A delegation of tax officials has successfully negotiated with the World Bank officials in Washington on $125.9 million grant, including proposed IDA credit of $102.9 million, and a UK DFID grant of $23 million for the 'tax administration reform project'.
The World Bank and the Pakistani delegation discussed the following agreements: Implementation arrangements, including procurement, financial management, and disbursement arrangements; key project performance and monitoring and evaluation indicators, and co-financing arrangements.
The objective of the project, according to official quarters, is to improve the integrity and fairness of tax administration by improving organizational efficiency and effectiveness of the revenue administration.
The project aims at promoting compliance through strengthened audit and enforcement capacity and transparent as well as high quality tax services. The project will also focus on improving trade facilitation through modern and internationally acceptable customs procedure.
It is a national shame that for improving the integrity and fairness of tax administration we need such a heavy borrowing from the World Bank and other donors.
Although a part of revenue collection by the Central Board of Revenue (CBR) can be earmarked on annual basis for this purpose, but the Government is bent upon to borrow funds for this purpose. It is obvious that actual purpose behind this project is to make Pakistan subservient to the agenda of foreign donors.
In the name of tax reforms project, certain forces want to have complete control over our revenues and tax machinery.
This is reappearance of East India Company's operations during the British raj in subcontinent. On the one hand our worthy Prime Minister [who is also sticking to the portfolio of Ministry of Finance] is claiming to come out of clutches of IMF and on the other even for projects like tax reforms, we are negotiating fresh loans/grants.
The World Bank has successfully convinced the Government of Pakistan that it needs substantial loan for its tax reform agenda.
This reform agenda was earlier prepared by the IMF and World Bank, and now they are lending us money to implement it by giving main chunk to their hand-picked consultants!
This modus operandi is not new; all the subjugated nations have to undergo this kind of exploitation at the hands of international donors.
The responsibility for this kind of maltreatment and exploitation of a nation lies with its inept, incompetent and anti-people leadership, rather than donors.
Our history of economic subjugation started in the 1960s when the rulers started taking large intakes of foreign loans. With every loan comes a host of conditions.
These conditions ostensibly aimed at reforms, in fact meant to make a nation subjugated in complete terms, ie economically, politically and mentally. Recently our economic managers have started claiming that they are severing all ties with IMF and other foreign donors, whereas the reality is that new loans for reforming (sic) tax, baking and justice systems--just to mention a few--are being negotiated with unprecedented vigour on the dictates of foreign masters.
Way back in 2001, our worthy Prime Minister as a Finance Minister, toeing the IMF conditionalities, announced that massive tax reforms were on cards. He specified the following outline for intended tax reform agenda:
Heavy investment in Information Technology (IT) to facilitate collectors.
Massive surgery in tax system through human resource development and use of computers, which would increase the efficiency and image of the department.
Good officers would get compensation on the achievements of targets.
He promised "a big change of culture" in the CBR in the next 12 months. In 2000 while commenting on the tax reform drive (sic) launched by the Finance Minister, I made the following remarks, which are relevant even today:
The tall claims made by the government about six months back that by 1st January 2001, it would introduce major tax reforms and even a new Income Tax law proved to be yet another promise not kept.
The deadline has now been extended to the budget time when the Finance Ordinance will be announced. This was not something that came as a surprise to many, including myself, as most of the claims by our government are wo wada hi kya jo wafa ho gaya (promises are not made to be fulfilled).
We would have been much happier if the hasty attempts to further destroy the existing enactments and tax structures were abandoned, but it seems that some vested interests are bent upon to do so in the hope that they will get enormous money (for this poor nation it will be a loan of $100m) from the World Bank for this vandalism. This is the most painful part of the whole exercise.
Since 2001, in the name of simplification of tax laws the CBR is imposing more and more obligations on the citizens of Pakistan without corresponding tax rights in tax codes.
The nation has been burdened with a number of more cumbersome tax terms and new enhanced obligations of withholding taxes without any compensation. This is the sordid story of tax reform in Pakistan so far. The new round of reform is about to start with foreign loan.
More money will be given to handpicked consultants, who hardly know anything about a pragmatic tax policy and its administration. More workshops are going to be held to waste public money mercilessly.
This nation is going to have more well-equipped tax dacoits who are going to play havoc with their peace and tranquility. This entire process will be carried out under the umbrella of World Bank and other donors, who want to ensure that our economic subjugation makes us modern-day slaves.
The problem of Pakistan is that its tax system is not equitable. The burden of taxes is already less on the rich and more on the poor. In the face of this reality, the government is resorting to regressive taxation like presumptive taxes in income tax and turnover taxes in the shape of multi-point sales tax. Over the period of time our tax system has become rotten, oppressive, unjust and target-oriented.
There is a dire need to discuss the philosophical framework and principles of equity and justice that should be the main concern of our tax policy and not mere achieving of targets set out by the foreign donors. Our potential is much higher than these targets.
We can collect much higher taxes if the present tax laws are rationalised and incompetent, inefficient and corrupt tax machinery is overhauled. We should get ourselves free from the reform game of the World Bank and other foreign donors.
The tax policies implemented by us on the dictates of foreign donors have lead to abject poverty for vast majority of people.
These policies are not making us self-reliant but on the contrary are destroying our industry and business. If we manage to formulate a rational tax policy through public debate and parliamentary process and implement it through consensus and not coercive measures, there is every possibility to get rid of World Bank and IMF in a short span of time.
However, if we will keep on following their prescription, we will neither realise real tax potential, nor achieve the cherished goal of self-reliance through rapid industrial growth.
Our tax revenue potential is not less than Rs 800-1000 billion provided that the existing tax base is made wider and equitable, tax machinery is completely overhauled and exemptions and concessions available to the privileged sections of society are withdrawn. To achieve these goals we do not need any loan from the World Bank or other donors. If we take money from them then we are bound to follow their conditions, as beggars cannot be choosers.
Many local experts can do the reform work either voluntarily or at much less cost than what we intend to waste on foreign consultants at the commands of World Bank and others.
(The writer is Dr Ikramul Haq is a leading international tax counsel and well-known author.)
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