The economic crisis that Pakistan faces can only be overcome, provided the gravity of the situation is realized and understood by those at helm, especially the powerful stakeholders. The status quo, viz-a-viz exemptions on tax to key sectors and patronization of cartels are a hurdle and an impediment for national security which hinges on the economy. Unless and until there is a collective political will to enforce rule of law and levy uniform taxation on all sectors, this crisis cannot be averted. The blooming Black Economy is the biggest threat to our national security and sovereignty. We are facing an existential threat which even the best team of economists, with their hands tied, cannot avert.
Pakistan faces an uphill task of immense proportions which threatens to drive this country to the edge of economic collapse, burdened by foreign loans and a low tax to GDP ratio that cannot be sustained without compromising national sovereignty. It is because of the Conflicts of Interest of powerful stakeholders and lack of political will of the elite at helm of this unfortunate country, that major sectors like agriculture, tobacco producers, retailers and real estate continue to be exempted from tax payment although they collectively form bulk of GDP of this country. The gross irregularities and exemptions enjoyed by Elite Capture is no longer sustainable and threatens this country from within. From a country which once produced enough agriculture yield and cotton to meet domestic requirements and export surplus, we today have to import them.
As if this was not enough, the organized smuggling along secured land borders and coast line has increased, which has created artificial shortage and resultant price escalation that has burdened the poor, driven to desperation. For ages, land along the Indus River, was cultivated by those who lived there and for whom this was their sole source of livelihood which is an incentive to increase yields. Agriculture continues to be the biggest employment generation sector of the country, feeding millions of poor, living in our rural areas. The State instead of offering them subsidized assistance in terms of seeds, technology etc has embarked upon acquiring land and allotting it to absentee landlords.
Steps should have been taken to cater for welfare of millions who depend on agriculture and have been exploited by big landlords. Ayub Khan did introduce Land Reform Regulation in 1959 which restricted individual ownership to 500 acres of irrigated and 1000 acres of unirrigated land. However, having done that, he immediately embarked on allotting 500 acres of prime irrigated land to himself and other members of his junta and the corrupt civil bureaucracy followed suit. India, which inherited a similar legacy of corruption and nepotism from British Raj, immediately embarked on reforming and restructuring their paid civil and uniformed services and judiciary in 1950, when they adopted their constitution and were no longer a British Dominion. We, unfortunately, failed to follow suit.
Whatever land that was retrieved by Ayub’s Land Reforms, ended up in the ownership of those who were mostly absentee land lords. The sole purpose of Land Reforms is to give it to those who till the land and live there. This was defeated by creating a new class of landowners. The British Raj legacy of allotting state lands to buy loyalties of local natives, willing to serve HM’s empire, instead of the people of the subcontinent, stood revived in essence. We need to study events in Myanmar and the chaos that has destabilized it following the cartels created by ruling elite.
An economy becomes dysfunctional when total tax of Rs264.3 billion collected from salaried class in the recent 2022-23 fiscal year, exceeds Rs89.5 billion paid by both exporters and retailers. According to initial reports the exporters paid Rs74 billion which is approximately 1%of their gross receipts of $27.7 billion while the Retailers paid about Rs15.5 billion collected through 0.5% advance tax levied on sales. This reflects poorly on the lack of political will and the complicity of employees and officers of Inland Revenue Department, for whom the Finance Minister has just announced a salary increase of 30 to 35%. Pakistan’s major industrial export component is the textile industry, which continues to produce yarn, instead of value-added textile items. Bangladesh, which imports all its raw cotton, earned $42.6 billion from exporting garments, as compared to Pakistan which earned $19.93 billion in 2022. Textile exports constitute 60% of our total exports.
The bulk of revenue collected by the National Exchequer is through indirect taxation. The state employees recruited for purpose of revenue collection have, more or less, no active direct role in this. In contrast the tax collected from contractors and service providers was Rs391 billion, on account of profit on debt, which sum also includes WH tax deducted from interest rates from accounts in banks and national savings schemes. Almost 94% of those who invest in National Saving Schemes etc are the middle-class or lower middle-class pensioners, widows and orphans, whom the state offers no welfare, although this is its constitutional obligation.
—The writer is contributing columnist, based in Lahore.
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