The ris­ing power of busi­ness in Pak­istan

Enterprise - - ECONOMY - By Humayon Hu Dar The writer is an econ­o­mist and a Ph.D from Cam­bridge Univer­sity. Courtesy: Ex­press Tri­bune

Busi­ness in Pak­istan is a pack­age of para­doxes. On the one hand is the po­si­tion of near bankruptcy of the pub­lic ex­che­quer while on the other there is a con­tin­u­ing rise in ac­cu­mu­la­tion of wealth by the busi­ness class.

There is thank­fully an ex­pla­na­tion for this in­con­sis­tency. Pri­vate busi­nesses have been able to ac­cu­mu­late wealth be­cause the govern­ment has failed to tax them ef­fec­tively de­spite earn­ing huge prof­its. Since the em­pha­sis is on in­di­rect tax­a­tion, the govern­ment has been fo­cus­ing on tax­ing the end con­sumers di­rectly.

Call­ing it in­di­rect tax­a­tion is an­other ex­am­ple of a para­dox. Gen­eral sales tax (GST) al­lows the trea­sury to col­lect taxes from gen­eral masses with a lot more ease than tax­ing cor­po­rate prof­its. It di­rectly im­pacts the con­sumers and hence its ef­fect on prices is more un­am­bigu­ous as com­pared to the so-called di­rect taxes.

De­spite the pre­vi­ous govern­ment bring­ing down the pop­u­lar price in­dices (CPI, SPI and WPI) to al­most half the level they were when it came into power in 2008, the me­dia has suc­cess­fully man­aged to cre­ate the im­age of ris­ing prices. This has damp­ened con­sumer con­fi­dence. A mar­ginal in­crease in the gen­eral price level will dent it fur­ther. An in­crease in GST will cer­tainly have this ef­fect.

Com­pa­nies also at­tempt to avoid pay­ing taxes through in­ge­nious us­age of le­gal loop­holes or adopt­ing cor­rupt tax eva­sion prac­tices (like is­su­ing fake re­ceipts to cus­tomers or fid­dling with sales ledgers). In the end, the con­sumer ends up pay­ing higher prices and the ex­che­quer loses out on de­sired rev­enue.

This cer­tainty has been the case in Pak­istan un­der the pre­vi­ous govern­ment. It will make the life of the new govern­ment very dif­fi­cult if it fails to stop the leak­ages in the tax col­lec­tion sys­tem.

The reaction of po­lit­i­cal par­ties and gen­eral pub­lic to just one per­cent­age point in­crease in GST (as an­nounced in the bud­get) is in­dica­tive of the fact that the gen­eral pub­lic, its par­lia­men­tary rep­re­sen­ta­tives in op­po­si­tion and other mem­bers of civil so­ci­ety (es­pe­cially me­dia) have be­come com­pletely ir­ra­tional. While the ma­jor­ity re­jected the pre­vi­ous PPP-led govern­ment for its mis­man­age­ment of the econ­omy, fail­ure to solve en­ergy cri­sis and for be­ing cor­rupt, one fails to un­der­stand how they ex­pect the new govern­ment to solve all their prob­lems with a magic wand.

The large busi­nesses, es­pe­cially those with con­sumer fo­cus, have done ex­tremely well and have shown to be re­sis­tant to the de­te­ri­o­rat­ing law and or­der sit­u­a­tion and the en­ergy cri­sis. The tex­tile sec­tor is one glar­ing ex­am­ple of suc­cess with 2012 prov­ing to be a par­tic­u­larly good year.

Ir­re­spec­tive of the neg­a­tive por­tray­als of the tex­tile sec­tor by Aptma, it re­mains a fact that there has been an in­crease in the prof­itabil­ity of the sec­tor even dur­ing the so-called dark five years un­der the pre­vi­ous govern­ment.

Sim­i­larly, the large land­lords have en­joyed the best pe­riod of growth in the last 10-15 years. This would mean that be­neath the ac­count­ing veils, com­pa­nies are ac­cu­mu­lat­ing a large pool of prof­its but are fail­ing to con­trib­ute to the gen­eral well­be­ing of the coun­try.

The cul­ture of tax eva­sion in Pak­istan is so deep-rooted that busi­ness­men would al­ways say, “Last year was much bet­ter than the cur­rentc year; we are in deep trou­ble now.”now The ground re­al­ity is that they have never been in trou­ble, and have al­ways ben­e­fited from the large do­mes­tic mmar­ket, which de­spite po­lit­i­cal ad­ver­si­ties has al­ways kept on ex­pand­ing. The sit­u­a­tion is ad­mit­tedly not that good for SMEs, which re­main vul­ner­a­ble to a num­ber of fac­tors.

The cur­rent govern­ment, be­ing a busi­ness-friendly govern­ment, has de­cided to favour the busi­ness class in an at­tempt to re­vive the de­pressed econ­omy. This could be a suc­cess­ful pol­icy if the busi­nesses are will­ing to share their suc­cess with the govern­ment and even­tu­ally with the gen­eral pub­lic by pay­ing the taxes and meet­ing their other so­cial con­tri­bu­tions hon­estly and with pa­tri­otic zeal. Fail­ing to do so will in­crease in­come dis­par­i­ties, even­tu­ally lead­ing to so­cial dis­par­i­ties and a pos­si­ble civil war.

The rise in pop­u­lar­ity of so­cial me­dia in Pak­istan means that it will be very easy for any pres­sure group or po­lit­i­cal party to bring mil­lions of peo­ple out on the D-Square of Is­lam­abad to em­bark on a rev­o­lu­tion sim­i­lar to what hap­pened in Egypt.

Rev­o­lu­tions seem very ro­man­tic when seen from a dis­tance but its out­come al­ways leads to very bit­ter eco­nomic re­al­i­ties as can be seen in the emerg­ing coun­tries of the Arab Spring. If that hap­pens in Pak­istan, there is ev­ery chance that a new so­cial con­tract will be writ­ten, which will be very dis­turb­ing for the large busi­nesses and those who hold vast agri­cul­ture es­tates. This will then cre­ate the ul­ti­mate para­dox.

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