The Cherished Dream of Budget

The following article has been published in Daily Nation, dated 1st June 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-06-01/page-9)

(Onlinehttp://nation.com.pk/business/01-Jun-2015/the-cherished-dream-of-budget)

The cherished dream of budget

 (Budgetary Dreams)

Prof Dp

By: Omer Zaheer Meer

“I have a dream”. These were the famous words uttered at a junction of history which saw a drastic change in the United States of America. With the budget looming around the corner, this scribe too has a dream to share with the readers.

The dream starts with the federal budget of Islamic Republic of Pakistan having just been announced. There are widespread celebrations across the country, for many of the promised reforms have been delivered with path for a longer term change laid down. Pakistan Muslim League’s government has fulfilled its commitments despite some very challenging circumstances. Some of the major reforms and steps taken along-with their justifications, as outlined by the finance minister Mr. Ishaq Dar are detailed below.

Tax Facilitation: Several steps have been taken to reform the taxation system and structures. Firstly the computerized national identity card (CNIC) has been declared as the National Tax Number (NTN) and Sales Tax Registration Number (STRN) for all citizens. This has not only made it extremely easy for any Pakistani to start a business having both the NTN and STRN, hence promoting a culture of entrepreneurship but is also expected to help broaden the tiny existing tax base as the number of filers and ultimately taxpayers are forecasted to increase with the increasing documented nature of the businesses.

Corporate and Agricultural Exemptions: Furthermore exemptions on various businesses as well as the agricultural sector have been withdrawn. This is expected to generate substantial additional revenue as these sectors constitute 30 to 40 percent of national economy as per various studies. These sections have previously been out of the tax net without any substantial benefit to the GDP despite the relaxation. Therefore the Government has now decided to instead facilitate the farmers to increase the productivity as outlined below while ensuring the agricultural sector is brought within the tax-net.

Tax Volume over Margin: Moreover to make taxation less cumbersome and support the initiatives aimed at broadening of the tax base, the strategy of volume over margin has been pursued in that the tax rates have been drastically cut for both individuals and businesses to the lowest level in the entire region. This has not only positioned Pakistan as one of the most tax-attractive destinations in the region with substantial forecasted investments expected to create job opportunities in the country particularly in the power, agriculture and textile sectors but has also created an incentive for businesses and individuals to pay their due taxes, being less cumbersome than the cost of avoiding it with the threat of stringent possible penalties.

Free electricity & water for Agriculture: Another long-awaited major reform to turnaround the ailing economy in an agricultural country has also been taken. Keeping in view of the fact that the Indian Punjab’s output and productivity has been surpassing Pakistan’s and contributing materially to the Indian economic strategy, the Ministry of Finance has given its strategic vision to place Pakistan as the agricultural leader in the region. Water and electricity are declared free for agriculture for those farmers having small holdings or renting the land. The taxes raised from agricultural sector are mostly reserved to fund this initiative.

Further Agricultural Reforms: Furthermore a new body has been created to buy all crops from the farmers at the Government approved rates and supply them to various industries and markets, thereby ensuring the farmers will get their due while the stockists’ induced shortages and inflation can be stemmed out. Furthermore all seeds, fertilizers and other necessities can be brought through this body at discounted rates which has already listed all major quality suppliers in its approved lists. The volume of potential business has motivated suppliers to offer discounted rates in the hopes of additional business increasing their profitability and helping them expand, in turn creating more job opportunities.

HR development & Educational Reforms: To promote the culture of learning and human resource development, the listing criteria of stock exchanges now includes a requirement for the companies to annually spend atleast 1% of their total revenue on the education and/or professional trainings of their workers. Also, new non-corporate businesses spending more than 2% of their turnover on the education and training of their workers are offered tax rebates. These steps are topped up by an increased budgetary allocation of 5% to the education. The impact of this allocation is not very drastic post 18th amendment but is a strong signal and precedent for the provinces to pursue.

Further reforms to support HR development, Education & Entrepreneurship: Supporting the drive for education and entrepreneurship, Government has required all banking institutions to lend interest-free, atleast 5% of their total business to students and startups without any guarantees. To provide assurances to the banks, a fund has been launched backed by insurance to provide monthly returns to the banks to compensate for the loss of interest income while the fund along-with the insurance serves to act as a guarantee for abnormal bad debts in this sector.

Short-term Energy Reforms: Besides the CPEC and other energy projects, to address the severe energy shortage in the shorter term, the solar energy sector has been given a tax-break for five years with a requirement to cap margins at 15%, in order to ensure the benefits of the cost reduction will be passed on to the masses. This step is expected to assist in resolving the severe energy shortage problem in the shorter term as the cost of setting up solar energy systems has been one of the biggest hindrances in its widespread use despite Pakistan’s climate been extremely conducive for it. Furthermore windmill energy sector has also been extended the same favor to capitalize on its potential for cheap electricity generation with minimal initial investment and running costs.

It was here, that this writer woke up. The sadness on missing many more positive reforms engulfed me but the realization struck that this is the same sadness that engulfs every Pakistani post budget every year. Let’s hope and pray that this year will be different.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

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Incompetency Main Reason of Power, Petrol Crises

The following article has been published in Daily Nation, dated 2nd February 2015

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-02-02/page-9 )

(Online: http://nation.com.pk/business/02-Feb-2015/incompetency-main-reason-of-power-petrol-crises )

Economic Mismanagement

Prof Dp

By: Omer Zaheer Meer

Economic prosperity is defining the place and clout of nations on global stage in the present world order. The issues of economy and terrorism have captured the national attention in Pakistan too. The need of the hour is to strengthen the economy of the country which in turn would translate in to the might for the state, enabling it to better deal with the menace of foreign-sponsored terrorism.

While there is no doubt that Pakistan’s economy has constantly faced serious challenges over the decades yet there is indeed much left to be desired in terms of the management of the existing resources and structural reforms. Whenever the economic woes of Pakistan are discussed, the rulers point out to the limited resources and the dismal state they inherited the economy in. Fair enough, more often than not, the point conceded here. But fact of the matter is what stops them from properly managing the pool of resources at their disposal as well as inducing the much needed reforms to address the structural inefficiencies?

Many recent crises including the power break-down and the petrol crisis were examples of the incompetence of the highest order by the officials and ministers concerned. By not taking action against the culprits baring few government servants, the incumbent government has strengthened the argument of its detractors about its lack of political will and a vision to guide Pakistan’s economy in the right direction.

Let’s begin with a brief dissection of the two recent crises with most impact. First is the petrol crisis which literally bought the life to a halt across Punjab. Students couldn’t for to educational institutions, patients were unable to reach hospitals, work became stagnant and the life froze. This was down to atleast three major issues. Firstly the dues owed to PSO by state institutions were unpaid despite repeated requests rendering PSO unable to bring in more supplies. Secondly the private companies did not keep the minimum reserves required and OGRA failed to ensure implementation of the law and regulations in this regard. Last but not the least when PSO’s reserves were nearing exhaustion, despite official letters the Government still failed to realize the gravity of the situation. There were ugly exchanges of allegations between the Finance and Petroleum ministers. There are also unconfirmed stories doing rounds that the whole fiasco was created to authorize payments of over Rs 225 billion without due process involving AG office and audits. However, even if one discounts them, all this sums up to the mismanagement and incompetency of the highest order.

As if this was not sufficient for the suffering of the masses and losses to an already ailing economy, an electricity breakdown across the country ensued resulting in blackout in over 80% of major cities. A senior minister from the incumbent Government blamed terrorist activity in Balochistan province but perhaps owing to a lack of co-ordination due to blackout a senior government official acknowledged a technical failure in the transmission systems. The lack of co-ordination was simply astounding. It is no secret that the electricity transmission system is in dire need of overhaul and up-gradation with a severely decayed state at present. Unfortunately the incumbent Government hasn’t been able to do much on this front either despite been in power for the 2nd year now.

These crises clearly imply that the cause for exacerbation of Pakistan’s economic woes rests with a lack of management. Add to this the issue of the pending structural reforms badly needed in the taxation system along-with the dismal state of the revenue collection and one can easily appreciate the serious improvement warranted in the management of the affairs. One prime cause for this dismal performance is the appointment of non-professional people at the help of affairs of key institutions and ministries. While politicians do run the governments in a democracy, they atleast ensure they have a professional team to assist them. Unfortunately for Pakistan, be it Democracy or Dictatorship, this has been lacking.

While understandably, Pakistan cannot generate resources at par with established first world economies overnight, we can at-least manage our meager resources in an efficient manner. Perhaps it is high-time that Prime Minister of Pakistan Mian Muhammad Nawaz Sharif needs to look inwards within his party and take corrective measures including appointment of professionals to assist if not run the crucial ministries. If not, than a dismal economic performance can only sustain for a short span with the help of foreign aid. Let this also be a lesson for other political parties to ensure they’ve systems, teams, professionals and processes in place to cope with the challenges facing the country, should they be assigned the duty to steer the nation.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, qualified fellow accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Gas-Shedding: 18th Amendment Strangulating Pakistan

The following article has been published in Daily Nation, dated 29th December 2014

(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2014-12-29/page-9)

(Online: http://nation.com.pk/business/29-Dec-2014/gas-shedding-18th-amendment-strangulating-pakistan)

Gas-Shedding: 18th Amendment Strangulating Pakistan

Prof Dp

By: Omer Zaheer Meer

Energy is the lifeline of any modern economy and country. The great games of regional and global powers mostly revolve around securing energy sources for their nations due to various other implications. From USA’s past reliance on some Arab countries to China investing heavily in African Nations, these’re all efforts to ensure energy security. The energy needs not only impact a country’s economic outlook but the entire modern national life.

Despite well-known electricity and water woes due to years of mismanagement, Pakistan has been blessed with natural gas reserves commonly referred to as “Sui Gas” by common man, linking it to the largest natural gas field of Pakistan located in Sui, Balochistan. Until recently the mismanagement in this energy sector did not bite the masses much due to abundant reserves discovered in the past. However nothing lasts forever. Unfortunately a lack of strategic foresight, inadequate investments for exploration of more reserves and improper management of limited resources by encouraging CNG fuel have, besides other factors, led to a state of crisis-like shortage of natural gas in Pakistan. The worst affected is Punjab.

As winter approached the gas outages started increasing for domestic, commercial and industrial users. With the winter almost peaking now, the situation has become unbearable with only 4/5 hours maximum availability for domestic users while outage for industries varies in number of days. SNGPL (Sui Northern Gas Pipelines Limited), the company catering to gas supplies in Punjab is facing a shortfall of 700 MMcfd which is almost 27% of the total requirement as per the official Government figures while unofficial sources placed the shortage at 40%.

The impact has been horrible for Punjab. Households are struggling to cook, wash and in some worst affected areas to perform minor tasks as ablution. Industry is hit hard with exports falling resulting in layoffs. All Pakistan Textile Mills Association (APTMA) recently made public plea for exemption from gas load shedding claiming exports of the textile industry alone dropped 4% to $3.4 billion in the last quarter. Textile production has already dropped by 25% in the province due to gas shortages while 2,000 plus surgical manufacturing units have been lying closed too. Many industrialists have threatened to move out if the situation persists. Thousands of households have become unemployed as a result of the above. Agriculture sector while less affected directly due to more reliance on electricity has also been negatively impacted indirectly. This situation is leading to lesser efficiency, unutilized capacities, wasted labor hours, increased unemployment, lost revenue and lost taxes.

To fully appreciate the economic impact one needs to realize that despite abundant claims to the contrary, Punjab actually contributes 65 % of the national GDP and contains 60% of all national industry with more than 48,000 units on record and many unrecorded. It also houses 56% of the national population. We need to ask ourselves whether any country can progress economically while strangulating 65% of its GDP? The answer is an unequivocal “No”. The severe, non-uniformed and negatively biased gas load-shedding in Punjab is effectively leading to an economic strangulation of the national economy. The question then is how did we reach here and what can be done about it?

First of all the 18th Amendment resulted in a highly negative impact for Punjab as the actual needs and population based requirements were totally ignored in favour of giving precedence to the province where a well-head of natural gas was situated over the rest of Pakistan. This apparently was another short-sighted knee-jerk reaction aimed at the unrest in Balochistan province. Secondly the much needed exploration investments were not done on the scale required. Thirdly the scarce resource was wasted mercilessly for short-sighted benefits by encouraging the nation to use CNG (compressed Natural Gas) as alternate fuel to Petrol (Gasoline Fuel). The drive succeeded due to the immense price disparity in the fuels with highly attractive savings on 2.5 times cheaper CNG. Even within CNG sector, mismanagement peaked as licences were issued as if of a local sports club. Last but not the least even the incumbent administration like the ones before it, procrastinated on the steps it decided to remedy the situation. The much trumpeted import of LNG (Liquified Natural Gas) has been delayed to March 2015 per Government sources.

As far as rectifying the situation is concerned many steps are needed. First of all immediate focus should be shifted to serious exploration of more indigenous energy resources. The management of existing resources needs to be planned properly while taking into account the impact of any action-plan upon all sectors of economy and public life. For the short-term the alternate energy sources to be utilized should be quickly planned and spurred into use. A constitutional amendment is also needed to ensure a just treatment across Pakistan. All federating units should bear their share of the brunt to make the situation more bearable for everyone instead of piling up the entire burden on just Punjab. Other federating units should be educated of the overall economic benefits to them as a result of Punjab contributing more to the national exchequer, the benefits of which will be passed on to them in the form of the increased share of income as per 18th Amendment. They should also be made aware that there are already dissenting voices in Punjab questioning whether Punjab should also follow a similar policy at large re crops and right of way as is enforced on it regarding natural gas. This certainly would be a very unwelcome and costly scenario for other federating units.

Another issue to consider is the protection of the consumer. Throughout the world largest consumers are given rights and privileges. However, despite being the largest consumer of power and gas, Punjab has no control over the quantum, duration and usage of either gas or power. This needs to be addressed in manners suggested above and with at least equal if not more say of the largest consumer in the affairs affecting it the most. All people are asking for is a just treatment for everyone as strangulating Punjab is effectively strangulating Pakistan.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, qualified accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk