource and this can only be achieved by attracting local and foreign investment in this sector, which has a huge potential.
Minimum charges paid by each sector
(In Rupees)
Sector 1st Jan 2010 1st July 2009
Domestic 128.15 108.78
Commercial 2,189.28 1,856.80
Industrial 12,893.23 10,935.13
CNG stations 16,982.44 14,403.25
Cement 18,087.77 15,340.65
IPP 11,206.98 9,504.74
Captive power plants 12,893.29 10,935.13
Notification issued by OGRA
The NEWS
Recently the Oil and Gas Regulatory Authority (OGRA) increased the price of gas sold by gas utilities to different consumers with effect from January 1st, 2010. OGRA issued two notifications; first on 31st December 2009, which was somewhat dubious to consumers, so the authority came up with another notification on January 8th, 2010 in suppression to the previous one. In its first notification, the authority did not include minimum charges (the charges for being connected to the gas supply) to the consumers (i.e. domestic, commercial, industrial, CNG stations, cement, WAPDA and KESC power stations etc.), so minimum charges to be paid by consumers were added in the second notification. The said price hike was to increase the revenue of Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGC) as the global lenders demand from the government to keep the revenue of the two gigantic gas distributors at a certain level.
According to the notification, minimum charges for domestic consumers are Rs.128.15, while the commercial units are bound to pay Rs2189.28 per month. The commercial units include clinics, cinemas, laundries, barber shops, tea stalls, milk shops, bakeries, cafes etc. Similarly, the industrial sector is made to pay Rs12893.23 as minimum charges per month. While the CNG stations, cement, independent power producers (IPP) and captive power plants would pay Rs16,982.44, Rs18,087.77, Rs11,206.98 and Rs12,893.29 respectively. There was a total increase of Rs3000 in the minimum charges paid by consumers as compared to the June 30th, 2009 notification. (As shown in the table)
OGRA also fixed the price of natural gas sold by Pakistan Petroleum Limited to WAPDA’s gas tribune power station, located at Guddu, at Rs380.41 and Rs369.97 per mmbtu, respectively.
This increase of 18 per cent has come as a shock to the end users who happen to be the masses in all cases. Commercial, industrial and transport sectors quickly pass on the price hike to the common man. Domestic, industrial and transport sectors mainly consume more than 90 per cent of gas supply.
Transport sector consumes gas in the form of CNG, as a fuel. Pakistan has the world’s highest number of CNG vehicles i.e. over 2 million, and has the maximum number of CNG refueling stations i.e. 2,941 as of July 29th, 2009. The main reason is because gasoline (petrol) prices in Pakistan are the highest in the region. So during the recent years, our transport system has switched over to CNG, putting great pressure on this meager gas resource. Discouraging use of this source of energy through price hike is a foolish idea, especially when oil prices have started escalating again. The current CNG crisis in Punjab and in NWFP is handled through restricted supply which is not a long term solution.
Due to lack of effective planning and timely rectification, the gas sector is on the verge of collapse and if the ongoing decision to suspend gas supply for two days a week is not withdrawn, then the import bill of oil will swell, as CNG is presently replacing at least 3.7 billion liters of petrol per annum which is again a burden on the already huge budget deficit.
The industrial sector is the second largest sector of Pakistan’s economy in terms of output and employment. However, due to many factors both domestic and external, presently the sector is passing through a terrible period, and this decision is worsening the already fragile sector. The sector has already been destabilised by the weakness in domestic demand, excessive power shortage, structural problems, deterioration in law and order situation and decline in external demand emanating from the global recession. In this situation the suspension of gas supply to industries for two days a week is beyond one’s imagination. Non availability of electricity and gas has destroyed the industrial base and the government is not dealing with this particular crisis efficiently, rather it is playing the role of a silent spectator. The industrial area, which is the hub of production, is facing huge losses as a large number of industrial units have stopped production.
In order to tackle with the problem of gas shortage, the government is on its way to implement a risky project of Iran-Pakistan-India (IPI) gas pipeline. IPI, being a doubtful starter entails huge economic and political costs to the country. This project will benefit the seller Iran and the buyer India chiefly. Although Pakistan will be able to purchase 750 million to one billion cubic feet of gas per day, the project can be dicey due to the fact that Pakistan has a fragile relationship with India. The Iranian request clearly made on India’s demand for a guarantee by Pakistan to ensure uninterrupted gas supply to India is unreasonable. This should not happen in order to safeguard our interests.
Within a short time period, the change of autocratic government to the democratic one has caused havoc to the general population. Be it natural gas or CNG, the higher authorities have vested interests to extract maximum financial gains with little or no concern for the average man, who is suffering the most.
Our country is blessed with precious natural gas, but unfortunately due to mismanagement it is being wasted in the form of gas hoarding or theft. During the last financial year, SNGPL and SSGCL recorded a revenue loss of more than three billion rupees, as per OGRA’s annual report.
If squandering of gas is not checked immediately then the entire reserve will deplete within the next few decades, leaving nothing for the coming generation. Special emphasis needs to be laid on the exploration and development of the resource and this can only be achieved by attracting local and foreign investment in this sector, which has a huge potential.
Minimum charges paid by each sector
(In Rupees)
Sector 1st Jan 2010 1st July 2009
Domestic 128.15 108.78
Commercial 2,189.28 1,856.80
Industrial 12,893.23 10,935.13
CNG stations 16,982.44 14,403.25
Cement 18,087.77 15,340.65
IPP 11,206.98 9,504.74
Captive power plants 12,893.29 10,935.13
Notification issued by OGRA
Food security in great peril
By M. Zafar Haider Jappa
The NEWS
The recent emergence of food insecurity hit hard the whole developing world in general and the South Asian states in particular. Food security is a human right of every citizen. The UNís Food and Agriculture Organisation (FAO) defines it as, ìaccess by all people at all times to the food needed for an active and healthy life.î The most recent crucial event on food security was held in Rome one month before the climate summit. Like the Copenhagen Climate Accord of December 2009, the World Food Summit held in November 2009 faced a serious blow when the Food and Agriculture Organisation (FAO) failed to win a clear pledge from the industrialised nations to commit $44 billion a year to help poor nations overcome food shortage.
According to the Food Security Risk Index, USA, France, Canada and Germany are top most secure in food production and distribution. On the contrary, Angola, Haiti, Mozambique, Congo and Zimbabwe happen to be the most insecure in food production. In recent past food situation started deteriorating in 2003 when the world commodity market registered a shortfall in grain up to 105 million tons. In 2007-08 wheat nosedived to a shortfall of 16 million metric tons alone, owing to a shift in the priorities of the worldís leading producers of wheat like USA, Australia and Canada in favour of maize to meet bio-fuel needs.
A sharp spike in food prices sparked riots in some 60 countries with varying intensity and widespread hoarding. The food scarcity also prompted rich food importing countries, like Saudi Arabia to snap up farmland in developing countries to meet future food needs.
Although article 38 of the Constitution of Pakistan explicitly guarantees the right of food to the people, however it has attracted little attention of the policy makers since its promulgation. The abrupt spike in the prices of food items in the wake of 2008 clearly exposed one fact that Pakistan will never meet the targets of the Millennium Development Goals (MDGs) within the time limit. The situation in the other South Asian economies is also not so different. Poverty is rather compounding and the plight of the vulnerable segments of the society is painting things worse. WFP has revealed that during the year which ended in March 2009, the number of persons deemed insecure had risen to 77 million from 60 million in the previous year. Prior to the recent food shortage, only Pakistan was the net food importing developing country (NFIDC) in the whole South Asia as per the data of World Trade Organisation (WTO). Now except Bhutan all other economies of the region fall in the category of NFIDCs. Sri Lanka has been listed as one of the ìhungerís global hotspotsî by the WFP although it has a high literacy rate, low unemployment level and modernisation of farming sector. Other hotspots include Afghanistan, Bangladesh, Chad, North Korea, Somalia, Sudan and Zimbabwe.
In Pakistan wheat and rice are the two main food crops. Since we have no exact figure of the total population of the country, hence actual requirement of the country against both these items cannot be ascertained. This is the reason we are just following guess work to quantify and identity national targets for food production. Except 2000-04, Pakistan has been importing wheat. Wheat is lost while harvesting, threshing, cleaning, drying, milling, storage, processing, cooking and consumption. Although owing to some inbred problems in decision making and implementation, achieving food self-suffice is next to impossible in Pakistan in future, but it can be materialised by taking some innovative steps. We will have to determine the bare minimum area for food cultivation before the construction mafia swallows the whole fertile grassland of the country. Poverty is widely distributed in the many mountainous parts of the country where communities are small and scattered. The rugged terrain, fragile ecosystems, and a recent scourge of climate change make cultivation difficult. Lack of access to services, markets and innovative means have contributed to chronic poverty in these areas. Owing to the spillover effect it has affected the rural way of life and compelled urban migration.
According to the International Fund for Agriculture Development (IFAD), a majority of rural people in Pakistan are poor because of unequal land distribution. A few large landholders own a disproportionate amount of land. More than 4 million family farms have plots of less than 5 hectares, and 25 per cent of all farms consist of less than 1 hectare. At present about 50 per cent of farmers own and operate their farms, while 26 per cent are tenants. Sharecroppers who work on lands belonging to large-scale farmers, are often in debt to their employers.
WFP undertook two exercises to measure the level of food security in Pakistan, once in 1998 and then in 2003. The worrying fact was that the rural population in food surplus provinces was found insecure owing to population pressure and resultant rise in food items. The situation was aggravated by the post harvest losses.
FAO (2009) suggests, for all the economies of South Asia, the share of agricultural sector in their GDPs has steadily declined since 1990. For the period of 1985-2005, the average annual rate of growth of yields of cereals in South Asia has been increased at decreasing rates except for Pakistan. It was ñ1.41 per cent in 1985 but soared to 3.98 per cent in 2005. For India it was 4.17 per cent in 1985 that reduced to .63 per cent in 2005. This enlightens the change in governmentsí priorities over the time period. One of the main reasons is the massive diversion of fertile lands into construction activities, which has slowed down cereal production in the region.
In South Asia, India realised the importance much earlier when it disbanded feudal system in 1949 and in 1955 passed Essential Commodities Act by gaining control over production, supply and distribution of essential food goods to ensure fair distribution of food grains at reasonable prices.
In Pakistan, the Pakistan Agricultural Services and Supplies Corporation (PASSCO) was established in 1973 under the federal government and tasked to procure wheat and other agricultural commodities, determining support prices, ensuring adequate supplies in provinces deficit of food and maintaining strategic reserves in the country. Till 2006 India and Sri Lanka have been net exporters of food but owing to the adverse effects to its cropping patterns because of climate change might compel them to import food for the myriad millions in next 10-15 years.
It is vital for countries to cooperate in the following areas to overcome the chronic issue of food : (i) innovations in the development of new varieties, hybrids and breeds especially in cereal (ii) management of water and natural resources (iii) new methods such as remote sensing and Geographic Information System (GIS), biotechnology, weather and flood forecasting, disaster management(iv) technology exchange - exchange of germplasm; exchange of variety and breed, crop and animal husbandry practices (v) capacity building through development of human resources and regional facilities (vi) regional programmes for plant and animal trans-boundary pests and diseases control (vii) harmonisation of policies and actions like relating to protection of plant variety, bio-safety protocols, biodiversity and indigenous knowledge. (Vii) Minimising post harvest losses (ix) Indus Basin Treaty between Pakistan and India needs to be revisited. But this is only possible if India and Pakistan dispel their mutual fears cropped up of centuries old animosities and broken trust. In Pakistan, $179 million have been spent inclusive of government of Pakistanís contribution in food security. Furthermore, the USAID programmes have invested $134.4 million during 2008-09. USAID has been the largest contributor to provide food to the IDPs of Malakand, Bajour and Waziristan. The Planning Commission of Pakistan has recently reported that if the yield potential of the medium and small size farm sector is achieved, food shortage can be overcome and be converted into surplus. Poverty generates food insecurity. Poverty is spread by lack of education, poor political will, poor access to health services, fragile infrastructure, low level of regional integration and vulnerability to environmental degradation, and deterioration of the natural resource base. The ongoing international financial meltdown and climatic change have caused addition of almost 10 million people among vulnerable to the bare minimum food need and nutritional requirement. The FAO Director General Mr. Jacques Diouf expressed his views that ìhungry people are a serious potential source of conflict and forced migration. This scourge is not just a moral outrage and economic absurdity, but also represents a threat for our peace and security.î
Food importing countries, including Pakistan and India must be pragmatically cautious of such a scenario. Commitment like that presented by FD Roosevelt after the world economic depression needs to be replicated in this region as well, and now is the time to do so. On food security we can no longer afford sluggishness and a consistent public policy is a guaranteed solution.
The NEWS
The recent emergence of food insecurity hit hard the whole developing world in general and the South Asian states in particular. Food security is a human right of every citizen. The UNís Food and Agriculture Organisation (FAO) defines it as, ìaccess by all people at all times to the food needed for an active and healthy life.î The most recent crucial event on food security was held in Rome one month before the climate summit. Like the Copenhagen Climate Accord of December 2009, the World Food Summit held in November 2009 faced a serious blow when the Food and Agriculture Organisation (FAO) failed to win a clear pledge from the industrialised nations to commit $44 billion a year to help poor nations overcome food shortage.
According to the Food Security Risk Index, USA, France, Canada and Germany are top most secure in food production and distribution. On the contrary, Angola, Haiti, Mozambique, Congo and Zimbabwe happen to be the most insecure in food production. In recent past food situation started deteriorating in 2003 when the world commodity market registered a shortfall in grain up to 105 million tons. In 2007-08 wheat nosedived to a shortfall of 16 million metric tons alone, owing to a shift in the priorities of the worldís leading producers of wheat like USA, Australia and Canada in favour of maize to meet bio-fuel needs.
A sharp spike in food prices sparked riots in some 60 countries with varying intensity and widespread hoarding. The food scarcity also prompted rich food importing countries, like Saudi Arabia to snap up farmland in developing countries to meet future food needs.
Although article 38 of the Constitution of Pakistan explicitly guarantees the right of food to the people, however it has attracted little attention of the policy makers since its promulgation. The abrupt spike in the prices of food items in the wake of 2008 clearly exposed one fact that Pakistan will never meet the targets of the Millennium Development Goals (MDGs) within the time limit. The situation in the other South Asian economies is also not so different. Poverty is rather compounding and the plight of the vulnerable segments of the society is painting things worse. WFP has revealed that during the year which ended in March 2009, the number of persons deemed insecure had risen to 77 million from 60 million in the previous year. Prior to the recent food shortage, only Pakistan was the net food importing developing country (NFIDC) in the whole South Asia as per the data of World Trade Organisation (WTO). Now except Bhutan all other economies of the region fall in the category of NFIDCs. Sri Lanka has been listed as one of the ìhungerís global hotspotsî by the WFP although it has a high literacy rate, low unemployment level and modernisation of farming sector. Other hotspots include Afghanistan, Bangladesh, Chad, North Korea, Somalia, Sudan and Zimbabwe.
In Pakistan wheat and rice are the two main food crops. Since we have no exact figure of the total population of the country, hence actual requirement of the country against both these items cannot be ascertained. This is the reason we are just following guess work to quantify and identity national targets for food production. Except 2000-04, Pakistan has been importing wheat. Wheat is lost while harvesting, threshing, cleaning, drying, milling, storage, processing, cooking and consumption. Although owing to some inbred problems in decision making and implementation, achieving food self-suffice is next to impossible in Pakistan in future, but it can be materialised by taking some innovative steps. We will have to determine the bare minimum area for food cultivation before the construction mafia swallows the whole fertile grassland of the country. Poverty is widely distributed in the many mountainous parts of the country where communities are small and scattered. The rugged terrain, fragile ecosystems, and a recent scourge of climate change make cultivation difficult. Lack of access to services, markets and innovative means have contributed to chronic poverty in these areas. Owing to the spillover effect it has affected the rural way of life and compelled urban migration.
According to the International Fund for Agriculture Development (IFAD), a majority of rural people in Pakistan are poor because of unequal land distribution. A few large landholders own a disproportionate amount of land. More than 4 million family farms have plots of less than 5 hectares, and 25 per cent of all farms consist of less than 1 hectare. At present about 50 per cent of farmers own and operate their farms, while 26 per cent are tenants. Sharecroppers who work on lands belonging to large-scale farmers, are often in debt to their employers.
WFP undertook two exercises to measure the level of food security in Pakistan, once in 1998 and then in 2003. The worrying fact was that the rural population in food surplus provinces was found insecure owing to population pressure and resultant rise in food items. The situation was aggravated by the post harvest losses.
FAO (2009) suggests, for all the economies of South Asia, the share of agricultural sector in their GDPs has steadily declined since 1990. For the period of 1985-2005, the average annual rate of growth of yields of cereals in South Asia has been increased at decreasing rates except for Pakistan. It was ñ1.41 per cent in 1985 but soared to 3.98 per cent in 2005. For India it was 4.17 per cent in 1985 that reduced to .63 per cent in 2005. This enlightens the change in governmentsí priorities over the time period. One of the main reasons is the massive diversion of fertile lands into construction activities, which has slowed down cereal production in the region.
In South Asia, India realised the importance much earlier when it disbanded feudal system in 1949 and in 1955 passed Essential Commodities Act by gaining control over production, supply and distribution of essential food goods to ensure fair distribution of food grains at reasonable prices.
In Pakistan, the Pakistan Agricultural Services and Supplies Corporation (PASSCO) was established in 1973 under the federal government and tasked to procure wheat and other agricultural commodities, determining support prices, ensuring adequate supplies in provinces deficit of food and maintaining strategic reserves in the country. Till 2006 India and Sri Lanka have been net exporters of food but owing to the adverse effects to its cropping patterns because of climate change might compel them to import food for the myriad millions in next 10-15 years.
It is vital for countries to cooperate in the following areas to overcome the chronic issue of food : (i) innovations in the development of new varieties, hybrids and breeds especially in cereal (ii) management of water and natural resources (iii) new methods such as remote sensing and Geographic Information System (GIS), biotechnology, weather and flood forecasting, disaster management(iv) technology exchange - exchange of germplasm; exchange of variety and breed, crop and animal husbandry practices (v) capacity building through development of human resources and regional facilities (vi) regional programmes for plant and animal trans-boundary pests and diseases control (vii) harmonisation of policies and actions like relating to protection of plant variety, bio-safety protocols, biodiversity and indigenous knowledge. (Vii) Minimising post harvest losses (ix) Indus Basin Treaty between Pakistan and India needs to be revisited. But this is only possible if India and Pakistan dispel their mutual fears cropped up of centuries old animosities and broken trust. In Pakistan, $179 million have been spent inclusive of government of Pakistanís contribution in food security. Furthermore, the USAID programmes have invested $134.4 million during 2008-09. USAID has been the largest contributor to provide food to the IDPs of Malakand, Bajour and Waziristan. The Planning Commission of Pakistan has recently reported that if the yield potential of the medium and small size farm sector is achieved, food shortage can be overcome and be converted into surplus. Poverty generates food insecurity. Poverty is spread by lack of education, poor political will, poor access to health services, fragile infrastructure, low level of regional integration and vulnerability to environmental degradation, and deterioration of the natural resource base. The ongoing international financial meltdown and climatic change have caused addition of almost 10 million people among vulnerable to the bare minimum food need and nutritional requirement. The FAO Director General Mr. Jacques Diouf expressed his views that ìhungry people are a serious potential source of conflict and forced migration. This scourge is not just a moral outrage and economic absurdity, but also represents a threat for our peace and security.î
Food importing countries, including Pakistan and India must be pragmatically cautious of such a scenario. Commitment like that presented by FD Roosevelt after the world economic depression needs to be replicated in this region as well, and now is the time to do so. On food security we can no longer afford sluggishness and a consistent public policy is a guaranteed solution.
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