Miftah - to set the tone

It took PML-N a little over three months to formally give Miftah the portfolio equivalent of a federal minister as the all important replacement of Dar. Leaves one wondering what portfolio the federal minister Dar would be awarded, once (if) he is back from leaves. To the surprise for many, the headless finance ministry now has an adviser and a state minister at the helm, for a full five months.

Some may wonder why Rana Afzal is appointed as a state minister when the role of federal ministry is given to Miftah. It may well be reward for being loyal to the king. Afzal may be privileged to present the FY18 budget as Miftah cannot- reminiscent of Salman Shah and Umar Ayub combination in Musharraf’s era. Meanwhile, Afzal may continue to play the role of communicator to parliamentarians as he has been doing for four years.

In essence, Afzal would be a showcase minister with Miftah at the helm. What can Miftah bring on the table that Dar could not in his four year tenure? In a thank note posted on social media, he talked about the ambitions to broaden the tax base and lower tax rates; and to bring the undocumented wealth back in the country.

This is not much different from what Dar spelled out in his early days. Only that GST was increased, other indirect taxes were raised, and though the direct taxes were reduced in a stage manner, dividend and other taxes make effective tax rates virtually unchanged.

In case of bringing undocumented money back in the country, the PMLN government in its ongoing tenure had offered couple of amnesty schemes which all miserably failed. How much more money (or amnesty schemes) can Miftah bring in his short stint would be exciting to watch. He has equated his stint as a T20 cricket match, saying most runs are scored in the slog overs. Here is hoping he also knows most slog over runs come ugly with a danger of being bowled out before the full quota of overs.

On a more serious note, Miftah seems to be a much better option than Dar. He has a PhD from Wharton in public finance and political economy to start with. He has experience of working with the IMF and running a relatively formal business in Pakistan. The only advantage Dar had over Miftah was his political capital and support of the now ousted PM. Also, one cannot overlook his experience as the Finance Minister (and chartered account).

Dar was known for his accounting gimmicks, while Miftah has an education background in public policy and experience in running business. It’s rare to find people with background of running formal business in running economic and political machinery as most of the business background politicians have operated in grey areas (informal sectors) or agriculture.

Miftah has first hand information of difficulties formal business operators have in Pakistan, especially in manufacturing. The prime reason for having balance of payment problems every now and then, especially when the economy grows at higher pace, is that in the last two decades or so there is no major investment in the export oriented businesses. All the foreign and local investment in recent past is for local consumption - be it expansion or acquisitions by global MNCs or by local tycoons in power sector or domestic retail businesses.

Apart for low competitiveness, protection to domestic industries and guaranteed returns in power sector, the prime reason for skewed investment is that tax policies favour imports. There have been some ad hoc measures in the recent past to undo the trend but these are too little.

Miftah is an advocate to promote local manufacturing and rationalize taxation. He is supportive of businesses and acknowledges that taxation on formal manufacturing is too high. But he may not have too much time to make and run business friendly policies. What all he can do is to set the ball in motion. He can take clues from recommendations on TRC and implement a few. He should work immediately on passing the pending bills related to finance in national assembly and senate. He should formulate the long term investment policies for export related businesses and should reduce the duties of raw material and intermediary goods in local manufacturing.
Let’s see how successful he gets; the only achievement as the Board of Investment boss was a robust to auto policy. Similar steps are required for many other industries. Best of luck Miftah!