The desperation, recklessness mix

Countrywide protests by retailers and wholesalers over the rise in Withholding Tax (WHT) on banking transactions had already upset the Federal Finance Minister; now he faces the anger of the chambers of commerce and the export sector after the Prime Minister refused to accept those demands of the exporters which could stem the slide in their competitiveness.
But the toughest challenge the Finance Minister faces is a possible shift in IMF's liberal attitude, courtesy which it had been accepting the facts and figures (especially, fiscal deficit estimates) provided to it by the Finance Ministry because foreign media is now blaming the IMF for accepting and presenting to the world an unrealistic view of Pakistan's economy.
Oddly, the foreign media didn't fault IMF's approval of the indirect taxes imposed during 2013-15, which have escalated the rich-poor divide. Nor did the foreign media fault the doubtful integrity of the system whereby businesses surrender these taxes to the FBR because it allows huge chunks of these taxes to be pocketed by the collectors instead of being surrendered to the FBR.
The term 'withholding' implies doubts about an entity's integrity or its being a tax-evader, but can increasing tax rates achieve the objective of expanding the tax-net? The question being posed to the Finance Minister (by economists, sadly, not politicians) is "how much do tax-hikes contribute to identifying tax-evaders and expanding the tax-net?"
Given the fractional rise in the number of taxpayers, FBR insiders admit that WHT is a revenue generating tactic, not a strategy for bringing the untaxed into the tax-net. Sadly, irrespective of its adverse economic impact, rate hike is being used (unsuccessfully) to contain the fiscal deficit within the level agreed with the IMF under its Extended Fund Facility.
To begin with, containing fiscal deficit requires adopting socially rational austerity - initiative that politicians won't take because their majority believes in "living in today", maximising personal wealth, and parking it abroad, as being revealed daily by the disclosures that NAB and the FIA have been forced to make due to the pressure of "you know who".
What the WHT rise achieved were shutter-down strikes by the retail and wholesale sectors and the consequent loss of GDP. Besides this unaffordable loss, reports are that retailers and wholesalers are now limiting their use of banking channels for fund transfers, which foretells further expansion of the already huge undocumented economy.
FBR hasn't released any facts to prove that increased WHT helped expand the tax-net, though a significant rise in the amount of WHT reclaimed and a rise in return filers could justify these controversial taxes. As for tax refund/adjustment, the unpaid refund claims of the exporters reflect FBR's concern for sustaining the credibility of its promises.
Prolonged delays in these refunds prove that tax revenue remains inadequate for funding public expenditure, and is pushing the largely bank-funded domestic public debt to ever-higher levels. Because of excessive lending to the state, the banking sector keeps falling short of liquidity which, almost every week, is met by SBP's injection of close to Rs 1 trillion.
That reforming the taxation system is a low (or the lowest?) priority while collecting revenue (whatever its economic cost and impact) remains a high priority, is portrayed by the fact that, despite the ongoing drop in global oil prices, GST on petroleum products was been increased, whereby benefit of oil price drop to the economy has been minimised.
Worse still, increases in GST on high speed diesel, kerosene, and light diesel oil were close to 10 percent; they reflect how little the FBR cares, firstly, for reducing the transportation cost of goods that forms a significant portion of their final prices, and secondly, for the low-paid millions and the agriculturists - the main consumers of kerosene and light diesel oil.
Such tax-rate hikes reflect disregard for the adverse economic impact, especially on the ordinary (over 40 percent of them living below the poverty-line), let alone containing the sliding competitiveness of the country's industrial sector. Instead, what these tax hikes reflect is reckless desperation for accumulating resources primarily to fund the government's (often wasteful) current expenditure.
How much of the tax revenue funds the real state expenditure is reflected in frequent strikes by state employees over non-payment of their salaries, zero increases therein, or withdrawal of their allowances. In addition thereto, the profile of state-provided services and the escalating 'circular debt' makes one wonder where actually does the tax revenue go.
As for utilising the tax revenue in development projects, stories of pocketing of state funds by the involved politicians and bureaucrats via purchase of grossly over-priced services and inputs, and the lethargy shown by NAB and FIA in investigating the recently exposed malpractices, are simply shocking; a classic example thereof is the ongoing import of "yet-to-be-priced" LNG.
While the hugely over-priced metro-bus projects and the limited benefits therefrom continue to be debated (not investigated), the latest are the baffling revelations about escalation in the cost of the Nandipur power project which (to everyone's surprise) shocked even the Prime Minister, and eventually, also the NAB, but not the Minister for Water and Power.
The Minister for Water and Power insists that, under the PML-N government, the project cost went up from the initial PC-1 estimate of Rs 22.33 billion, to 'only' Rs 57.8 billion, although documents submitted to Nepra for approval of unit price of the power to be supplied from this project reported Rs 87 billion as the project's total cost.
According to press reports, the (PML-N appointed) MD of this project is of the view that the project cost escalated due to massive corruption(during the last PPP regime)in its completion, inordinate delay in arrival of the plant on site and in awarding the Operation & Management contract to a private sector entity for operating the project.
While NAB has belatedly begun investigating the Nandipur scandal, it must also expose the causes of the baffling losses of PSML and PIA, and verify the validity of the cost of the Neelum-Jehlum project, Bahawalpur Solar Power Park, and LNG storage terminal at Port Qasim, as well as the reasons why, for months, PSO was without a Board of Directors- affairs that reportedly cost hundreds of billions of rupees.
What prevented investigating these issues for so long, is a mystery although, to sustain the claimed unbiased profile and transparency of the "Operation Clean-up", these issues and others involving the PML-N regime should have been investigated as determinedly as was done in Sindh. Critics are now faulting this operation for being biased -a perception that must be reversed by visibly unbiased actions, not mere unsubstantiated denials.