Holy Cows at the crossroads.
Contrary to the undue praise offered by the Frontier Post and others to the government for its reaching an agreement with the Bara traders, the government, in fact, deserves strong condemnation for its myopic decisions and overburdening the already suffering public. There has been no display of good sense or reconciliatory mood on part of the government. What the government has done to the traders can be summed up in a Pakhto saying which, loosely translated, means: when someone sees the death, he agrees to accept fever for avoiding it. Our sympathies are not with the traders but with the public of NWFP and Baluchistan who are going to suffer because of the government's highhandedness and avoiding the root causes of our underdevelopment.
The traders are not going to pay the difference. The effects would trickle down to the already over taxed public that is going to pay the extra amount that will be paid by the small traders, big traders and the wholesalers as a tax to the government. Moreover, the government's collection of this easy tax does not mean that the customs, excise, police and border officials would stop taking their share in the sordid saga of cross-border illegal trade. On the paper, these traders have become taxpayers. However, checkpoints and mobile squads would continue harassing the public in the streets of Peshawar and Quetta and on the highways towards Punjab. The traders could pay either the government or its officials. Now they have to pay both and the public has to bear the brunt of it.
It is not that only the solution is flawed but the very basis of the government's logic behind taxing the Bara trade was based on false assumptions and vested interest of the industrialists, feudal lords and elite families from Punjab. The government could foresee that any settlement with the traders would fetch it billion of rupees but it could not comprehend that this money would be paid by most of the 62 percent of its adult population that cannot read or write; parents of the eight million children who are out of school; 45 percent of the population that do not have access to safe water; and 40 percent of the population that do not have access to health care. There are not only the air-conditioners and refrigerators for the rich, but cheap toilet rolls, pencils, note books, kitchen utensils and other commodities of daily use that the poor used to get from the Bara markets. Moreover, most important is the fact that NWFP and Baluchistan are home to majority of the people who do not have access to health, education and schooling facilities and are suffering from wrenching poverty and are directly or indirectly dependent on the Bara trade.
The 500,000 Bara shops belong to about 3.5 million population, which is now self-employed but most of them used to be involved in criminal activities before such their businesses flourished to this extent. Any disruption in their business activities would mean increased threat to peace and security of the settled population in NWFP and Baluchistan. And who is going to take advantage of a ban on this business - the few families who control more than 70% resources of the country. A ban on Bara business means business and industrial security of the elites in Punjab and Sindh. So far, we have not seen any fruits of establishing the local industry. Before making any major decision, the government should ask the question as to what is in that for the poor. We are getting third-rate quality goods from the local industry at the same or higher prices than we usually pay for the foreign goods. Locally assembled cars are a good example of that.
We live with more than 40 million poor fellow fellow citizens, most of whom belong the most neglected provinces of NWFP and Baluchistan. Majority of the population in these provinces suffer from what Dr. Mahboob ul Haq called the "poverty of opportunities," i.e., the absence of fundamental human choices, denial of opportunities in education, health, martial well-being, job security and political and social freedoms. CBR exaggerates that 70% of the national economy is in the "invisible" sector. Irrespective of the amount in the "invisible" sector, the fact remains that this is the only lifeline of the marginalized communities in NWFP and Baluchistan. In addition, there is no guarantee that the tax collected from the traders would be spent in the same deprived provinces for the well being of masses.
Under pressures from the IMF and World Bank, all the governments in Islamabad had been led to believe that an increase in tax rates would increase government revenue resulting in a smaller budgetary deficit.
The budget 1996-97, introduced a hefty Rs 40.8 billion worth of new tax measures and before we reached the half-way mark of our distressed fiscal year journey, the government was forced to burden the faltering economy with an additional Rs 13 billion in taxes and Rs 20 billion cut in the already humble development allocation. Some of the taxation measures were: income tax withholding on imports went up from 4% to 5%; income tax withholding on supplies from 2.5% to 3.5%; a 2% service charge on imports subject to inspection; passport fee was enhanced by 100%, endorsement fee was also increased by 100%; airport tax by 100%; petroleum prices 10%; and excise on gas distribution by 10%.
In the subsequent years, the same taxes have been revised and prices of the petroleum products, for instance, went up more than 40 per cent in 1999. The poverty stricken public welcomed the military government but the military is also anxious to raise additional revenue through additional taxes. Like its predecessors, where the government is at fault is its expectation that increasing taxes would narrow the deficit gap. Expecting that an increase in tax rates (beyond a certain level) would generate additional revenues for the government exchequer is like living in the economic dark ages. The policy of increasing taxes reduces incentives, creates inefficiencies, forces legitimate business to go underground and all these factors collectively reduce the potential for taxation on the one hand and pushing more and more population to go below the poverty line on the other.
The dictates of modern economics assert that a government looking to raise additional revenue should merely concentrate on "stimulating productive investment in new capital equipment and increased work effort thereby improving the overall economic conditions." An improved, vibrant economy is what shall create employment and the added revenue that can then be taxed to raise additional taxes. As said by Prof. Sajjad Haider an economic expert that you cannot collect taxes from the economic graveyard.
The military government should keep in mind that the existing tax base is already taxed to its fullest potential and every new tax measure is bound to depress economic activity resulting in a decrease in governmental tax collection and increase in the suffering of the miserable Pakistanis. The urgency in narrowing the ballooning budget deficit cannot be over-emphasized. The only two ways to achieve just that are: a) Increase government revenue, and/or b) decrease government expenditure; or ideally a combination of the two.
The government is not justified in targeting the already over-taxed public for additional revenue. All targets have failed mainly due to over taxing the existing set of tax payers. Whether through increase in utility bills, petroleum prices or Bara Markets, the same middle and lower classes are being forced to pay the price. The right approach should have been to touch the holy cows - defence budget and the corrupt politicians and government officials - and focusing on expanding economic activity through massive investment incentives. This would have expanded the overall economy and along with it the potential to tax the added.
To speak of the two holy cows it is important to mention that Pakistan's economy is almost on the brink of collapse but it still spends 4.4 percent of GDP (compared to India's 3.3) on defence. There are nine soldiers for every one doctor and three soldiers for every two teachers. In such a situation, the question arises that whose security are we talking about? The other holy cow's burden on the economy is the intriguing corruption, which is gulping out one-fourth of the national wealth annually. Approximately Rs.400 billion to Rs.500 billion are lost to the country every year. If at least half of this were stopped, the entire deficit in the budget would be cleared in a short time. But accountability -- even the recent one by NAB -- has been totally falsified. The public wants to see results and recovery of the looted resources and their proper utilisation. The class which was looting the country is advocating more taxes and does not care to close the funnels through which the national wealth is sucked.
The imbalance in our allocation of resources to defence and development budgets is justified only in terms of security, there are no additional reasons that reinforce or drive such military spending. For example, no economic considerations are driving us to develop an arms manufacturing base or military research and development community. Our military bureaucracy is very different than the bureaucracy created with such objectives of putting more weaponry, and that of a more advanced design, on the international market.
Apparently, the government's latest drive is "for combating the menace of smuggling" but an in depth analysis shows that the governing elites are creating a series of elaborate screens around the subject of making the two holy cows accountable to the public. All that we observe in the press is a moving tableau of convincing illusions that distracts the public from the real content and gives the holy cows a place to hide. Meanwhile, behind the screens, the action proceeds towards complete deprivation of the weaker provinces, declaration of bankruptcy and a probable disintegration of the state.
Of course, prosperity and improvement of nations generally increase with the increase of their revenue, and they both continue to grow and flourish, but his collection of revenues must not be beyond limits and on the basis of apartheid and unequal treatment of fellow citizens. The government schemes under the banner of patriotism are a sham as there is no balance between what is left to strengthen the efforts of middle and lower classes of individuals, and what is collected in the name of common effort of the state but mainly used on defence or eaten up by the corrupt officials.
There is no justification in treating defence as holy cow, whose affairs are not confined within any limits. Defence affairs must also be processed and sieved, its working should be talked in parliament and its performance should be checked by process of accountability. No one suggests that economic development is the solution to all ills, but neither is just defence of the already dying population solution to the problem. If America and Europe face disputes today, it does not mean that they need to solve them by using force against each other. A century old rebellion is going on in Ireland but the general public has not been sacrificed at the alter of defence. Yes, developed nations fight each other but their public do not commit suicide because of hunger? It is senseless to ask: Was Central Europe economically underdeveloped, that Bosnia, Kosovo, Sanjik, Albania and Macedonia are the cradle of turmoil? If social development cannot help us avoid a war with India, neither could a strong defence help us avoid the problems of persistent poverty and the continued socio-economic degradation.
Obviously, the budget item most depleting our meagre resources is the debt servicing but how did this problem get so worse if not because of the defence spending over the last 50 years. In 1997-98 budget, the estimated spending was Rs.558 billions, and total defence expenditures was Rs.134 billions. In1996-97 budget the defence allocation was Rs.131 with a debt servicing amount of Rs. 198.5 billion. The debt servicing amount got raised to Rs. 248 billion in the subsequent year, or about 25% more than the last year. In this way 44.9 % of the budget was eaten up by interest and loans and 26% by the defence forces. The defence budget was, in fact, 43.2 % of the total amount left for holding the Pakistan together and keeping its public alive.
Taxes are to be financier of the state. It has to secure an ample revenue, but the state has to impose and utilize it with judgment and equality so as to secure its foundations in that instance, and for ever, by the clearness and candour of its proceedings, the exactness of its calculations and the trust of this nation. Taxing the Bara Markets is the latest in the government steps to over tax the poor through policies and strategies chalked out by the superior Pakistanis. No item was supposed to cross the border any way. Now that the government officials, responsible for securing our boundaries and streets, have made their fortunes out of this illegal trade, the opportunity-less people of the tribal area must not be squeezed for not paying the duty.
Although men, as citizens of a state, cannot become absolutely equal unless they are entirely free; and consequently equality, pushed to its furthest extent, may be confounded with freedom, yet there is good reason for distinguishing the one from the other. And the principle of equality and equitability among provinces and their public must be established to avoid catastrophic result of such ill-conceived policies. The present government must throw down barriers of the rank and over throw the long menaced system of allowing the armed forces to digest half of the national budget, allowing the corrupt government officials and politicians to thrive with corrupt practices, and depriving the smaller provinces of their due share. The holy cows are at the crossroads and the present government has an historic opportunity to deal with them accordingly. If the government to address the overriding concerns of the poor public, instead of patriotic passion, its actions would be swelling the sense of inequality to the height of fury. To lay with one hand the power of the government on the property of the weak citizen and with the other bestow its fruits upon favoured individuals to aid private enterprises and build private fortunes is none the less a robbery because it is done under the forms of law and called taxation by the government.
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