An institutional approach to reviving the economy

Early in the 20th century, the agricultural economy was booming in the Indian sub-continent. The British created the Indian Civil Service to collect the land revenue. For this purpose, magisterial powers were vested in the civil service. Today, the agricultural economy and land revenue have receded into insignificance and supply of goods and services are the major contributor to the revenue of the state.

Interestingly, there is no district magistracy in the United Kingdom itself. The system was designed for a colony. Much water has since flown under the bridges and today we are an independent nation. We need to seriously think whether we still need the administrative set up designed for us by a colonial power or not.

The matter has been taken up by several governments in the country. In 1973, the administrative reforms under Zulfikar Ali Bhutto created a District Management Group in the colonial civil service. During the Musharraf regime, the executive magistracy was abolished and some powers were devolved to local governments. This rendered the DMG rudderless.

Ever since, the DMG officers have been doing all they can to regain their lost powers. For some time now, they have been at daggers drawn with the Provincial Management Services whose officers contend that after the 18th Amendment, the Federation has no authority to recruit and post officers for the provincial or district governments. The DMG has been forced to change its name to Pakistan Administrative Service.

During its election campaign, the Pakistan Tehreek-i-Insaf vowed to cut the PAS to size. This raised hopes for other services where this was seen as a promise to provide an enabling environment for their officers.

However, soon after the new government took office, the PAS officers surrounded the prime minister and diverted his attention towards other occupational groups.

The hopes of these occupational groups and the Provincial Civil Service were dashed when Shahzad Arbab and Dr Ishrat Hussain were tasked by the government to recommend reforms. Functional specialization has yielded dividends throughout the world but in Pakistan generalists are still being asked to propose reforms in specialized occupational services. This has demoralized the work force in the specialized services and affected their performance.

The Federal Board of Revenue, the organization tasked with collection of revenue, has been singled out for accoutabilty and blamed for all wrongs. The organization has been doing well and has brought revenue collection to the level of Rs 4 trillion in spite of challenges like shortage of office buildings, officers, support staff, operational vehicles, IT solutions and budget constraints. Despite systemic and structural problems, the FBR has achieved an average growth of 15 per cent per annum since 2013. Thus tax collection doubled from Rs 1.9 trillion in 2013 to Rs 3.8 trillion in 2018. The tax to GDP ratio has increased from 8.7 per cent to 11.2 per cent.

The growth in tax collection has been achieved despite declining exports, war on terror, political instability, a weak political economy of taxation and a poor tax culture. The FBR implements the tax policies and does not initiate them, but some-how it gets blamed for them.

It was the previous government which slashed the tax rates and increased the tax exemption limit from Rs 400,000 to Rs 1,200,000. The incumbents were warned that this will result in lower recovery but the warnings were not heeded to.

The outgoing chief Justice of Pakistan abolished the sales tax on telecom companies. This caused a monthly shortfall of Rs 5 billion in revenue.

Functional specialization has yielded dividends throughout the world but in Pakistan generalists are still being asked to propose reforms in specialized occupational services. This has demoralized the work force in the specialized services and affected their performance

To avoid passing the entire burden of increased POL prices in the international market to the consumers the government reduced sales tax on POL sector. The IRS was blamed for the lower collection.

The government has reduced or frozen almost all PSDP and ADP schemes in the current financial year. A decline in revenue collection is therrefore inevitable.

The IRS was provided the data of offshore assets held by Pakistanis and asked to collect taxes on these. This had been a salient feature of the PTI manifesto. However, the organisation responsible for taking cognizance of this data has not been provided adequate human resource, budgetary support and logistics.

These facts justify the revenue shortfall. Unfortunately, dedicated IRS officers are facing criticism at the hands of generalist.

The strength of modern states is determined on the basis of the health of their economies and not on the basis of presentations made to the premier. The generalists are the main hindrance to the devolution of power to the grassroots. The only thing the PAS officers are interested in early promotions and lucrative postings for themselves. This can be judged from the fact that promotions boards have ben set up for them thrice in 9 months (June 2018-March 2019).

The future of Naya Pakistan lies in strengthening the FBR run by a specialist. An economically viable Pakistan is dependent on a resourceful and independent Inland Revenue Service.

To increase its tax revenue, the government needs to attend to the following issues on a priority basis:

1. It has to overcome the weak political economy of taxation or lack of will among the political leaders for developing a strong, autonomous and credible tax system. The emphasis should be on improving the tax culture and developing role models.

2. It has to grant adequate financial and administrative autonomy to the FBR so that it can deal with the acute shortage of human resource, provide necessary infrastructure, logistics and financial resources for tapping the full potential of revenue collection. There is no need for further reforms at the FBR. Rather there is a need to strengthen its outreach. There should be zero tolerance for corruption.

3. The government has to focus on increasing and generating business activity through financial support, infrastructure improvement and facilitation.

The writer is a Pakistani journalist currently based in Malaysia.


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