The US Ambassador, Anne Patterson, has made two observations on which there can be no difference of opinion. First and foremost, she pointed out that Pakistan has one of the lowest tax to Gross Domestic Product (GDP) ratios in the world.
To put it simplistically, a low tax to GDP ratio reflects the disturbing fact that a government's efforts to effect an increase in tax revenue, linked to higher domestic output is not only limited due to tax loopholes that, by definition, are employed by the rich and influential, rather than the poor, who are unable to hire tax consultants, but also due to tax exemptions, which may have been initially targeted to provide an impetus to productivity, but in time have come to be regarded as their due.
Loopholes in our country are not unique as these are also applicable in other countries, however, what is not prevalent in the rest of the world is the range of tax exemptions given to those whose income is more than comparable to those who are forced to pay income tax.
Thus, the income of a salaried government or private sector employee is taxed but that of a rich feudal landlord is not. In this context, it is relevant to note that India's tax to GDP ratio is 17.7 percent, Maldives 20.5 percent, and Sri Lanka's 15.3 percent. Pakistan's tax to GDP ratio is comparable to the relatively poorer nations in the region, for example Bangladesh's 8.5 percent, Bhutan's 10.7 percent, and Nepal's 10.9 percent.
This must be seen in the context of statistics that prove that national tax mobilisation is higher in rich countries relative to the poor. Additionally, it is also pertinent to note that on average, the tax to GDP ratios in low income countries was around 13 percent, higher than Pakistan's 10 percent, while that for the rich countries was around 19 percent.
There is an urgent need for the government to increase this ratio, a need that has been identified by successive Pakistani finance ministers, but to no avail. Whether the blame for this failure can be laid at the doorstep of the political power/influence or not is irrelevant.
What is relevant is that something needs to be done and done on an emergent basis, given the fact that the country is at present heavily relying on foreign injections to meet its annual expenditure. This is, however, not to downgrade the need to check corruption in the Federal Board of Revenue, be it through coercion or collusion of the taxpayer, identified by Transparency International as one of Pakistan's premier corrupt agencies.
The US Ambassador also chided Pakistan for scrapping a deal with two major international mining firms that would have led to foreign direct investment of 3.5 billion dollars. It is indeed unfortunate that subsequent Pakistani governments have accused their predecessors of routinely receiving kickbacks from the award of contracts to foreign firms, which leads to scrapping of such projects.
In this context, it must be pointed out, that suspect deals are now routinely criticised in the media and be it a democratically elected government or a dictatorship, the days when the government did not meticulously adhere to the procurement rules and regulations in the award of contracts are long over as the Minister for Water and Power Raja Parvez Ashraf learnt much to his chagrin.
The Ambassador also praised Pakistan's "exceptional economic team". This is in the context of reducing the fiscal deficit from the unsustainable 7.4 percent in 2007/08 to missing the target set by the International Monetary Fund (IMF) by a mere 0.3 percent by end of last year.
The casualty of the IMF programme however, was the common man who witnessed a slash in development expenditure in the government's efforts to meet the fiscal deficit target. The IMF staff in its report released in end July 2009, indicated that there was a decline in overall economic activity, due no doubt to continued power outages, as well as high borrowing costs.
The Fund can be held accountable for the State Bank maintaining high borrowing costs but not for the continued heavy load-shedding as it has repeatedly emphasised to the government to eliminate inter-circular debt, which continues to this day. Patterson reiterated the Obama administration's commitment to the development of Pakistan - a strategy considered to be targeted towards ending fundamentalism and terrorism.
She added that the US government was working closely with farmers on a cost-sharing basis to replace or repair 11000 tube wells in the country as well as underwriting several significant quick-impacting energy projects. The US public and private investment in Pakistan is considerable, especially in comparison to other countries.
And yet few in this country endorse the drone attacks or indeed what they perceive as American intransigence in insisting that the Pakistani armed forces take on the Haqqani group in North Waziristan - or the Taliban, who are targeting Afghanistan and not Pakistan.
This makes it evident that the US strategy of extending financial assistance on the one hand and demanding military operations on their targets, on the other, coupled with increased drone attacks is not winning the hearts and minds of the people of this country. Perhaps, financial assistance, coupled with military assistance on the same pattern as that provided by Bush to India may help to placate the people of this country.
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