Taxation, corruption and development

Taxation, corruption and development


“There is so much corruption in the country that if we get involved in probing them all our time will be consumed in the investigations and we will not be able to deliver. There are so many scandals and frauds that they cannot even be listed. There are a number of projects which could not be completed in 20 years due to which their cost increased manifold.”

This incredible logic by the prime minister himself during the inspection of the new Islamabad airport, whose ground-breaking had taken place almost a decade ago, flies in the face of all those who stand for transparent governance.

No doubt the prime minister hit the nail on the head when he spoke of the rampant corruption and protracted, cost-gobbling delays in the public sector project implementation. Yet, the prime minister’s family has been in power directly or otherwise for nearly three decades, meaning thereby it has been part of the status quo. Least interested in transparency and accountability, the Sharifs believe in development of reckless and selective public money – extracted through a string of indirect taxes, printing of notes and borrowing, without expansion in the tax base.

He probably needs a lesson on the correlation of development and corruption from his friend President Xi Jinping; under Xi, China, has not only achieved astronomical development but also punished more than one million officials for corruption since 2013. Another at least 410 Chinese have been detained overseas on the request of Beijing in connection with graft.

Sharif’s strange logic on development and corruption, which he suggested are mutually exclusive, offers abundant evidence of the fact that Pakistan currently finds itself in the clutches of an extractive status quo comprising the bureaucracy, politicians and a small business community aligned with the two.

The model that the bureaucracy and aligned finance managers have pursued so far is at best extractive, with ever more emphasis on forcibly extracting money from the private sector. ‘Squeeze them more’ is their recipe for improving revenues. And neither the tax revenue nor the direct taxpayers’ base has proportionately expanded.

Election-focused politicians, on the other hand, continue to look at the current, though outdated, taxation regime as the only way to deflect tough decisions. For them, maintaining the balance sheet through fudged figures is the best means of survival.

Both the bureaucracy and the political elites exploit the state’s extractive force i.e. rebates, subsidies, and indirect taxation to maximise their personal and party profits.

And hence, little heed has been paid to proposals by the extended business community; for the past two years, most business houses have refused to offer taxation recommendations to the government; hardly has any proposal been incorporated in the taxation regime, which remains hostage to the vested bureaucracy-political interests. No one is interested in rationalising the taxation regime, which can fetch far more than what the government currently gets.

In fact, the business community has been offering to double up the tax revenue if the government accepted their formula.

A new private initiative by local and foreign civil society organisations is also attempting to bridge this difference of opinion; following country-wide consultations with the business community, they have come up with a set of new proposals to rationalise the taxation revenue, which they believe will increase the government revenue manifold.

One of the proposals relates to harmonisation of taxes in the Centre and provinces. Another proposes to reduce compliance costs of existing businesses by introducing integration of all revenue authorities followed by a single tax return. This may prompt even micro businesses to register.

Most businessmen want to pay taxes but dread the greedy and arm-twisting FBR officials. They are even ready to forego export rebates and subsidies if the government rationalises the draconian taxation regime. Most believe that this regime is an instrument for the officials to make money for themselves at the cost of the state.

Officials impose willful penalties – even on multi-nationals – and eventually revise them downwards after getting their cuts, a dominant majority of businessmen insists. This leads to low business confidence and that is why another demand relates to the operationalisation of the ‘one-window operations’ at the SECP and the FBR. The nearly one-third drop in the Afghan Transit Trade via Pakistan is also attributed to massive corruption within the customs at the Karachi port.

Even the latest Overseas Investors Chamber of Commerce and Industry (OICCI) survey says that the business confidence in Pakistan has declined by four percentage points from the previous score of 17% reported in November 2016.

If private interventions – involving businessmen, investors and economists – aimed at improving the tax revenues are indicators, these are crying for an end to the extractive and exploitative FBR. They are confident of doubling the tax revenues only if the bureaucracy and the ruling politicians stopped acting as hitmen for others.

 

The writer is Editor, Strategic Affairs

\