The government has no agenda to overcome economic and political problems. Economic activities are not as per desired level, due to our economic policies, political involvement in the affairs of private investors and law and order situation of the country.
It was hoped that after approval of the IMF loan, Pakistan will get extra $1.5 billion a year US aid approved through Kerry-Lugar bill, which would be helpful for economic activities in the country, but this is still at stake due to public, political and social pressures.
Current situation reveals that we are not mentally prepared to resolve our issues, and we probably never tried to learn from example of various countries how they overcome economic crisis. Albania, despite civil war in late 1996 and early 1997 faced a financial crisis but due to effective policies, overcome it. Albania introduced investment reforms, and first preference was given to the protection of investors to expand its economy and exports.
Due to their effective economic policies, rate of inflation in Albania documented at 2.2 percent at the end of 2008. To win the trust of corporate investors, corporate tax rates were reduced from 20% to 10%. Not only Albania introduced investment reforms but also utilised its natural resources effectively to build its infrastructure and resultantly Albania become the only country in the world to produce all of its energy from hydropower, wind power and solar power. In recent survey for doing business, Albania ranked 86 out of 183 economies.
Argentine's economy in 2001 reached breaking point and the government was not in a position to pay off its foreign debts there was cut of billions of dollars in government spending with government employees receiving a salary reduction of around 13%. Some argue that the cause of crisis was IMF poor policy advice.
But after that, Argentine government revisited its policies and resultantly GDP increased by 7% and surplus in the balance of trade was $13.2 billion, which was greater than the prior year and the exchange rate in August 2009 was AR$/$3.85.
Moreover to attract revenue through taxes, Argentine congress announced tax amnesty for those taxpayers who failed to comply with their federal tax and social security obligations, allowing them to regularise their situation at a much lower cost. Penalties imposed usually range from 50% to 100% on the unpaid tax amount, depending if the obligations failed are entirely waived.
To comply with this regime, a first payment of at least 6% of the total amount due has to be made and the remaining balance can be called in as many as 120 monthly instalments with a 0.75% monthly interest rate. The Brazilian economy was affected by the world financial crisis, but in 2008 it ended with a GDP increase of 5.1%.
The Brazilian stock market plunged about 50% in comparison to its historic peak in May 2008, due to aversion to risk and outflow of international investment the economy subsequently was effected by decrease in export revenues and contraction of domestic demand due to international liquidity squeeze. Keeping in view this situation, Central Bank of Brazil extended credit to the banking system, injected new resources into three large federal banks and reduced official interest rates.
Moreover, they introduced various tax measures with the purpose of reducing tax burden on the middle class. Moreover, for controlling the fluctuation of the currency caused due to financial crisis they introduced tax on financial transactions. The Italian economy was also effected by the economic and financial crisis but they overcame it due to effective tax planning and better management and financial policies.
They tried to control their financial crisis through long-term tax policies. Italy also prepared a 2010 to 2013 Economic and Financial Planning document, which contained some major tax changes, ie including tightening of anti-federal provisions, tax incentives on selected investments, asset-depreciation rates, deduction on debt write-offs and revenue, raising tax amnesty, which aimed to collect revenue on the repatriation of funds shielded in the tax-haven's jurisdiction.
Israel also introduced dramatic legislation for new immigrants that they will enjoy a 10 year exemption from Israeli taxes on foreign assets. A 10 years exemption is also granted for capital gains on sale of assets located outside Israel. The Israeli government announced that corporate tax rates would be reduced form 26% to 20% from January 2010.
India, our neighbour, recently released the draft Direct Tax Code Bill, 2009 with aims to eliminate distortion in the tax structure and to introduce moderate levels of taxation and expand the tax base. The code will replace the existing Indian Income Tax law that lend simplicity, flexibility and stability to taxation and will reduce the scope of ambiguity and litigation.
As per new tax code the corporate sector will be taxed at a uniform rate of 25%, which will removes discrimination between foreign and domestic companies, which are taxed at 40 and 30% respectively in the past. New code also contains tax incentives ie include profit-based incentives and investment-based incentives and the taxpayer would now claim all revenue and capital expenditures except on land, goodwill and financial instruments as deductible expenditure during the period.
What about Pakistan? A rich country in natural resources, having coal reserves around 185 billion tones only in Thar, which are equivalent to 618 billion barrels of crude oil. If we compare it with the oil reserves of the Kingdom of Saudi Arabia, these are more than twice and are equal to the total oil reserves of the top four countries.
Not only coal, Pakistan is rich in gold, copper reserves, with the world's fifth-largest reserves of gold and copper discovered in Chaghi and as per briefing of Director General of Provincial Department of Mineralogy more than 200,000 tonnes of copper and 400,000 ounce of gold can be produced annually and this not only includes the quantum of gold reserves found in Zohb and Lasbela districts.
The petroleum advisor in a briefing to the Senate said that Pakistan has more than 326 million barrels of oil and 29,790 billion cubic feet of gas reserves and the total demand of oil is 19.2 million tonnes a year and gas 5.3 million cubic feet a day.
Moreover, there are unlimited amounts of oil and gas reserves under the barren mountains of Balochistan and the hot sands of Sindh, which are yet not touched. Further, Pakistan has fertile land ready to feed an area twice as big as we are now. Pakistan has the best irrigation system of the world awaiting more reservoirs to enrich it and the best quality cotton and rice.
Despite all these natural resources, we are classified as an underdeveloped nation. We have the largest coal reserves and can produce electricity at a cheaper cost, but we are facing an energy crisis, we have world's largest reserves of gold and copper which are more than enough to meet our financial needs, but we ever have shortage of funds and rely on IMF and US aid.
We have fertile land in Punjab that can feed an area more than twice as big but we have a shortage of flour, sugar, we have sufficient oil and gas reserves, but we have a shortage of gas to supply the same industries. We claim the best irrigation system in the world but always cry for shortage of water. We have the world's best army and best intelligence service but we are facing a law and order situation in the country.
Let's compare our coal reserves with Saudi Arabia's oil reserves, which are more than twice ours, the Saudi government sells around nine million barrels of oil per day and has the best infrastructure, best freeways, excellent health facilities and an infrastructure that is the envy of the world. Pakistan can also achieve this if we only utilise our 10 million tonnes of coal per day which is more enough for the next 200 years.
But we cannot do so, for lack of decision-making powers. Our individuals are more powerful than our institutions, and our constitution is subservient to our ruler's desires. Our appointments criteria is not merit, it is based on political liking and disliking. We waste our time in unproductive activities, to meet the energy crisis we have no other option except to keep changing time.
We have no strategy to overcome the gas shortage except to suspend supply of gas to industries for two days. We have always a shortage of funds, why it is so? Only reason is lack of sincerity with our country. To overcome this situation we need sincere efforts.
Let's take example of one institution of Pakistan which is main revenue-collecting authority the Federal Board of Revenue (FBR). Do the FBR have a record of all individuals doing business in Pakistan? Did the FBR make any arrangement to register all persons doing business in Pakistan? Answer would be in negative. Registration is difficult task for FBR officials, FBR officials have no ability to force corporate entities to file their Annual Income Tax Returns.
As per FBR quarterly report for Tax Year 2008, out of 50,952 only 17, 430 companies filed their annual returns, and 33, 552 companies did not bother to file their annual returns. It is proved by FBR own reports that only 34% companies meet their statutory obligations and the remaining 66% enjoy at the cost of the other 34%. What did FBR do to overcome this situation, the answer is in the negative. In this situation, the FBR has the option to meet its targets by these 34% companies, the tax officials will use unlimited powers delegated through various provisions of ITO 2001.
The first step they took to meet their target was to amend taxpayers assessment, framed under section 120, by initiating proceedings under section 122(5A) on the ground that assessment is erroneous and prejudicial to the interest of revenues without knowing the real spirit of these provisions and in the second step they initiated audit proceedings to extract maximum revenue from the existing taxpayers by making wrong assessments which contained calculation errors, which on one hand created frustration in taxpayers and on the other hand involve taxpayers in undue litigation.
Another interesting fact is that, it is mandatory for the corporate sector to e-file their annual income tax returns and monthly withholding tax statements, and those companies that failed to meet this obligation are liable to pay additional tax.
Now it is very interesting that the officials appointed to monitor withholding of taxes are normally grade 17, 18 and 19 and most of them are not familiar with their own website, and even do not know the use of the internet and ultimately taxpayers bear the results of the same.
Now let's see the other aspect, why the FBR could not frame policies to tax agriculture sector, real estate, capital gains. The only reason was undue political involvement in the affairs of FBR and political appointments of office bearers of FBR.
Moreover, recently government again pulled wool over the nation's eyes in the name of tax reforms by introducing Finance Amendment Ordinance, 2009, which contained nothing except the attractive name of the designations of the tax officials. Same is the case with other institutions as well, our individuals always try to influence our institutions.
How much time will we take to get rid of this negative aspect? Presently, we need strong institutions but individuals are more influential, we need favourable economic policies, which on the one side protect investors and on the other hand attract foreign and local investors to invest in the country but the situation is opposite, due to political involvement in the affairs of the management of private institutions, we are losing the trust of investors.
We need to overcome the energy crises but it seems that we are unable to control the same in the near future. In order to get rid of foreign debts, an improved tax system is required which on the one hand facilitates existing taxpayers and attract new taxpayers, but our rulers are not in a position to do so due to their own interests.
To get rid of corruption, we need to act beyond personal interests and it would be appreciated if our stakeholders with charges of corruption present themselves for accountability. We have to recognise the fact that change is at our doorstep, and it would be better to recognise this say goodbye to our past, otherwise time will say goodbye to us and when time says goodbye it would be harsh.
(The writer is a lawyer, with several books on corporate and taxation laws) [email protected]
Comments
Comments are closed.