Pak economy: curing cancer with anti-fever medicines?

The following article has been published in Daily Nation, dated 4th May 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-05-04/page-9)

(Onlinehttp://nation.com.pk/business/04-May-2015/pak-economy-curing-cancer-with-anti-fever-medicines)

Pak Economy: Curing Cancer with Anti-Fever Medicines?

 Prof Dp

By: Omer Zaheer Meer

Due to some personal engagements, a write-up dated 22nd March 2015 by Mr. Ejaz Wasti, a gentleman working for finance ministry, questioning my 16th March 2015 article published in The Nation, titled “IMF-Driven policies: Destroying Economy & inciting revolts?” missed my attention. Recently it was brought to my notice. The initial thought was to let it be but the lack of substance all but forced this scribe to pen this piece in the hopes that it may be taken not as a rebuttal but as constructive feedback aimed at helping the decision makers improve for the betterment of our beloved Pakistan. For, while we appreciate the positive endeavors of our policy makers as evident from the past articles of this writer, pointing out the shortcomings is also our moral obligation.

Unfortunately Mr. Wasti ignored important questions raised in the original article of 16th March and instead focused on inking a column seemed to have been compiled in a rush. What’s more tragic is that just days afterwards the denial penned by the gentleman, World Bank as well as Asian Development Bank issued damning reports vindicating this writers’ perspective while blowing off the lid of the misconstrued arguments of the finance ministry employee/consultant. It’d therefore be surprising to see how any neutral economist could possibly justify the worst growth rate in the region even below the likes of Afghanistan and Bhutan as outlined by the above mentioned reports?

It’s tragic that the stats often shared by certain quarters of the ministry reminds us of Mr. Shaukat Aziz who pursued similar gimmicks, building an economy on a bubble rather than on solid foundations of increasing GNP and GDP by focusing on national output. Remember, Shaukat’s bubble got busted not long after the end of his Government. This time around we don’t want a similar “feat” from a Government famous for its economic achievements.

Coming back to the 16th March write-up, some of the major questions were left unanswered including the fact that why the whole 500 billion payment to IPPs was made in one go without ensuring the availability of the loudly trumpeted “40%” unused capacity? Why the payment of this huge sum was not done in installments with ensuring availability of additional capacity in the national power system at the release of each tranche, particularly considering Pakistan went to IMF for a $ 6.7 billion installment based bailout package, 75% of which was paid to IPPs?

Furthermore, I humbly dare to question why has the circular debt again reached Rs. 600 billion, surpassing the previous level? Would it not have been better to focus on structural reforms and cutting the line losses as proposed earlier by this writer instead of treating it as a matter of wounded ego?

Furthermore as to the claims of adding 1700 MW “additional” capacity in the system by “IPPs”, can Wasti provide any evidence to this since it has not even been claimed by the IPPs or even the finance ministry represented by him. Having said that, the claims of forensic audits and verification by Ministry of the huge payments are commendable and should be released to the public, but the question of bypassing AG office was still left unanswered.

Next the scribe from finance ministry referred to income tax notices issued with the aim to broaden the tax base. Perhaps he should spare some time to check the ground realities. Never mind, let us try to assist our decision makers here.

Recently notices claiming no existing tax registration based on “economic activities”, usually citing vehicle purchases were sent out to masses. Sounds good? Hang on, what if it’s shared with you that many of those receiving these notices were not only tax payers already registered but paying millions in Income Taxes annually? This exemplifies a total lack of coordination within the systems and functions of FBR. Missing out on the records already held by FBR simply reinforces the misconceptions that Government policies are to bother the already registered tax payers and not to act as a facilitator or initiator of genuine drives to catch tax evaders. Instead of helping the underlying objective, the manner in which this drive is performed is actually pushing genuine tax payers on the brink of undesirable actions.

What’s tragic is that while on one hand such steps are undertaken citing the need to broaden the tax base but on the other hand proposals with huge potential to achieve a larger tax base such as brining agricultural income within the tax net as well as allowing use of CNIC as National Tax Numbers (NTN) and Sales Tax Registration Numbers (STRN) have been falling on deaf years for almost a decade now. Of late, there has been news that CNIC may finally be allowed as NTN. If done, this will be a step in the right direction.

Similarly the question about the petrol crises was also conveniently ignored. While repeating the point outlined by this writer that the incumbent Government did pass on some of the benefit of reduction in Oil prices in international market owning to political pressures, he again preferred to ignore the question of how much? As per last available data, Government of Pakistan amassed a benefit of $ 2 billion by the price reduction and as per most mainstream studies (as the government has not shared the exact data), not more than a quarter of this was passed on to the people of Pakistan. Perhaps the finance ministry can share exact data about this to enlighten us all in this regard.

To sum it up, let’s examine an extract from my original 16th March article: “While we can give some space to government’s economic team citing the tough challenges they inherited and are facing, what is unfortunate though is that even the steps possible within the ambit of Finance Ministry are not taken ……. the painful but obvious fact remains that the necessary reforms required to revamp the tax system and structures are not been followed either. Instead of extending the tax base by bringing in Agriculture and other exempt areas in the tax net the existing base is being taxed more along-with higher indirect taxes imposed on the common citizen, both of which are disastrous in the long run. Had we actually taken the tough but necessary decision to broaden our tax base and executed proper financial management especially in the power circular debt payment we would not need to go to the IMF. The lack of these reforms has led to exorbitant borrowings, with the internal borrowings alone reaching the mark of a trillion.”

With this, let’s conclude by asking whether those officials representing the present Government will review the IMF driven economic policies and carryout the necessary reforms while providing relief to the ordinary citizens or will they continue to focus more on short-term cosmetic measures without any bearing to the economic condition of a common man? Perhaps even more important is the question whether these officials have the stomach to digest constructive criticism and engage positively to ensure beneficial proposals for the national economy?

Links to both articles are as below:

http://nation.com.pk/business/16-Mar-2015/imf-driven-policies-destroying-economy

http://nation.com.pk/business/22-Mar-2015/pak-economy-the-right-perspective

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

Is FBR’s incompetence hurting economy? (by failing genuine Taxpayers)

The following article has been published in Daily Nation, dated 27th April 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-04-27/page-9)

(Onlinehttp://nation.com.pk/business/27-Apr-2015/fbr-s-incompetence-hurting-economy)

FBR’s incompetence hurting economy

Prof Dp

By: Omer Zaheer Meer

Federal Board of Revenue (FBR) is a semi-autonomous federal institution that is responsible for auditing, enforcing and collecting revenue for the government of Pakistan. It’s one of the most critical components of the revenue collection apparatus in Pakistan. As such it is supposed to be the pinnacle of professionalism, discipline and support to tax payers. Whether this is really the case shall be examined in this write-up. About couple of weeks ago, Chairman FBR invited this writer, while representing ACCA (UK) and LTBA at a historic pre-budget seminar that was organized with the collaboration of ICAP, ICMAP, ACCA, LTBA, PTBA, LCCI and several other Tax Bars, to send him proposals about the issues in and reforms for FBR. Below is a brief overview from this perspective.

Currently there are approximately 800,000 active income taxpayers out of a population of roughly 200 million in Pakistan. This is a meager 0.4% of the total population. On the other hand every Pakistani is paying indirect taxes on whatever they consume. The lack of trust of the taxpayer on the system and the resulting regressive taxation policies are a big hindrance in the attainment of an optimal taxation system. We’ve often discussed the problems with the taxation policies in Pakistan and proposed practical solutions. Frankly speaking there is only so much FBR can do in this regard since the policies are often driven by the IMF, World Bank and/or the political interests of the rulers. However the areas where FBR can and should play a very effective role are not in the best of states either and that is simply unfortunate.

Considering the tiny tax base it was only natural for FBR to attempt to broaden it. However the way they went about it is unprofessional to say the least while messing up a good endeavor big time. Recently notices claiming no existing tax registration based on “economic activities”, usually citing vehicle purchases were sent out to masses. Sounds positive? Hang on, what if it’s shared with you that many of those receiving these notices were not only tax payers already registered but paying millions in Income Taxes annually? This exemplifies a total lack of coordination within the systems and functions of FBR, which is unfortunately becoming a norm of late. Missing out on the records already held by FBR simply reinforces the misconceptions amongst the tax payers that FBR is out to bother already registered tax payers instead of acting as a facilitator and initiating genuine drives to catch tax evaders.

What’s tragic is that while on one hand such steps are undertaken citing the need to broaden the tax base but on the other hand proposals with huge potential to broaden the tax base such as bringing agricultural income and other exempt sections within the tax net as well as allowing use of CNIC as National Tax Numbers (NTN) and Sales Tax Registration Numbers (STRN) have been falling on deaf ears for almost a decade now. Of late, there has been news that CNIC may finally be allowed as NTN. If done, this will be a step in the right direction.

To underline the vast difference in the workings of FBR and similar bodies in developed countries, Let me share a personal experience with the readers to illustrate the significant gulf in the international standards and the ones practiced in our beloved country. While working in UK, I needed to change my tax code. For ease of understanding you can say it was like claiming a tax refund and I was not even a British national. It took me one phone call to UK’s HMRC (Her Majesty’s Revenue and Customs) during my office lunch hour to get it done by the end of the lunch. Yes, just in less than an hour. Now compare it to the experience of a genuine tax payer in Pakistan who is ridiculed and abused for even genuine works. Presumptive and advance taxes are collected but when it is time to issue refunds in line with the law, actual due refunds are held for months and even years despite completion of all legalities and verification. What is worst is that in most cases the FBR officials verbally accept the cases as genuine but claim that due to the pressure to meet revenue collection targets they are unable to follow the law and deliver the tax payer their due right.

The problem manifests from the nepotism and non-professional attitudes of some officers who treat tax-payers with utmost contempt instead of the dignity they deserve. Un-realistic targets setup by higher-ups then further aggravates the matters with coercive, non coordinated and even illegal measures used by certain sections within FBR. The widespread corruption within the department further worsens the matters.

It’d be reasonable to point out that although PRAL (Pakistan Revenue Automation (Pvt) Ltd) does mess up things at times, many of its’ positive endeavors were blocked for fears of eradicating corruption using different pretexts by certain sections of FBR. For example, PRAL once finalized a completely automated system of issuing refunds to tax payers with even an online payment instrument. Naturally there was a huge hue and cry. The project was dumped and the corrupt manual practices continue to date.

Now as if all this was not enough, even the laws governing the whole taxation system are made mockery of within FBR by several officers undermining the good work and efforts undertaken by their more professional colleagues. Just ask any genuine tax payer or tax practitioner about the treatment meted out to them by most FBR officials and you’d be shocked. Due to limited space, this topic will have to be continued in future write-ups.

As for now, perhaps the policy makers and senior FBR officials should consider this dire situation seriously to rectify all the serious problems within FBR. If they fail to do so, the next time they complain about low proportion of tax payers in Pakistan as compared to UK or other developed countries, they should realize that they only have themselves to blame.

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