Karachi: economic powerhouse

Two news items last week prompted me to write on the economy of Karachi, the country’s largest city and its economic hub.

These are:

• The data relating to exports from Pakistan. As per that data, out of the total exports from the country in the years 2019 and 2021 around 50% are the products and services which were manufactured or delivered by the city of Karachi; and

• The indication by Chief Minister of Sindh Syed Murad Ali Shah that the Sindh Government is considering collecting property tax for Karachi Metropolitan Corporation (KMC) through electricity bills.

Both these revelations relate to the overall economy of Karachi. The first information shows the resilience, potential and inherent strength of this city of teeming millions. However, it cannot be ignored that economic injustices in the past had very serious political consequences in this city. Those can be repeated. It is, therefore, important to note that all the elections held since 1947 (except the 2018 general election), the decision of the voters of Karachi was not entirely in line with the rest of Pakistan and other parts of the province of Sindh. It is generally argued that a sense of deprivation among the residents of Karachi is still deepening even after the 2018 general election that catapulted Imran Khan’s Pakistan Tehreek-e-Insaaf (PTI) into power. Unfortunately, however, forces are not realising the gravity of the situation. It is highly important to reexamine the economic and governance dynamics of the city to bring the national economic policy framework in conformity with the ground realities obtaining in Karachi. If this is not done, the consequences for the city and the country could be hazardous. Unless Karachi is taken together in all senses, sustainable economic growth for the country will not be possible. Those who consider that the composite port structures of Karachi’s two ports—Karachi Port and Port Qasim—will be replaced by Gwadar are not aware of the utility of such developed ports and infrastructure with secured hinterland against a ‘transit port’ in Balochistan.

In the following paragraphs I have briefly discussed the economics of Karachi in relation to subjects referred above. This is completely an economic analysis; however, economics can never be divorced from political considerations. I consider myself as an appropriate person to comment on both the subjects as throughout my life I have dealt with Karachi-, Lahore- and Faisalabad-based business houses engaged in exports. I have previously served the country as Chairman Federal Board of Revenue (FBR). I think I am aware of the information about tax culture and collection which is not in public domain. Furthermore, in 2013 I served as Caretaker Minister for Revenue & Excise, Government of Sindh which includes the department for the collection of property taxes in Sindh.

Firstly, I will deal with the data relating to exports. There can be difference of view on the authenticity of exact data relating to export contribution of the city, therefore it is earnestly suggested to the Ministry of Finance and FBR to reveal further information on this subject in order to make correct policy decisions on the matter. Even if there is some variation in the percentages referred above, yet it is commendable that a city that is generally deprived of civic amenities such as clean drinking water, roads, transport, municipal governance, sanitation, infrastructure, vocational training and all other things that are considered essential for creating a conducive environment for exports is able to perform so well. If proper infrastructure is provided this city alone has the potential to provide goods and services for exports of around USD 30 billion by 2023-24. In my personal opinion this opportunity is being squandered away.

Some pertinent aspects of the present state of affairs of Karachi can be summarised as:

1. All the roads in all the industrial estates of Karachi such as SITE, Landhi, Korangi and North Karachi, which are the four main industrial hubs, are in a dilapidated state;

2. Almost all the industrial units arrange their own water through water tankers and other means;

3. There is little or no public transport for the labourers working in these industrial estates;

4. There are slums around all the industrial estates which create law and order problems and traffic congestion;

5. Municipal governance is almost sterile and KMC and KWSB (Karachi Water and Sewerage Board) are virtually non-going concerns on finance side;

6. There has been no low-cost housing scheme in the city for over four decades;

7. The only supplier of electrical energy, namely K Electric, is waiting for an economically feasible tariff for the past five years and its future sustainability is completely uncertain;

8. Local police is not able to control law and order and the city’s law and order is overseen by a federal agency on an ongoing basis;

9. No reasonably built government school, college or university has been established for the last four decades;

10. There are serious reservations on the population census undertaken and nobody knows how many people actually live in the city. The estimates vary by around 10 million people (20 versus 30 million). These ‘missing millions’ are to be provided civic amenities by the city;

11. Municipal services are unmanageably split between Cantonments Boards and KMC;

12. No public amenity has been provided for export promotion institutions such as land for hotels and exhibitions for last three to four decades;

13. There is no IT Park in the city that has the highest percentage of literacy and education in the country;

14. Women play a highly valuable role in the value-added export sectors. Unfortunately, however, city’s unplanned growth has taken a form that has made it difficult for middle and lower class female workers to work in factories. Moreover, they are often harassed, abused and frightened by a particular mindset. The number of women in workforce has substantially reduced over a period of time.

There are many other serious handicaps; however, despite these constraints, the city is providing around 50% of life blood to the country in the form of exports. This perhaps reflects the fact that there is something seriously wrong with economic and political priorities insofar as Karachi is concerned.

It is important to note that metropolises such as Karachi function through their inherent potential by acting as an amalgam of talent and technology. The ‘City’ in London, for example, has a natural attraction that provides economic sustainability to the whole of England. The same goes for Karachi. These cities have a clear edge over others due to their inherent economic advantages of ports, airports, demographics and entrepreneurship profiles. Cities like New York, London, Mumbai, Tokyo, Singapore and Hong Kong thrive as they are naturally designed as such.

That Karachi is a commercial capital of the country is fact that has found its best expression from the data mentioned above. The national institutions mainly dealing with commerce like FBR, SECP (Securities and Exchange Commission of Pakistan) and CCP (Competition Commission of Pakistan) are, therefore, required to ensure their reasonable presence in the city in order to provide efficient services required for a mega commercial city. Furthermore, Karachi must have permanent benches of Supreme Court of Pakistan to help businesspeople avoid constant travel between Karachi and the federal capital.

Karachi, a city of 25 million people spread over 25 square miles, needs a ‘Metropolitan Self Government’ on the pattern of those in London, Mumbai and many other cities.

The next subject relates to the collection of property tax through electricity bills. The Federal and Provincial governments have their versions on the subject. Both the parties are only referring to tertiary matters. Property tax is to be paid on ‘properties’ in a city. Do these politicians know that nobody knows how much property is there in the city? As per my information, the last comprehensive property survey in the city was undertaken in the late 70s or early 80s. Everything after that is only a paper entry for harassment and corruption. People can easily compare the Karachi of the 1980s and the present-day Karachi. In view of this the property tax being collected has no relation with the property in existence in Karachi. As a Minister in 2013 I visited the offices of Tehsildar of the city of Karachi located in the city courts. I can say without fear of contradiction that its building or structure is fit to be converted into a museum. I was told that the building was constructed in late 19 century and has not been changed since then. I really became terrified that these people deal with our properties in the city. There is a Stamp Office which, too, is situated in a completely dilapidated building.

The second aspect which is being ignored by the Sindh Government is that property tax under the Constitution of Pakistan is actually ‘Urban Immovable Property Tax (UIPT)’. This tax is not related to the value of property. It is actually a cost recovery of the civic amenities provided by the state for that residence. On the basis of this assertion it is my view that whilst referring to the collection of property tax through electricity bills the Chief Minister is only referring to the manner of collection. If there is any modification of the basis of taxation then it would be completely invalid under the Constitution. Even if the same is only related to the manner of collection it would be subject to the following two handicaps:

• There is effectively no correlation of the person paying the electricity bill with the person in whose name such property is registered and who is responsible to pay the property tax. Accordingly though being a tenant of that property no recovery can be made from a person who is by specific provision of the Constitution not responsible to pay property tax;

• Electricity bill is raised by a company which is under the regulatory control of the Federal Government through Nepra (National Electric Power Regulatory Authority). This entity cannot be forced to collect property tax levied by the provincial government. Even if the same is accepted by the distribution company, say K Electric, the distribution company will have no right to disconnect the electricity supply if any levy required under an unrelated provincial statute is not paid.

In my personal opinion, this is not a workable solution. What is actually needed is a comprehensive survey of all urban properties in Sindh. When I was a Minister I was told that the property tax of Hyderabad District is less than the cost incurred by the Government of Sindh in collecting such tax. The position in other urban centres in Sindh is even worse. Punjab is also no exception.

Karachi’s economic and demographic realities are different from the rest of the country. This is not strange. Mumbai and New York are different from the rest of India and the USA, respectively. London voted differently on Brexit. Germany is full of city-based political realities. Whenever a city exceeds the population over a certain number, the manner of governance has to be changed. This requires devolution of powers by the Federal and Provincial Governments in favour of the Metropolitan Body of Karachi. That ‘body’ must not encounter any “hostility” if it is not represented by a political force which is not in power in the province or federation. All political forces have to learn to co-exist as there is no other alternative.

Copyright Business Recorder, 2021