Blame prov­inces, get waivers

The Pak Banker - - 4EDITORIAL - Shahid Kar­dar

ALTHOUGH we were un­able to meet two key per­for­mance bench­marks of the pro­gramme, the IMF took a le­nient view of these fail­ings and granted waivers - ac­cu­mu­lat­ing to 12, the largest num­ber of waivers un­der any IMF pro­gramme, which is yet to com­plete two years. These key cri­te­ria re­late to a) the bud­get deficit de­spite, as ar­gued in ear­lier col­umns, the unashamed ma­nip­u­la­tion of data to show a lower deficit; and b) Is­lam­abad's bor­row­ings from the State Bank of Pak­istan (SBP), in spite of the tril­lion-rupee in­jec­tions by the SBP to en­able com­mer­cial banks to in­vest in gov­ern­ment se­cu­ri­ties/T-bills, given the lat­ter's in­sa­tiable ap­petite for grandiose projects and sub­sidy schemes.

These col­umns had pre­dicted that the IMF would not pull the plug on the life sup­port sys­tem that it has ar­ranged for us since its rosy assess­ments of the coun­try's eco­nomic per­for­mance pro­vides the ba­sis for the lauda­tory eval­u­a­tions of our ac­com­plish­ments by other lenders and rat­ing agen­cies. This writer had ar­gued that the IMF would con­tinue to lend its name to Pak­istan's de­sire for more donor and in­ter­na­tional banker gen­eros­ity to con­tinue pro­vid­ing fi­nanc­ing, de­spite fail­ures to sat­isfy per­for­mance cri­te­ria. It was fur­ther ar­gued that since it is tough for the US gov­ern­ment to elicit Congress sup­port for fund­ing, it has the lever­age needed to ca­jole the IMF and the World Bank into re­ward­ing our ef­forts to coax the Afghan Tal­iban onto the ne­go­ti­at­ing ta­ble. This de­ci­sion of the Fund staff has, for the first time in re­cent mem­ory, re­in­forced the widen­ing per­cep­tion that the IMF, World Bank and Asian De­vel­op­ment Bank are abet­tors of the gov­ern­ment's win­dow-dress­ing scheme by un­re­servedly be­liev­ing gov­ern­ment data, thereby dam­ag­ing their own cred­i­bil­ity while breed­ing com­pla­cency in Is­lam­abad.

It is amus­ing that Is­lam­abad holds the prov­inces pri­mar­ily re­spon­si­ble for the bud­get deficit con­di­tion be­ing breached be­cause they did not gen­er­ate the bud­geted sur­plus of Rs289 bil­lion which, ex­tend­ing the same per­verted logic, pre­sum­ably re­sulted in Is­lam­abad be­ing un­able to re­duce its bor­row­ings from the SBP. No one is both­er­ing to ask why on earth would the prov­inces tax their own cit­i­zens or re­duce al­lo­ca­tions for ser­vice de­liv­ery im­prove­ments to raise sur­pluses for Is­lam­abad to spend? For Khy­ber Pakhtunkhwa it would be even more po­lit­i­cally out­landish with large sums still owed to it for hy­del prof­its.

The IMF, World Bank and Asian De­vel­op­ment Bank are abet­tors of the gov­ern­ment's win­dow-dress­ing scheme. More im­por­tantly, if 90pc of pro­vin­cial un-en­cum­bered re­sources come from the di­vis­i­ble pool of taxes col­lected by fed­eral agen­cies, how could they be ex­pected to sup­ply such sur­pluses if the size of this pool was smaller ow­ing to the in­abil­ity of these in­sti­tu­tions (man­dated to col­lect taxes) to muster bud­geted rev­enues?

Re­gret­tably, the prov­inces are the favourite punch­ing bags of Is­lam­abad, donors and com­men­ta­tors alike. They are re­cur­rently chas­tised for fail­ing to mo­bilise ad­e­quate re­sources to fund their con­sti­tu­tional re­spon­si­bil­i­ties for ser­vices like law and or­der, ed­u­ca­tion, health, wa­ter and san­i­ta­tion, etc, whose ne­glect is uni­ver­sally cen­sured.What is con­ve­niently for­got­ten is that the rev­enue rais­ing ca­pac­ity of the prov­inces is lim­ited, ow­ing to the tax­a­tion pow­ers en­shrined in the Con­sti­tu­tion and the struc­ture (GST in VAT mode) put in place un­der ear­lier IMF pro­grammes. Ad­mit­tedly, the prov­inces also haven't done enough to aug­ment rev­enues. They haven't been ag­gres­sive enough in mar­shalling and col­lect­ing taxes on in­comes de­rived from agri­cul­ture (mak­ing it worse by treat­ing land rented out also as agri­cul­tural in­come) or by mak­ing ur­ban prop­erty tax more pro­gres­sive and ro­bust. How­ever, they have had de­cent suc­cess in re­cent years in mo­bil­is­ing ad­di­tional rev­enues by widen­ing the GST base for ser­vices.

The fed­eral gov­ern­ment has pre­empted the rev­enue base of the prov­inces that ev­ery­one wants them to ex­ploit: mo­tor ve­hi­cles, real es­tate and ser­vices. It has levied a va­ri­ety of silly with­hold­ing and other taxes on mo­tor ve­hi­cles and prop­erty trans­fers. By im­pos­ing ex­cise du­ties on some ser­vices and by adopt­ing con­cep­tu­ally flawed leg­is­la­tion that em­pow­ers it to levy GST on eco­nomic and com­mer­cial ac­tiv­i­ties that would log­i­cally be treated as ser­vices, Is­lam­abad has fur­ther nar­rowed pro­vin­cial op­tions to de­velop the po­ten­tial of GST on ser­vices. But then, Is­lam­abad op­er­ates in a world of its own, in which ac­tions and de­ci­sions are not driven by, or ar­gued on the ba­sis of, ra­tio­nal­ity.

More­over, the fed­eral gov­ern­ment has con­trib­uted to the tax­a­tion regime be­com­ing in­creas­ingly com­pli­cated. For in­stance, the prov­inces do not al­low the de­duc­tion of GST paid on in­puts, although the coun­try is sup­pos­edly ad­min­is­ter­ing a sys­tem of GST in VAT mode, thus rais­ing the cost of do­ing busi­ness (af­fect­ing com­pet­i­tive­ness) and un­nec­es­sar­ily rais­ing con­sumer prices. There is also the is­sue of mul­ti­ple rev­enue col­lect­ing author­i­ties ad­versely af­fect­ing ad­min­is­tra­tive and eco­nomic ef­fi­ciency, lead­ing to higher trans­ac­tion and op­er­a­tional costs, un­nec­es­sary du­pli­ca­tion of func­tions and data bases and in­con­sis­tent le­gal and other treat­ments of even sim­i­lar types of taxes. Such a com­plex ar­range­ment has raised the cost of com­pli­ance for taxpayers by cre­at­ing dif­fi­cul­ties for them, caus­ing in­creased an­noy­ance.

What is, how­ever, wor­ry­ing is that in­stead of cor­rect­ing these anom­alies in the tax struc­tures and mak­ing the pro­cesses and in­sti­tu­tional mech­a­nisms less ha­rass­ing for ex­ist­ing taxpayers, etc, Is­lam­abad, com­men­ta­tors and the IMF are in­tent on con­sol­i­dat­ing and strength­en­ing de­fec­tive sys­tems. They want the prov­inces to pro­duce, by hook or by crook, more rev­enues to reach some mag­i­cal num­ber of the bud­get deficit. So much for the re­frain that the tax re­forms are be­ing stu­diously im­ple­mented.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.