A Guest Post by Majyd Aziz
The economic prosperity of any country is largely due to the initiatives of the private sector and fully supported by the government thru demand-oriented facilities. The government has to introduce a laissez-faire mode of relationship with regard to industry and trade. In Pakistan, there has always been a yo-yo style relationship between the government and the business community. The over-employment in the government bureaucracy has led to abnormal increase in governmental interference, harassment, and corruption. This has come to a point where about half of the industrialist’s time is wasted on government matters such as inspections, audits, correspondence, reports, filling forms, and visits to government offices. The government must reduce the plethora of taxes, must minimize punitive measures, must lessen the visits of petty officers of myriad agencies, and must slash the tax rates if there has to be increased investment in the country.
It is essential that the government seriously revisit the General Sales Tax regime (whether it is Value Added tax or Reformed GST) and transform it into an acceptable and workable form. The present backbreaking 17% rate is criminal, it leads to temptation to evade, and is keeping traders and industrialists from registering under the system. If the VAT has to be enforced then it must be with determination and must be broad-based with all links in the chain covered. But, more importantly, it is imperative that the rate is not more than 5%, otherwise, this scheme will be difficult to implement and will remain hostage to the corruption syndrome. The present uncertain thinking by the government in GST matters is the root cause for the vicious campaign against VAT.
Furthermore, the industrialists, and more importantly, the traders would become prisoners of the discretionary, arbitrary, and coercive powers of the concerned officers. There would be frequent squabbles with the tax staff, there will be continued visitations by all kinds of agencies who will keep on demanding information which the Collectorate will already have, and there will be so much discomfiture and dejection that the industrialists and traders would be forced to cower and grovel into succumbing to the eventual and highly popular "muk-muka".
The government can become more involved in bringing about a comprehensive documentation system in the economy if it affirms its determination to continue with the process. The trend towards dilly-dallying on important issues has brought about a negative response to various governmental measures and has fortified the resolve of those who do not agree with the government’s scheme of things. It is imperative that the administration provides a sustainable solution to the process of documentation and that can only be done if the government can establish its writ but at the same time bringing about a kinder, gentler tax regime. The high-handedness of tax collectors must be checked and those elements in the tax collecting agencies that are bent upon creating a polemic condition must be removed from the scene. The government must understand that the pragmatic way to bring forth universal documentation is to provide an enabling environment.
The government must begin efforts to strengthen local bodies and this can be done by finalizing the date for local bodies’ elections and a systematic devolution of power down to the local level. The balance sheets of District Governments must be published and must be made transparent so that the citizens can get an opportunity to know what they are earning and spending and in which manner. There is immense amount of corruption in these local bodies. Fly-by-night companies are given contracts for city projects, etc. It is proposed that the government, in the first instance, target five cities, i.e., Karachi, Lahore, Peshawar, Rawalpindi, and Quetta, and divide them into zones. The road construction project, for example, could be given to one construction company for every zone, and that this company should be wholly responsible for the construction of the roads in that zone. If then the roads condition deteriorates, that company must repair it and must be penalized for shoddy work. These companies should be well-established ones, and that one-deal companies are not entertained at all. A bank guarantee could be a pre-condition to keep these companies in check.
It would not be out of place to quote the example of SITE Ltd. There is a total collapse of infrastructure in the largest industrial estate of the country. SITE Ltd needs an immediate and complete overhaul. The organization is still in the dark ages and continues to act like a mean, vicious, and demanding landlord. So much so, even the Supreme Court had to intervene and order the setting up of effluent treatment plants and a general clean-up of the estate. Of course, even today it is dirty, unorganized, encroached, and getting worse by the day. Remember, it is this same estate that provides nearly 30% of the total revenue of the government.
It is important to mention the need for an encouraging environment for textiles too. There are no two opinions that all the components of the textile sector should be confident and should be appropriately satisfied that they have been adequately backed by the government. The relevant ministries and agencies must resolve on priority basis the residual issues that still impact negatively on these constituents of the textile sector since these actions would ensue into more employment, more exports, and more industrialization.
A better and more enabling environment could be created if the government is serious about controlling the rampant under-invoicing, smuggling, and mis-declaration. The Afghan Pakistan Transit Trade Agreement is another deterrent. Labor is unmotivated and thus productivity, efficiency, and quality still haunt the industrialists. It would take years before water, gas, and electricity is available on demand. And, the less said about the monetary policy of the State Bank of Pakistan, the better. All these are impediments and roadblocks. The recent floods and the havoc it generated have formidably pushed the country’s progress. Billions would be required to bring sanity into the country. There is no political stability, there is no quality of life, and there is no continuity of policies. In spite of the oft-repeated mantra that “all is well”, the sad fact is that the road towards prosperity is full of pot-holes, it is dark, and it is under constant attack.
The solution lies in seriously and sincerely taking the industrial and business community on board. Policy making without intensive deliberations and without ascertaining the needs and demands of the industrialists and businessmen would be just another ad hoc measure. The time to change is now. The global marketplace is already becoming saturated with competitors from other nations. Pakistan cannot be a bystander or an isolated soloist in the world today. But, for now, "Le plus ça change, le plus c’est le même chose" (The more things change, the more they stay the same).
August 11, 2010