When challenges offer opportunities - I

"It is a narrow mind which cannot look at a subject from various points of view"- George Eliot, Middlemarch
"Five percent of the people think; ten percent of the people think they think; and the other eighty-five percent would rather die than think"-Thomas Edison
The long-delayed and much-needed financial relief and stimulus package in the wake of corona pandemic hitting Pakistan as the rest of the world, announced by the Prime Minister of Pakistan on March 24, 2020 of Rs 1.3 trillion is found "satisfactory" though "insufficient" by majority of the people. Many experts have expressed their concerns about its implementation and administrative capacity of the State to help the deprived sections of society, particularly the daily wage earners, worst affected due to lockdowns in various parts of the country as well as slowing down businesses and commercial activities. They question whether Rs. 3000 per month for daily wagers would be sufficient as data suggests that their average family size is larger than others, not less than five in majority cases. Secondly, critics ask where the data lies about each household of daily wagers, what is the definition of this term, as well as what would be an effective delivery mechanism to even disburse this highly inadequate allowance as all of them are not on the radar of Benazir Income Support programme (BISP), renamed as Ehsaas.
The Prime Minister, while talking to a select group of TV anchors, announced numerous "relief" (some dispute that in some cases these are mere routine expenditure) measures that included tax breaks on import of pulses, palm oil and many other items of daily use. However, the high rate of sales tax of 17% on goods of daily use and inputs of exporters has not been reduced.
The two very significant steps announced to bring down the cost-push inflation are reduction of Rs 15 per litre on petrol and diesel and bringing down of discount rate by State Bank of Pakistan (SBP) to 11% from 12.50%. On March 17, 2020, while all were expecting at least 2% to 3% decrease in discount rate, Monetary Policy Committee (MPC) of SBP cut it only by 75 basis points and said: "As noted in the accompanying Monetary Policy Statement, the dominant development since the last MPC meeting has been the outbreak of the Coronavirus pandemic." Strangely, they withdrew their "considered view"! The discount rate is the interest rate at which commercial banks are allowed to borrow from the central bank's window on an overnight basis. Central banks use this monetary policy tool to control money supply in the economy in order to achieve price stability and economic growth targets.
In addition to above, the package included among others, the following actions:
* Facility of payment in three instalments (would cost about Rs 70 billion and Rs 30 billion, respectively, for power and gas companies as their cash receipts would face disruptions) by consumers using up to 300 units of electricity that consist of 75% of total consumers; and gas consumers having monthly bill of up to Rs 2,000.
* FBR is instructed to release Rs.100 billion refunds immediately to improve liquidity crunch faced by exporters. Since they were holding this money unlawfully, so what is the relief?
* The principal and mark-up of loans deferred for certain categories.
* Rs 100 billion relief will be given to small and medium enterprises and agricultural sector. The government has also decided to defer the principal and interest payments by these sectors.
* Rs.150 billion for providing Rs. 3,000 monthly help to daily wagers by the Centre with provinces being asked to expand coverage of the programme to maximum beneficiaries. According to Special Assistant to Prime Minister, Dr Sania Nishtar, 10 million families will be provided with cash assistance. She elaborated that each family will get Rs.12,000 over a period of four months. Half of them will be new additions to BISP (now called Ehsaas).
* The government has increased additional allocation of Rs.50 billion for Utility Stores Corporation (USC) so that provision of essential food items at affordable prices can be ensured.
* Allocation of Rs. 280 billion for procurement of 8 million tons of wheat to financially help/provide cash to farmers. It is routine annual exercise where provinces take loans from banks to procure wheat from farmers.
* POL prices will be further brought down if the existing trend of reduced prices persists in international market.
* Rs 50 billion for procurement of medical equipments.
* Rs 100 billion for emergency relief to spend on sectors where there is increasing requirement in the wake of evolving situation because of outbreak of corona.
* Rs 25 billion for National Disaster Management Authority (NDMA).
* Special relief package for construction sector will be announced in the next few days aimed at "kick-starting different industries and provide jobs at this difficult times".
Earlier, Advisor to PM on Commerce, Abdul Razak Dawood, told newsmen that the government would improve liquidity crunch of industrialists and exporters but they would have to give assurances that they would not retrench their workforce. "We are here to provide all kinds of relief provided you do not retrench your workforce" he added. The Prime Minister revealed that "a volunteers' force will also be formed to assist and guide the people about prevention from corona virus". He reiterated: "We as a nation will counter the pandemic with unity, rest assured the government is fully concentrating on the economy and food security, and trying its level best to face the endemic."
Jihad Azour, IMF Director for the Middle East, Caucasus and Central Asia, the region to which Pakistan also belongs to, in a blog, has pointed out that "beyond the devastating toll on human health, the pandemic was causing significant economic turmoil in the region through simultaneous shocks-a drop in domestic and external demand, reduction in trade, disruption of production, fall in consumer confidence and tightening of financial conditions. The region's oil exporters face the additional shock of plummeting oil prices".
Strangely, no anchor asked the Prime Minster, "Who are responsible for the fiscal woes of Pakistan"? These are mainly on account of the naked defiance of the rich to pay due taxes on their enormous incomes/wealth. According to the Parliamentarian Tax Directory for Year Ended 2013, released by FBR on February 28, 2014, out of 1172 parliamentarians (senators and members of national and provincial assemblies) hardly 10 members paid Income Support levy. This progressive tax remains unpaid till today by 99% parliamentarians and the rich Pakistanis. In the package its payment should have been made mandatory to be utilised for the poorest, hit by corona crisis. The Prime Minister and entire Cabinet members should show to the public that they have paid it! Then all the persons liable to pay this levy should deposit it, if not done so far along with default surcharge, for the benefit of the economically distressed, affected by coronavirus. While the State kitty is empty, many keen to be recognised as "great philanthropists" with coverage in media, are least concerned to discharge this liability imposed by the State. This is our real dilemma! If all of those liable to pay discharge their tax liability, it will also provide help in determining a fair tax base of Pakistan and we can get rid of loans to become self reliant and move towards becoming a welfare state!
The Federal Board of Revenue (FBR) even after lapse of 7 years has failed to collect Income Support Levy from the defaulters-many of whom are criticizing coalition Government of Pakistan Tehreek-i-Insaf (PTI) for going to the International Monetary Fund (IMF) against its avowed policy. Rich businessmen, who are seeking more 'concessions' from PTI government, by not paying Income Support Levy meant for helping the economically distressed persons/families, proved their apathy and callousness. This progressive tax was abolished in 2014. Had this not been done, and other progressives taxes were effectively imposed on the rich, we could have avoided the economic crisis of 2018-19 when fiscal deficit reached 8.9% of GDP and in the current year due to corona virus and other factors, it would be even worse. This is our real malady.
The Prime Minister was not even aware (never told by his economic team) that billions are lying unpaid with rich industrial giants since 2006. Sections 2 and 4 of the Workers Welfare Ordinance, 1971 were amended by the Finance Act of 2006 and subsequently by the Finance Act of 2008 to broaden the scope of the obligation on industrial establishments to contribute towards the Workers' Welfare Fund, established under section 3 of the Ordinance of 1971. These amendments were declared ultra vires Constitution by Lahore High Court in the East Pakistan Chrome Tannery (Pvt.) Ltd v Federation of Pakistan and others (2012) 105 TAX 81 (H.C. Lah.) as it was not tax and could not be passed as Money Bill. This order was endorsed in 2016 by the Supreme Court. The Governments of Pakistan Muslim League (Nawaz) as well as PTI have not taken the requisite initiative through curative amendment (sending it to Senate as well) to come to the rescue of the affected workers.
The Prime Minister now in difficult financial times in consultation with other parties should move a Bill in the light of observations of the Supreme Court and ensure retrieval of lost contributions retrospectively i.e. from 2006. No party in the National Assembly and Senate will oppose this Bill for fear of being branded as anti-labourer. Recovery of money and its settlement between the federal government and provinces under Article 144 of the Constitution will help millions of workers, presently feeling hardships in the wake of lock-down to fight corona outbreak. The money in billions lying with the rich, seeking more benefits, can provide pensions, decent housing, and free education and health facilities for the workers/daily wage earners who have been promised just peanuts under the relief package.
(To be continued)
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)