Pakistan runs chronic budget deficits of around 5% of its GDP, and its government collects less than 10% of GDP in tax revenue which is among the lowest in the world. A big share of these deficits is funded by foreign aid and loans, making Pakistanis beholden to the interests and whims of major foreign donors and lenders.
Pakistan's tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
The other major weakness in public finances is the lack of fiscal effort by the provinces. With some of the largest segments of economic activity such as agriculture, real estate, and services in the provincial domain, the provincial tax receipts total an abysmal 0.7 percent of GDP.
Farm income, mostly earned by the nation's feudal ruling elite, accounting for about 20% of the GDP is entirely exempt from any income tax under the law. Only about 2 million of 180 million Pakistanis pay income tax. Of them, 1.8 million are salaried and paid Rs.27.37 billion in taxes during ended fiscal 2008-09, according to a report to the Senate by Minister of State for Finance and Economic Affairs Hina Rabbani Khar. The government runs large current account deficits, forcing it to beg and borrow to meet the budget needs. The budget deficit for 2008-09 was 4.3% of GDP and it is likely to grow with lower revenue amidst slowing economy in 2009-10. The tax evasion in Pakistan is estimated at Rs500 – 600 billion a year, almost half of the total tax collection of about Rs1200 billion during 2007-08. The untapped amount is almost equivalent to the country’s annual budget deficit.
In a country where majority of the transactions, including purchase of big ticket items, occur in cash, there is widespread tax evasion and a sizable informal economy. The estimates for Pakistan's underground economy vary from 25% to 50% of the formal economy. A recent World Bank (WB) report concluded that every Pakistani citizen evaded tax amounting to Rs 4800 in the year 2007-08, while the total tax evaded in the period stood at Rs 796 billion.
Food prices have dramatically increased since the current PPP government took power in 2008. These higher food and commodity prices are resulting in the transfer of additional new tax-free farm income of about Rs. 300 billion in the current fiscal year alone to Pakistan's ruling party's power base of landowners in small towns and villages in Southern Punjab and Rural Sindh, from those working in the the economically stagnant urban industrial and service sectors who pay bulk of the taxes. The downside of it is an even bigger hole in Pakistan's pubic finances which is being funded with increased foreign aid and loans.
During the height of corruption under Bhutto-Zardari-Sharif governments in the 1990s, the size of the underground economy rose to almost 55% in 1999, by one estimate. As the military regime of President Musharraf cracked down on tax cheats, the nation's revenue collection doubled from Rs. 500 million in 2000 to to Rs. 1.04 trillion in 2007-08.
While the income, assets and taxes of the president and top government officials are publicly disclosed and heavily scrutinized by all in the US, no such transparency exists in Pakistan. In fact, tax cheating in Pakistan starts at the top. The richest and the most powerful politicians in the ruling elite pay little or no taxes, setting a horrible example for the rest of the nation.
For example, Benazir Bhutto, Asif Zardari and Nusrat Bhutto declared assets totaling $1.2 million in 1996 and never told Pakistani authorities of any foreign bank accounts or properties, as required by law in Pakistan. Zardari declared no net assets at all in 1990, the year Bhutto's first term ended, and only $402,000 in 1996, according to a report in the New York Times.
Bhutto's family's income tax declarations were similarly modest. The highest income Bhutto declared was $42,200 in 1996, with $5,110 in tax. In two of her years as prime minister, 1993 and 1994, she paid no income tax at all. Zardari's highest declared income was $13,100, also in 1996, when interest on bank deposits he controlled in Switzerland exceeded that much every week. In June 2008, a senior PPP leader and president of Pakistan's Supreme Court Bar Association, Mr. Aitzaz Ahsan, who was interior minister in Benazir Bhutto's first government, told James Traub of the New York Times that most of the corruption and criminal cases against PPP Co-Chairman Asif Ali Zardari which were dropped recently in Pakistan were justified, and that the PPP was a feudal political party led by a figure (Zardari) accused of corruption and violence. After a moment's reflection, Ahsan further added, “The type of expenses that she had and he has are not from sources of income that can be lawfully explained and accounted for.”
It was only in 2007 that President Asif Ali Zardari returned to Pakistan under an amnesty, euphemistically called National Reconciliation Ordinance (NRO), sponsored by the Americans. However, the Americans know that the corruption charges against Zardari were credible and he, along with his late wife, was convicted in at least one case by a Swiss judge. The conviction was under appeal in Switzerland when Pakistan government withdrew all charges pursuant to the NRO signed by then President Musharraf under pressure from the Americans.
The PPP leadership is not alone in evading taxes. The PML leadership appears to be just as guilty. The entire Sharif family paid a nominal income tax of Rs 250,000, wealth tax of Rs 550,000 and agriculture tax of Rs 130,000, considering their vast assets and properties of at least 23 sugar and textile mills and huge agricultural land, according to the News. The tax evasion by the the Sharif family was the reason that the donor agencies giving aid to Pakistan in late 1990s insisted on publishing tax records of all lawmakers and senior bureaucrats, The News said, adding that for this reason, the donor agencies insisted on broadening the tax net to prop up government revenues.
As Pakistan faces a severe economic crisis and the current leaders appear ready to mortgage the nation's future, the chances of the ruling elite setting a good example by paying their taxes in full appear rather remote. In fact, the feudal politicians are fighting the current IMF condition for even a modest tax on farm income. The only hope for a fairer tax system and improved collection from the rich and powerful to fund education and health care lies in serious and sustained pressure on Pakistan's ruling elite from the donors and lenders, backed by the United States.
To conclude this post, let me quote former finance minister who said the following in a recent op ed: "At the heart of it, these issues are related to governance. This state of affairs is a manifestation of a broader challenge that Pakistan has grappled with virtually since independence – the shifting of the burden of responsibility by a small, self-serving and venal elite to the rest of the population."
Comparing US and Pakistani Tax Evasion
Pakistan's Economic Performance 2008-2010
Brief History of Pakistan's Economy 1947-2010
US Raid in Abbottabad
Pakistan's Rural Economy Showing Strength
Shaukat Tarin on Pakistan's Regressive Tax Policies
Has someone touched Zardari to see how thick of a skin he wears ? I guess the big guys, Ele and Hippo must be really envious of thick skinned Paki rulers....
Hi, sorry to bring India into this, but this phenomenon is by no means unique to Pakistan. India too has a microscopic proportion of the population that pays any form of direct taxes. Here too, agricultural income is virtually tax free, and the ruling elite have the same venal approach to paying taxes as yours do. Can you provide some figures on just what percentage of the population pays direct taxes in India? My guess is the tax base in India is about the same as it is in Pakistan.
What you have written is not new and has been known for years. What you really need to focus on is its direct relationship to the democratic system in place in Pakistan which you continually keep supporting like most Pakistanis, whether local intellectuals or Pakistani Americans. Please refer to the below link that we were discussing more than two years back. Your response was more like "I agree but I'm not convinced", thereby continuing on the same argument that democracy is the best system and automatically solves all issues irrespective of the socioeconomic structure of a country.
Pakistan being an agriculture based feudal economy, elections invariably lead to the same feudal ruling elite coming into power which does not pay taxes. You should not be expecting them to legislate to tax themselves, unless forced by the establishment to do so which defeats the fundamental principle of democracy.
To make your blog more meaningful I would recommend that you review your writings from the point of view of consistency of logic between arguments given at different times and on different subjects. This will take it to a level above Geo style journalism, where the difference is essentially that Geo perceives everything Pakistani as negative where you perceive positivity in everything.
Pakistani intellectuals need to develop an existentialist approach rather than pure idealism prevailing generally. This essentially means that the situation as it exists should be clearly understood and accepted and then think of practical solutions to address important issues. The below quote of Niccolo Machiavelli, one of the most practical of philosophers, aptly describes our situation.
"The gulf between how one should live and how one actually lives is so wide that a man who neglects what is actually done for what should be done learns the way to self-destruction rather than self preservation."
vicks: "India too has a microscopic proportion of the population that pays any form of direct taxes."
About 35 million Indians,or 3% of India's population, pay income tax, according to India's Business Standard. This is a lot higher than 2 million, or 1.1% of Pakistanis, who pay income tax.
Beyond that, India's tax collection of 17% of GDP is far higher than Pakistan's 10%.
So, in site of tax evasion problems in India, Delhi's public finance situation is much better than Pakistan's.
What is Pakistan's annual GDP in $ or Rs.?
IMF puts Pakistan's nominal gdp at $175 billion, and purchasing power parity gdp of $465 billion for 2010.
Beyond that, India's tax collection of 17% of GDP is far higher than Pakistan's 10%.
True but 7 years ago when India's per capita income was almost the same as pakistan(now its 40-50% higher) India also collected about 10% of GDP as tax.
As per capita incomes rise so do tax collections.
Anon: "True but 7 years ago when India's per capita income was almost the same as pakistan(now its 40-50% higher) India also collected about 10% of GDP as tax."
Let's not exaggerate. The IMF puts India's per capita gdp at $1265 vs Pakistan's at $1050 in 2010. And it was about $1000 for both until 2007.
The tax collection does not rise automatically with income. It takes laws, polices and execution to ensure tax collection.
When you exempt 20% of the nation's gdp as is the case with the big zamindars' incomes in Pakistan who all sit in the parliament, it doesn't help the situation.
Suhail: "To make your blog more meaningful I would recommend that you review your writings from the point of view of consistency of logic between arguments given at different times and on different subjects."
Consistency does not mean being perpetually negative or positive about anything, particularly Pakistan, a very complex country which brims with lots of negatives and positives.
I, for one, tend to see Pakistan's glass half full, not empty or half empty as some do.
Pakistanis are a very resilient people, and in spite of all the bad news we hear, I remain hopeful for Pakistan's future.
There is a new book by Prof Anatol Lieven, former Times correspondent to Pakistan and current professor at King's College, London, about Pakistan. It challenges a lot of western myths being perpetrated by many foreigners, and influencing many Pakistanis.
Here are summary and salient points of the book Pakistan: "A Hard Country":
In the past decade Pakistan has emerged as a country of immense importance. Large, heavily populated, strategically placed between Iran, Afghanistan and India, Pakistan has since its creation just over sixty years ago been pulled in several different, irreconcilable directions.
In the wake of Pakistan's development of nuclear weapons, Osama Bin Laden's presence in its unpoliceable border areas, its shelter of the Afghan Taleban, and the spread of terrorist attacks by groups based in Pakistan to London, Bombay and New York, there is a clear need to understand this remarkable and highly contradictory place.
Far from seeing Pakistan as the failed state often portrayed in the media, Lieven's extraordinary new book instead treats it as a viable and coherent state that, within limits and by the standards of its own region rather than the West, does work. Lieven argues strongly against US actions that would risk destroying that state in the illusory search for victory in Afghanistan.
This work is based on a profound and sophisticated analysis of Pakistan's history and its social, religious and political structures. Lieven has interviewed hundreds of Pakistanis at every level of society, from leading politicians and soldiers to village mullahs and rickshaw drivers. In particular, his examination of the roots of popular sympathy for the Taleban in Pakistan draws on the testimony of people whose views are rarely consulted by Western analysts.
1. For most of the years since 1947, Pakistan has had higher economic growth rates than did India. Pakistan does not have the same pockets of extreme poverty, or for that matter the extreme wealth. The level of economic equality in Pakistan is relatively high.
2. Charitable donations run almost five percent of gdp, one of the highest percentages in the world and this reflects the emphasis on alms-giving in Islam.
3. A good quotation from a businessmen: “One of the main problems for Pakistan is that our democrats have tried to be dictators and our dictators have tried to be democrats.”
4. Agriculture pays virtually no tax and the government lends lots of money to businesses and doesn’t seriously ask for it back. As a result Pakistan collects far less revenue than does India, even comparing areas of comparable per capita income. If Pakistan were a state of India, it still would be considerably richer per capita than India’s poorest regions, such as Bihar.
5. The Pakistani state is nonetheless a lot more stable than most people think. In part this is because of the conservative structure of kinship and landholder power in the country.
6. The main threats to the future of Pakistan have to do with ecology and water, not politics.
7. The end of the book has a very interesting discussion about how U.S. actions in Pakistan affect different coalitions, feelings of humiliation, relative status relationships, etc.
Definitely recommended, as are Lieven’s books on the Baltics and Ukraine.
Also what is happening in tax evading India...
"Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money."
Pakistan Business Council (PBC) has proposed that income from all sources above threshold of Rs 300,000 should be taxed to raise tax-to-GDP ratio to 15 percent, according to pkeconomists.com:
According to a position paper of the PBC on the macroeconomic stabilization, issued at the national dialogue of political parties on the national economic agenda, the reform of the tax system could be done by adopting the principle of taxation regardless of source of income. Several studies which have been carried out recently show that the government could generate an additional Rs300-400 billion in revenue within the present tax regime through better coverage and enforcement.
The taxation measures should focus on documentation and broadening the tax base for direct taxes, PBC said.
It stated that the presumptive basis of taxation should be replaced by net income tax earned basis. Wealth tax in the old form need not be introduced but a tax on assets created out of untaxed income be levied. Moreover, the reforms are needed to address over-invoicing, misdeclaration and Afghan Transit Trade leakage issues. The use of IT tools in customs could help in this regard. The gradual reduction in custom duties on smuggling prone items will discourage these malpractice. The provincial governments do have the necessary legislations in place to tax income on agriculture. The threshold levels, exemption limits should be reinforced, the collection machinery, compliance and enforcement measures strengthened. Urban immovable property tax in major cities can substantially augment the tax base of the local governments if a more realistic valuation is arrived at through periodic surveys and assessments.
The expenditures can be reduced by restructuring of Public Sector Enterprises that will staunch operating losses; by Subsidy rationalization and targeting subsidies to the poor only through Benazir Income Support program (BISP); better implementation and avoidance of waste in development projects.
If the above measures are implemented, and a policy that taxes incomes from all sources above threshold of Rs 300,000 is implemented it is expected that Tax -to- GDP ratio would reach 15 percent in five years time and sustained fiscal deficit would not exceed 4 percent of GDP, the PBC added.
You might want to mention here and cover in another blog.. http://www.dawn.com/2011/05/15/pakistani-students-win-prize-in-intel-science-fair.html
"Let's not exaggerate. The IMF puts India's per capita gdp at $1265 vs Pakistan's at $1050 in 2010. And it was about $1000 for both until 2007."
Well, according to CIA World Factbook it's $3400 India vs $2400
PPP, so that is 41.66% higher!
I think you are the one who actually exaggerates and spin your objective conclusions from statistical data which has an +/- 5-10 % error rate.
UNDP data for example: India vs Pakistan
poverty rate 29.6% vs 27.5%
gender inequality index 0.748 vs 0.721
Life Expectancy 64.2 vs 67.2
Mean years of Schooling (literate adults only post-secondary)
4.4 vs 4.9
Reading some of your blogs implies Pakistan is some utopia compared to India.
By the way overall HDI: 0.519 vs 0.490
There is no denying India has long way to go. It is the path taken which matters right now. Ultimately, time will tell.
Sushil: "I think you are the one who actually exaggerates and spin your objective conclusions from statistical data which has an +/- 5-10 % error rate"
In spite of recent poverty declines with its rapid economic expansion, India still has higher poverty rates than Pakistan, according to a 2011 World Bank report titled "Perspectives on poverty in India : stylized facts from survey data" released in 2011.
Overall, the latest World Bank data shows that India's poverty rate of 27.5% is more than 10 percentage points higher than Pakistan's 17.2%. Assam, Punjab and Himachal Pradesh are the only three Indian states with lower poverty rates than Pakistan's.
Read more at http://www.riazhaq.com/2011/05/world-bank-on-poverty-across-india-in.html
State Bank of Pakistan Holds Discount Rate at 14.00%, according to Central Bank Info:
The State Bank of Pakistan held its discount rate unchanged at 14.00% as inflation pressures eased somewhat, and as the Bank waits to analyze next month's annual government budget. The Bank noted: "The government is mindful of fiscal pressures and has expressed its resolve to address these issues, especially containment of the fiscal deficit. The budget for FY12 is expected to reflect this commitment,". Pakistan reported annual inflation of 13.04% in April (with prices rising 1.62% month on month), on inflation the Bank commented that "the average CPI inflation for FY11 is likely to remain between 14 and 14.5 percent, which is lower than the central bank's earlier projections,".
Here is an Op Ed by Pakistan's Farahnaz Ispahani published in USA Today:
Just as many Americans are expressing frustration with what they see as Pakistan's slow progress in defeating terrorism (most recently underscored by Secretary of State Hillary Clinton's visit today to Islamabad), Pakistanis are equally frustrated with the increasingly ugly anti-Pakistan sentiment in the United States. Most Pakistanis simply do not understand how cutting U.S. economic and military aid to Pakistan advances the fight against terrorism.
Pakistan is projected by many in the international news media and by some in the U.S. Congress as a purveyor of terrorism but, in cold fact, it remains its chief victim. Three thousand Pakistani troops have been killed (more than all NATO losses in Afghanistan combined). Add to that 2,000 police cut down, the tragedy of 35,000 civilian casualties and the assassination by terrorists of our country's most popular leader, Benazir Bhutto, and one might understand Pakistani exasperation. This recent al-Qaeda attack on a Pakistani Naval Base in Karachi, killing 10 of our sailors, again demonstrates that Pakistan is the principal target of terrorist rage.
How much of our people's blood does it take for Washington to get it? British Prime Minister David Cameron said it most succinctly standing next to President Obama in London earlier this week: "Pakistan has suffered more from terrorism than any country in the world. Their enemy is our enemy. So, far from walking away, we've got to work even more closely with them."
Another Marshall Plan?
At the onset of the Cold War, the U.S. understood that political stability in vulnerable countries like France, Italy and Greece was intrinsically linked to the viability of their economies. President Truman advanced the European Recovery Plan (the Marshall Plan) that brilliantly operationalized this thesis, and by doing so saved Western Europe from communism. The same construct should be applied to Pakistan as we jointly work toward the defeat of the terrorist menace and the rebuilding of a peaceful and stable South and Central Asia.
Secretary of Defense Robert Gates has spoken of Kerry-Lugar-Berman Act for economic development, health, education, energy and infrastructure. Yet only $179 million, according to Sen. Dick Lugar, R-Ind., has actually been spent. The rest sadly has been bottled up in a bureaucratic quagmire within USAID.
The people of Pakistan, especially the poor who were most affected by last year's historic floods, have yet to feel the effects of a U.S. policy that under President Obama was to re-craft the U.S.-Pakistani relationship beyond a short-term military alliance into a sustained economic and social partnership. It is that new relationship that will be the lynchpin to the long-term stabilization of Pakistan and our ability to contain and destroy the terrorist threat to our people, and to the world.
After World War II, the Marshall Plan spent $49.06 per capita in Greece and $30.02 in Italy. Today, the per capita U.S. assistance to Pakistan, adjusted for inflation, is only $7.90. That's a dramatic 400% less than the Marshall Plan's assistance to Italy. And let us be clear: The long-term stakes to world peace are as great or greater in South and Central Asia today as in Europe at the end of the 1940s.
Here's an outline of Pakistan's 2011-12 budget as published by Dawn:
ISLAMABAD: The government has finalised a consolidated budget of Rs3.854 trillion for the next financial year, envisaging a revenue of Rs2.787 trillion, fiscal deficit of Rs912 billion and provincial transfers of Rs1.224 trillion.
The budgetary allocations indicate that current expenditures of most of the federal ministries will be frozen at the level of the current year because of tight fiscal position.
Official documents available with Dawn show the government has set a tax revenue target of Rs2.1 trillion, 2.3 per cent above the current year’s revised target of Rs1.71 trillion. This includes a Rs1.952 trillion tax target of the Federal Board of Revenue (FBR) against current year’s revised estimate of Rs1.588 trillion. The non-tax revenue is estimated at Rs687 billion, up 30 per cent from this year’s revised estimate of Rs526 billion.
Of the total revenue of Rs2.787 trillion, the provinces would get Rs1.224 trillion and Rs1.513 trillion would be for the federal government.
The government had set a revenue target of Rs2.410 trillion for the current year, but it has now been revised to Rs2.235 trillion, because of a shortfall in FBR collection, non-introduction of RGST and slow economic growth.
The centre’s total expenditure has been estimated at Rs2.549 trillion, up from current year’s revised estimate of Rs2.314 trillion. The centre would extend Rs55 billion subsidies to the provinces.
The size of the federal Public Sector Development Programme has been estimated at Rs280 billion against current year’s original estimate of Rs270 billion which was brought down to Rs180 billion.
Another Rs35 billion would be spent for flood relief assistance, slightly less than current year’s Rs40 billion.
Pensions would require Rs118 billion against Rs107 billion this year. Likewise, federal government’s service delivery cost has been estimated at Rs200 billion, which is about Rs20 billion more than current year’s revised estimate of Rs180 billion – brought down from budgeted Rs221 billion.
SECURITY AND INTEREST: The government would earmark Rs495 billion for defence, about 12 per cent more than current year’s allocation of Rs442 billion. Another Rs340 billion would be made available through grants for security expenditure, up 19.3 per cent from current year’s Rs285 billion. Put together, security-related expenditures would amount to Rs835 billion against this year’s Rs727 billion, up by 15 per cent.
An almost equally a large amount of Rs786 billion would be paid as interest cost, which is about Rs60 billion or 8.3 per cent more than current year’s revised debt servicing of Rs726 billion. The government had earmarked Rs699 billion in the 2010-11 budget for debt servicing which has been revised to Rs726 billion.
About Rs50 billion would be allocated for the ministry of interior, up from current year’s Rs44 billion.
BUDGET DEFICIT: The federal government’s fiscal deficit has been estimated at Rs1.036 trillion that is expected to be reduced to Rs912 billion because of a Rs124 billion cash surplus to be provided by the provincial governments. For the current year, the government had envisaged an overall deficit of Rs685 billion (4.5 per cent of GDP) that has now been revised to Rs960 billion or 5.5 per cent of GDP. The provinces were expected to generate a cash surplus of Rs167 billion but it was revised to Rs112 billion.
The budget deficit would be met through Rs95 billion worth of grants, net domestic bank borrowing of Rs807 billion and net external borrowing of Rs10 billion.
Here's a report on Pakistan trying to collect taxes from middlemen (arti) on their profits:
The government has imposed a 10 per cent advance tax on commission, or brokerage fee, earned by the agents of cultivators or farmers and a withholding tax at a rate of 1.5 per cent on the sale of cotton seed, rice and edible oils.
According to new taxation measures announced by the government on Saturday, the new taxes will not be applicable to growers who sell their produce, a circular of the Federal Board of Revenue (FBR) said.
The circular stated that the withholding tax on sale/purchase of seed cotton will be deducted by withholding agents.
“The withholding agent shall not deduct withholding tax on purchase of agriculture produce which is directly sold by a grower of the produce,” the circular added.
The 1.5 per cent withholding tax is being levied on profits earned by the middlemen in the business of buying produce and selling it to the markets at higher rates.
To ensure that the withholding tax is collected, the FBR has directed that the buying agent will have to make three copies of the certificate and give one to the grower, submit the second copy in office of tax commissioner of Inland Revenue and keep the third copy for own record.._
The FBR has also issued a format for the farmers, describing their sale of sugarcane, wheat, rice or cotton to the buyer, which also explains the details of the agricultural land the produce belongs to and the date of sale.
While the circular also states that “in case sale of seed cotton or other agriculture produce is made by a grower/cultivator through a commission agent, then advance tax is collectible under section 123 of the Ordinance at rate of 10 per cent of the gross commission income of the commission agent”.
However, the farmers have rejected the new initiative of the FBR and the farmers’ associations have come up with plans to organise a demonstration in Multan on April 5.
Agriculturists have been accusing the government of adopting policies that would only hurt the small- and mid-level farmers and these measures are being taken to protect the large land owners who should be paying income tax on agriculture.
Calling the new measures as indirect tax on the agricultural sector, the President of Pakistan Agriculture Forum Ibrahim Mughal talking to Dawn said the government was bent upon destroying all the productive sectors and after imposing 17 per cent General Sales Tax on agriculture inputs including pesticides, fertiliser and tractors through presidential ordinance on March 15, 2011, the new move will have more serious impact on the overall agriculture economy.
Mr Mughal said that new measures would affect the overall agricultural sector and its productivity which would reverse economic cycle for the small and mid-level growers.
“In March government imposed over Rs80 billion taxes on agriculture sector in form of GST and advance taxes,” he said adding that around 80,000 tractors are being purchased by the growers per annum and after the imposition of 17 per cent sales tax, they will have to pay a total of Rs8 billion annually more than the earlier price.
Here's the Wall Street Journal report on Pakistan's 2011-12 budget:
..Finance Minister Abdul Hafeez Shaikh forecast a budget deficit of 4%, down from 6% in the current fiscal year, with economic growth rising to 4.2% versus 2.5%. In the most noteworthy new measure, Mr. Shaikh said the government was ending sales-tax exemptions on about 500 items, which will bring in fresh revenues of about 200 billion Pakistani rupees.
But Mr. Sheikh at the same time reduced the general sales tax to 16% from 17% and failed to bring in bold new measures to increase the state's haul of income tax from the country's wealthiest citizens.
"This is a business-as-usual budget. I was expecting it to be a reformist budget," said Ashfaque Khan, dean of the National University of Sciences and Technology Business School in Islamabad.
U.S. Secretary of State Hillary Clinton, urged by the IMF, has publicly called on Pakistan in the past year to raise taxes on its richest citizens. The IMF itself has since last year withheld the disbursement of $3.5 billion in funding for Pakistan—the final tranche in a $11.3 billion loan package—due to failures to significantly raise taxes. The IMF has urged Pakistan to reform its sales tax to include services but this hasn't happened.
The World Bank and the Asian Development Bank also have suspended budget-support funding which amounts to about $1 billion.
Mr. Shaikh failed to announce announce any new measures to tax agricultural income, which remains exempt. The government says the issue falls under the purview of provincial governments. Many of Pakistan's richest people are feudal landlords who made their fortunes from agriculture.
Mr. Shaikh, who was booed by the opposition, which at moments almost drowned out the delivery of his budget speech, said the government had identified 2.3 million wealthy citizens who currently pay no tax and whom it will pursue. He gave no further details.
To fund its gaping budget deficit, the state has in the past year increasingly relied on borrowing from the central bank, essentially printing money and stoking inflation to 13%. Mr. Shaikh said the government had recently cut back on borrowing from the central bank and would aim to get inflation back to single digits.
By borrowing so heavily from its own banking system, the government has choked off the supply of credit to private businesses. Foreign investors—already nervous because of the precarious security situation in Pakistan—have largely shunned the country.
That has stunted economic growth, estimated at 2.5% for the year ending June 30, which is insufficient to create enough jobs for the two million new job seekers coming onto the market each year. The IMF says the country needs 8% annual economic growth to create enough work. India's economy, by comparison, in the year ended March 31 grew 8.5%.
For now, Pakistan is unlikely to plunge back into a balance-of-payments crisis of the kind that forced it to call in the IMF in November 2008. That's because exports are doing well, fueled by high global agriculture prices for crops like cotton. The country is running a small current-account surplus, compared to its usual deficit. The currency, the Pakistani rupee, has been stable for the past few months and Pakistan's foreign-exchange reserves are about $14 billion, or enough to cover four months of imports.
Still, oil-price rises this year is likely to increase Pakistan's import costs in the months ahead, which could send the current-account back into deficit. The poor state of government finances, if unchecked, could further undermine foreign confidence in months ahead, donors and analysts say.
Here's Frontier Post on Pakistan's "dismal" economic performance in 2010-11:
The latest Economic Survey of Pakistan, as released by Finance Minister Dr Abdul Hafeez Sheikh at a news conference on Thursday, has portrayed a dismal picture of the performance of sectors key to the national economy; failing to meet most of the targets set for 2010-11, including the vital Gross Domestic Product growth that was set to achieve a target of 4.5 per cent and grew only 2.4 per cent in real terms during the outgoing fiscal. As for the budgetary deficit, this may also swell from an estimate of 5.3 per cent to around 6 per cent despite claims of macroeconomic development and “putting the economy back on track”. One significant portrayal is the rising inflationary trend that now stands at 14.1 per cent and food inflation is now touching a whooping 18.4 per cent despite bumper wheat and rice crops. This factor has sent the middle classes and the poor reeling under escalating cost of living making their life miserable. The fact that more inflation is coming from hike in food prices is detrimental to poverty alleviation efforts. The poor GDP growth mainly contributed by services sector (53.3 per cent), agricultural sector (25.8 per cent) and industrial sector (20.9 per cent), is because agriculture gained only by 1.2 per cent and manufacturing sector by 1.71 per cent.There seems a little improvement in collection revenues by 1.71 per cent. The government collected a revenue amounting to Rs1026.5 billion in full fiscal of 2009-10 and this amount has now posted an encouraging Rs1156 billion up to March 2011. Similarly, there is no addition to foreign debt that stands at $55.9 billion as in the previous financial year. But debt servicing has cost higher this fiscal — $6.94 billion as against $5.78 billion in 2009-10. Remittances from abroad also rose to $9.1 billion as against $7.3 billion in the previous fiscal. So is the case of foreign exchange reserves which showed a ceiling of $17.1 billion against $15.04 billion in 2009-10. However, for obvious reason of ongoing terrorist attacks, foreign direct investments have come down $1.49 billion as against $1.6 billion the previous fiscal. But it is not understandable how foreign direct investment was higher than the outgoing fiscal when the dangers of the war on terror and uncertain internal security were no different from the previous financial year. There is no explanation to this situation in the latest Economic Survey of Pakistan. One conspicuous data missing from the document was that of poverty. The finance minister defended the absence of how many more people have slipped down the poverty line (estimated on the basis of an income of less than one US dollar a day) during 2010-11 pleading that the poverty survey was still in progress (understandably for the use of disbursement of cash under the Benazir Income Support Programme) and will be issued as and when completed. In fact such a data to portray the extent of abject and absolute poverty in the country has not been made available and, obviously, no poverty survey has been in hand for six years. However, poverty was recorded at 35.4 per cent in 2000-01 and the Musharraf’s dictatorial regime claimed five years later that it had come down to 22.3 per cent. All factors like constantly rising prices of food and other essential commodities and utility bills owing to frequent raise in power tariff and prices of petroleum products, besides other socio-economic aspects, some more millions must have found themselves reeling under the poverty line.The survey tells a story of economic failures and not meeting most of the targets for the fiscal 2010-11. Even a tight-fisted fiscal discipline, forced by the State Bank of Pakistan, failed to prevent widening deficit and mounting inflation that ultimately shrank capital formation substantially. ....
Here's a Dawn Op Ed by Pak economist Shahid Burki on budget 2011-12:
AT this difficult time in its history, Pakistan has one of the most competent teams of economic managers in place in years. They are stars from the field of finance, development, planning and investment banking.
The first, of course, is the country’s dismal resource situation. As has been said repeatedly, the country continues to slip in terms of collecting a reasonable amount of national income as taxes.
There are several unpleasant consequences of this. The most depressing of these is that the government does not have much left in its hands to pay for social services the poor need and deserve.
The other side of the resource coin is government’s non-development expenditure. It is widely known that there is an enormous amount of waste in the way it spends its meagre resources.
The finance minister should have addressed this issue more fully and with resolution. He also needed to lay out a credible plan for addressing waste and inefficiency in the way large public sector corporations are being managed.
Managers of most of these poorly performing entities have been appointed on the basis of their links with those in power rather than on the basis of competence. It is not surprising that they are a huge drain on the public exchequer.
The finance minister did well when he had the portfolio of privatisation in one of the administrations of the Pervez Musharraf period. He could have used that experience to lay down a strategy and a plan for handing over some of these enterprises to the private sector.
This brings us to the issue of the fiscal deficit which has been the Achilles heel of the management of the Pakistani economy. The budget, with an eye on the on-going discussions with the IMF, promises to reduce this to four per cent of GDP. Whether this will help to win the support of the Fund will depend on how that institution sees the tax effort in light of the country’s history.
The managers of the economy have once again decided not to touch agriculture as a source of revenue. This means they were not able to overcome the resistance of the big farmers who have managed to get their sector exempt from income tax. The constitution does not allow federal income tax to be levied from agriculture, but Islamabad can exert pressure on the provinces to take care of this sector which accounts for over one-fifth of the national income. During my brief tenure as the de facto finance minister in 1996-97, the access of the provinces to the resources in the Divisible Pool was made conditional upon raising income tax from agriculture.
We prescribed two per cent of agricultural income as the minimum for drawing from the divisible pool. Unfortunately this was not looked at as a condition in the Seventh National Commission award announced at the end of 2009 but it could have been done retroactively in the budget. But that required political will.
The budget speech also promises to reduce the rate of inflation by half, to nine per cent in 2011-12. The assumption here is that a smaller fiscal deficit will reduce the printing of money for financing which in turn, by decreasing the supply of money, will bring down inflation.
Where will this budget take the economy over the next financial year? The answer unfortunately is not very far. It will not revive economic growth, not reduce the dependence on foreign flows, not reduce the incidence of poverty nor lessen the gap between the rich and the poor, and not help to integrate the economy with rest of the world. Something better was expected from a team of this talent and experience.
The European Union has signed an agreement to provide 225 million euros for development projects in Pakistan, according to The News:
The agreement was signed by the Finance Minister Dr Abdul Hafeez Shaikh and German Federal Minister for Economic Cooperation and Development Dirk Niebel and European Commissioner for Development Andris Piebalgs at the finance ministry.
The money will be spent from 2011 to 2013 on developing programmes for rural and natural resource, education and human resource, governance and trade development.
Under the arrangement, the EU has committed an annual grant of 75 million euros. Over the three-year period, 90 million euros will be spent on rural development and natural resources management, 70 million euros on education and human resource development, 50 million euros on governance and 15 million euros on trade development.
Briefing newsmen about the meeting, Shaikh appreciated the EU and Germany for their support to economic development in Pakistan.
The minister discussed the current economic situation and measures taken by the government for stabilising and increasing revenue through tax reforms.
The minister said that despite narrow fiscal space, Pakistan has not compromised on social and poverty-related spending and is pursuing a strategy to promote growth.
“As a result of the initiatives to stabilise economy, indicators have shown improvement and the economy is able enough to withstand challenges,” he added.
The minister thanked Germany for supporting Pakistan’s efforts to get access to the EU markets.
The visiting dignitaries appreciated Pakistan’s commitment for sustaining the ongoing economic reforms programme and reaffirmed their support to Pakistan in this regard.
They expressed hope that Pakistan would continue with the reform process.
Niebel said that under the recently concluded bilateral negotiations, Germany had committed additional 78 million euros for education, energy, health and governance besides assuring 12 million euros for the Multi Donor Trust Fund.
Out of the 78 million euros committed by Germany, 48.5 million euros will be spent on energy, 13 million euros on health, 9 million euros on governance, one million euros on education and 6.5 million euros outside these priority areas.
Here are some interesting excerpts from Anatol Lieven's "Pakistan-A Hard Country" on the role of religion and a description of Edhi Foundation as the essence of Pakistan's real civil society:
"Charities with a religious character tend to more favored and more trusted. It is also true of Pakistan's most famous charitable institution by far, Edhi Foundation, which is nonreligious; however, Abdus Sattar Edhi is himself a deeply religious man, known by the public at large as Maulana (a Muslim distinguished by his piety and learning)even though he is not a Muslim scholar and in fact greatly dislikes being called this.
There is no sight in Pakistan more moving than to visit some dusty, impoverished small town in arid wasteland, apparently abandoned by God and all sensible men and certainly abandoned by the Pakistani state and its own elected representatives- to see the flag of the Edhi Foundation flying over a concrete shack with a telephone, and the only ambulance in town standing in front. Here, if anywhere in Pakistan, lies the truth of human religion and human morality".
Another excerpt from Lieven's book:
"Levels of trust in Pakistani state institutions are extremely low, and for good reason. Partly in consequence, Pakistan has one of the lowest levels of tax collection outside Africa. On the other hand, charitable donations, at almost 5% of GDP, is one of the highest rates in the world".
Lieven quotes the following commandment (2:172) from the Quran:
"Righteousness is not that ye turn your faces towards the east or the west, but righteousness is, one who believes in God, and the last day, and the angels, and the Book, and the prophets, and who gives wealth for His love to kindred, and orphans, and the poor, and the son of the road, beggars, and those in captivity; and who is steadfast in prayers, and gives alms."
Pakistan bond offering withdrawn, says Dr. Ashfaque H. Khan:
Yet another debacle has occurred on the economic front, with the government failing to float its exchangeable bond in the international debt-capital market. In an act of desperation, the Pakistani economic manager had decided to launch a $500-million exchangeable bond with 10 percent shares of Oil and Gas Development Corporation (OGDC) attached to this transaction, the proceeds of which were to come by the end of the current fiscal year. It was the intention of the government to use these proceeds for retiring its State Bank debt and reducing its budget deficit to that extent.
The Pakistani team was informed by the global investors during the road show that they had little appetite for Pakistani paper at the moment, particularly in the presence of the Greek debt crisis and the unresolved issue of increase in the debt limit of the US administration. The Pakistani team did not pitch for the bond and returned empty-handed.
Why did Pakistan have to abandon its transaction? Are the economic managers aware of the consequences of such a colossal failure for the country? One thing is clear from the perspective of the economic managers: who cares about the country? They are there to improve their resumes.
What is an exchangeable bond? The country issues a normal sovereign bond with an option that the bondholder can convert the bond into common shares. The transaction under discussion provided an option to bondholders to convert their bonds into OGDC shares. The advantageous thing about such a bond is that it has the option for conversion of debt into portfolio investment.
There are many reasons for the failure of this transaction. Firstly, the timing for floating the bond was highly inappropriate. This is summertime, when investors close their books and go for vacations. Secondly, the international economic environment, particularly the persistence of the Greek debt crisis and the emergence of issue pertaining to enhancing the debt limit of the US administration have created severe uncertainty in the international debt-capital market.
Thirdly, Pakistan’s own economic fundamentals are weak. Why would anyone invest in a country’s paper whose debt is rising, budget deficit is averaging over six percent of the GDP, high double-digit inflation continuous persists for the last 45 months, and growth is slowing to an average of 2.6 percent per annum over the last four years. Fourthly, Pakistan’s relations with the IMF and other development financial institutions (DFIs) are not smooth. Fifthly, Pakistan’s relations with the United States are also on a bumpy ride. For an emerging market country, its relationships with the US, the IMF and the DFIs are critical in attracting global investors to invest in its paper.
Sixthly, Pakistan’s domestic political and security environment are not conducive to attract global investors to invest in Pakistani paper. Seventhly, the Pakistani team involved in this transaction, barring one member, was quite immature and had no idea whatsoever about the transaction. All these factors have contributed to the failure of the transaction, damaging the reputation of the country and OGDC. In order to save face, the economic team could call this transaction “non-deal road show.” But the international capital market participants are not novices. Word has already travelled across the globe that Pakistan has failed to find takers for its paper.
It is in this perspective that Pakistan floated its paper from February 2004 to May 2007. Each time the Pakistani paper was oversubscribed substantially. Pakistan emerged as one of the few countries which successfully floated a 30-year bond. This simply reflected the confidence of global investors in Pakistan’s economic management....
What a difference 3 years under PPP-led feudal democracy have made.
The failure of the recent bond offering is a serious setback that proves yet again the utter incompetence of the economic team and lack of international investor confidence in the current PPP govt.
It stands in sharp contrast to Pakistan's multiple successful bond offerings from February 2004 to May 2007. Each time the Pakistani paper was oversubscribed substantially. Pakistan emerged as one of the few countries which successfully floated a 30-year bond. This simply reflected the confidence of global investors in Pakistan’s leadership under President Musharraf.
Here's Daily Times overview of current revenue issues in Pakistan budget:
ISLAMABAD: The United States’ reluctance in release of the committed $500 million arrears of Coalition Support Fund (CSF) is creating difficulties for Pakistan and further delay in release of the amount might increase the budget deficit from 5.1 percent of the gross domestic product (GDP) to 5.3 percent of the GDP for outgoing fiscal year 2010-11, a senior official of Ministry of Finance informed here on Monday.
CSF: In case of formal approval, the release of the $500 million by the US before June 30, 2011 would help contain the budget deficit at 5.1 percent of the GDP, otherwise with the rejection by the US, the budget deficit for outgoing fiscal year is to jump to 5.3 percent of the GDP for 2010-11, the official added. The official explained that total CSF arrears due against United States for the outgoing fiscal year are $1.8 billion and Obama’s administration had submitted a request for release of $500 million to Pakistan before June 30, 2011. The US lawmakers who are supposed to approve or reject this request within two weeks had sought one week more and later three days extension for deciding the fate of release of $500 million to Pakistan and the extended period of three days expired on Monday. In case the US lawmakers remain undecided or reject the request of the Obama’s administration then Pakistan’s budget deficit is going to increase from 5.1 percent of the GDP to 5.3 percent of the GDP in outgoing fiscal year 2010-11.
Etisalat: The official informed that the prime minister has tasked the federal minister for finance to settle the issue of release of $800 million to Pakistan as privatisation proceeds of the Pakistan Telecommunication Company Ltd (PTCL). The official informed that the Pakistan People’s Party government is of the view that 98 percent disputed properties have been transferred to PTCL and only 2.0 percent remaining properties should not create obstacle in release of the remaining privatisation proceeds.
Circular Debt: The official informed that the federal government has credited Rs 120 billion paid out in 2010-11 for clearance of the power sector circular debt in the accounts of the fiscal year 2009-10. The government strongly believes that this circular debt was related to the fiscal year 2009-10 and its payment was due and its payment in 2010-11 should be credited in the accounts of 2009-10 instead of 2010-11. The official sources said that the crediting of the Rs 120 billion in the accounts for the fiscal year 2009-10 would help contain budget deficit going up to 6.1 percent of the GDP.
Provincial budget surplus: The official further informed that provinces were required to create Rs 120 billion budget surplus from federal transfers to contain the budget deficit in limits. However, by the start of the month of June 2011 provinces have reported a budget surplus of Rs 85 billion and last instalment of share in federal taxes under the 7th National Finance Commission and it would remain unutilised in June 2011 and would help contain the budget deficit and provincial budget surplus is expected to reach at Rs 115 billion for outgoing fiscal year.
Here's Daily Times overview of current revenue issues in Pakistan budget Contd:
Provincial budget surplus: The official further informed that provinces were required to create Rs 120 billion budget surplus from federal transfers to contain the budget deficit in limits. However, by the start of the month of June 2011 provinces have reported a budget surplus of Rs 85 billion and last instalment of share in federal taxes under the 7th National Finance Commission and it would remain unutilised in June 2011 and would help contain the budget deficit and provincial budget surplus is expected to reach at Rs 115 billion for outgoing fiscal year.
Debt servicing: The official said that increase in interest rates have also badly impacted budget of the country and the federal government had paid Rs 29 billion additional on debt servicing in 2010-11. The government had projected payment of Rs 699 billion for debt servicing of local and foreign loans in 2010-11, however, actual servicing of debt has inflicted a cost of Rs 728 billion including Rs 654 billion for domestic debt servicing and Rs 74 billion for foreign loan servicing.
Commodity circular debt: The official informed that commodity circular debt was estimated at Rs 290 billion and federal government has extended guarantee of only Rs 90 billion out of the total amount.
Foreign inflows: The official informed that some foreign inflows are expected for 2010-11 and $193 million USAID disbursement, $200 million Asian Development Bank disbursement is expected soon, while World Bank has already released $38 million.
FBR revenues: The Ministry of Finance is confidant that Federal Board of Revenue’s collection is to reach at Rs 1.592 trillion against the downward revised target of Rs 1.588 trillion for the outgoing fiscal year 2010-11 due to Rs 80 billion revenue for corporate sector on account of advance tax.
State Bank tells Pakistan govt to reduce bank borrowing, according to The Nation:
KARACHI - The State Bank of Pakistan (SBP) has stated that the size of the fiscal deficit cannot be reduced unless the government controls excessive borrowing from the central bank, along with fully implementing fiscal reforms, according to State Bank’s Third Quarterly Report on the State of Pakistan’s Economy for FY11 released Monday.
“Desirable revenue generating measures - broadening of the tax base, improving documentation of the economic system, gradual elimination of un-targeted subsidies and curtailment of quasi-fiscal operations are necessary to contain the fiscal deficit to below 4.5 per cent of GDP in FY12”, said the report.
“These efforts need to be accompanied with better debt management to increase the tenor of domestic debt and lower risks associated with debt re-pricing and rollover,” it added.
The report predicted these initiatives will also protect the external account position and rebuild confidence of the private sector and the country’s international development partners. More importantly, this will help in reducing inflation and the crowding out of private sector credit, thereby facilitating investment, growth and employment opportunities.
The SBP report further said the impact of the widening fiscal deficit is clearly visible in the sharply rising domestic debt. The outstanding government domestic debt reached Rs 5,594 billion (31.8 per cent of estimated GDP) which is more than double the stock at end-June 2007, the report said and added that this sharp growth in debt stock is fueling concerns about macro stability and monetary management.
The report showed optimism about the next cotton crop for several reasons: (a) higher cotton prices during FY10 encouraged farmers to increase acreage for the next crop; (b) there is a shift towards more productive (and disease resistive) BT cotton seeds; and (c) water availability is expected to improve over last year. Rising fertilizer prices are the key downside risk at the moment.
According to the report, the government has set the wheat procurement target at 6.57 million tones, which is lower than the target for the previous year. However, the government may come under pressure to exceed this target since the market price of wheat is considerably lower than its support price while banks appear to be willing to finance the additional procurement. This could feed the circular debt problem and also crowd out the private sector at the margin.
“While energy shortages continue to impact a number of industries, some sectors could face new challenges. For example, the disruption in the global supply of auto parts from Japan may impact some manufacturers in Pakistan. In addition, auto manufacturers will face stiff competition from imported cars as the government has increased the age limit for used imported vehicles from 3 to 5 years,” it commented.
It seems that the latest 2011-12 budget passed by the PPP-led coalition pleases neither the right nor the left. Here's a view from the World Socialist Forum:
The $31 billion budget was passed, without amendment, by the National Assembly in June after months of maneuvering by the PPP. Attempts by rival parties to posture as opponents of IMF austerity, especially on the part of Nawaz Sharif’s Pakistan Muslim League (N), produced a months-long political crisis for the PPP. Although the entire political establishment supports austerity, privatization and other pro-business reforms, the PPP’s rivals have sought to distance themselves from the implementation of policies that they know will incite opposition from the working class and rural poor.
Had the National Assembly rejected the budget, the coalition government would have been forced to resign. Ultimately, the PPP was able to get the budget passed with the support of the Pakistan Muslim League (Q) and the Karachi-based Muttahida Quami Movement (MQM).
The MQM had previously left the coalition in May forcing the PPP to invite the PML (Q)—which served as a civilian veneer for the Musharraf dictatorship— to join the government so as to provide it with the parliamentary votes needed to adopt the budget and share the burden of imposing unpopular measures. The MQM subsequently rejoined the government and helped pass the budget.
The PPP-led government is determined to narrow the budget deficit in order to bring an end to a freeze on IMF credit. The IMF has refused to disburse any money to Pakistan since May 2010, citing the government’s failure to implement draconian pro-market reforms, including a Goods and Services or VAT-type tax. The government is desperate to secure the remaining two tranches of an $11.3 billion loan originally issued in 2008, about $3.2 billion. It has also indicated it will soon be seeking additional IMF funding, at least in part so it can begin paying back the 2008 loan.
During the past year, the state has increasingly relied on borrowing from the central bank to fund its budget deficit, stoking inflation to 13 percent. According to Finance Minister Abdul Hafeez Shaikh, the government hopes to reduce the deficit to 4 percent of gross domestic product during the 2011-2012 fiscal year, down from 5.7 percent of GDP for the financial year that ended June 30. It plans to achieve this by decreasing its expenditure and broadening the country’s tax-to-GDP ratio, which, at around 9 percent, is one of the lowest in the world.
After failing to secure the requisite political support to impose a new goods and services tax, the government created a Reformed General Sales Tax (RGST), ending sales-tax exemptions on about 500 items. This is expected to bring in additional revenues of about 200 million Pakistani rupees, even while the government lowers the sales tax rate by one percentage point from 17 to 16 percent.
The RGST and other indirect taxes whose burden fall most heavily on the working class and toilers are supposed to raise 64 percent or close to two-thirds of the government’s 2 trillion rupees ($23.2 billion) in tax revenues
Here's an interesting opinion by economist Jeffrey Sachs. about budget politics in America:
..Every part of the budget debate in the U.S. is built on a tissue of willful deceit. Consider the Republican Party's double-mantra that the deficit results from "runaway spending" and that more tax cuts are the key to economic growth. Republicans claim that the budget deficit, around 10 percent of GDP, has been caused only by a rise in outlays. This is blatantly untrue. The deficit results roughly equally from a fall of tax revenues as a share of GDP and a rise of spending as a share of GDP.
On both sides of the ledger -- spending and taxes -- part of the shift results from the weak economy ("cyclical factors") and part from long-term trends. Spending, for example, is higher in part because of unemployment compensation, food stamps, and other federal spending to help the downtrodden in a weak economy. That's the "cyclical" component. Part of the higher spending reflects long-term patterns, such as rising health care costs and an aging population, as well as America's chronic addiction to wrongheaded wars and military occupations in Africa, the Middle East and Central Asia.
Taxation is lower also because of short-term factors and long-term factors. The short-term factors involve reduced federal revenues in an economy with high unemployment. The long-term factors involve repeated tax cuts for companies and high-income individuals that have systematically eroded the tax base, giving unjust and unaffordable benefits for America's millionaires, billionaires, and multinational corporations.
The Republicans also misrepresent the costs and benefits of closing the deficit through higher taxes on the rich. Americans wants the rich to pay more, and for good reason. Super-rich Americans have walked away with the prize in America. Our country is run by millionaires and billionaires, and for millionaires and billionaires, the rest of the country be damned. Yet the Republicans and their propaganda mouthpieces like Rupert Murdoch's media empire, claim with sheer audacity that taxing the rich would kill economic growth. This trickle-down, voodoo, supply-side economics is the fig leaf of uncontrolled greed among the right-wing rich.
The truth is that we need more federal spending to create good jobs and remain globally competitive, not as some kind of short-term "stimulus" but as a long-term investment in education, job skills, science, technology, energy security, and modern infrastructure. I travel around the world as part of my job, and I can say without doubt that America has failed to modernize the economy and is steadily losing its international competitiveness. No wonder the good jobs are disappearing and the pay is stagnant, unless of course you are a CEO who can keep grabbing stock options and profits from the shareholders (who are anyway enjoying record incomes because of stagnant wages and high profits earned overseas).
The Democrats of the White House and much of Congress have been less crude, but no less insidious, in their duplicity. Obama's campaign promise to "change Washington" looks like pure bait and switch. There has been no change, but rather more of the same: the Wall-Street-owned Democratic Party as we have come to know it. The idea that the Republicans are for the billionaires and the Democrats are for the common man is quaint but outdated. It's more accurate to say that the Republicans are for Big Oil while the Democrats are for Big Banks. That has been the case since the modern Democratic Party was re-created by Bill Clinton and Robert Rubin.
Thus, at every crucial opportunity, Obama has failed to stand up for the poor and middle class. He refused to tax the banks and hedge funds properly on their outlandish profits;...
Here's an interesting News International story on Pakistan as an international aid donor:
Pakistan’s contributions to mitigate the suffering of the countries hit by natural calamities are not only commendable but also helped Islamabad a lot to safeguard its economic interests. Sri Lanka, China, Iran, Nepal, Maldives and Afghanistan are the countries where Pakistan did a lot on humanitarian front and also managed to keep its say in the said countries.
As far as Afghanistan is concerned, Pakistan during the Musharraf regime announced the $300 million (over Rs 25.5 billion) grant for various projects out of which Pakistan has so far doled out $ 175 million (Rs 12 billion) since the announcement of the then President Pervez Musharraf during his visit to Kabul.
However, in 2009-10, according to Additional Secretary at Finance Ministry Mr Rana Asad Amin, Pakistan provided Rs 2 billion to Afghanistan to complete the various projects. Likewise, Rs 2.5 billion each allocated to Afghanistan in 2010-11 and current financial year 2011-12.
And in the future Pakistan will keep on doling out the amount to Afghanistan under the pledged $ 300 million grant. The Emergency Relief Fund Data is an eye opener for those who deem Pakistan did not play its role on the humanitarian front which is vital to keep its economic interests intact.
According to Emergency Relief Fund data, Pakistan in 2003 donated Rs 53.9 million in the shape of kind in to to to four countries that include Rs 1.72 million to Sri Lanka for flood victims, Rs 10.9 million to Algeria for earthquake victims and Rs 2.6 million to China for fight against sars and Rs 38.7 million to Iraq for war victims.
In 2004, Pakistan again donated Rs 171 million in kinds to four countries that include Rs 140.8 million go Iran for earthquake victims, Rs 3 million for Sri Lanka for drought victims, Rs 9.8 million to Afghanistan for food shortage and Rs 18.2 million to Bangladesh for flood victims.
However, when catastrophic tsunami badly hit Sri Lanka, Indonesia and Maldives in 2005, Pakistan came up with a bang and helped the said countries on big way and donated Rs 668 million for the said three countries. In addition Pakistan also extended the donation of Rs 26.3 million in kind to Comoros in the head od food assistance.
In 2006, Pakistan bequeathed Rs197.8 million to three countries including Rs 7.7 million in kind to Iran for earthquake victims, Rs 92.2 million to Indonesia also for earthquake victims and Rs 97.9 million to Lebanon for war affected people.
In 2007, China was provided Rs 1.875 million in kind for flood affected people, Bangladesh given Rs 72.19 million for cyclone affected people. However, Pakistan in 2008 donated Rs 5 million to Myanmar for cyclone affected people, and Rs 160.503 million to China for earthquake affected people and Rs 1.153 million to Nepal for flood victims.
And in 2009, Pakistan provided Rs 33.338 million in kind to Palestinians of Gaza. In addition, in 2008, Pakistan also provided Rs 81 million in kind to Cuba for hurricane affected people. As far as Pakistan’s authorities are concerned, they managed to ink trade deals with China and Sri Lanka with which Pakistan also possess the in-depth strategic relations.
Pakistan's tax collection declined and fiscal deficit rose to a record 6.6% of gdp in 2010-11, according to Dawn News:
ISLAMABAD, Sept 29: The fiscal deficit during 2010-11 stood at a whopping Rs1.336 trillion — highest in the country’s history and almost 39 per cent of total expenditure and 59 per cent of revenue.
According to consolidated fiscal data released by the finance ministry, the fiscal deficit, excluding payments of electricity subsidies, was Rs1.194 trillion or 5.9 per cent of GDP. However, after inclusion of one-time off-budget electricity subsidy payments of Rs142 billion to Wapda’s power companies, the overall deficit worked out at Rs1.336 trillion or 6.6 per cent of GDP.
During 2009-10, the deficit was Rs929 billion, 6.3 per cent of GDP, and increased by Rs407 billion in a year.
Ironically, revenue collection showed a dismal performance. The total collection declined significantly to 12.5 per cent of GDP against 14.2 per cent in 2009-10, despite a series of additional tax measures introduced in March.
Tax revenue dropped to 9.4 per cent of GDP from 10 per cent achieved in the previous year.
In absolute terms, total revenues amounted to Rs2.253 trillion, an 8.3 per cent increase over Rs2.078 trillion last year.
The tax revenue increased to Rs1.699 trillion from Rs1.473 trillion, by 15.3 per cent.
The growth in total provincial revenue was slightly better at 17.8 per cent.
The total non-tax revenue also declined to 3.1 per cent of GDP from the previous year’s 4.1 per cent, showing widespread erosion of tax collection efforts against the potential.
Even in absolute terms, the non-tax revenue stood at 553.5 billion, about 8.5 per cent lower than the previous years’ Rs605 billion. The federal non-tax revenue declined to Rs491 billion from Rs537 billion — a drop of 8.5 per cent. The provincial non-tax revenues also dropped by 8.5 per cent to Rs62 billion, from Rs68 billion a year ago.
The finance ministry said the total expenditure during 2010-11 increased by 14.6 per cent to Rs3.447 trillion, from Rs3.007 trillion in 2009-10. But the revenue growth of 8.3 per cent did not keep pace with 14.6 per cent increase in expenditure, leading to the huge fiscal deficit.
Defence expenditure increased by a massive 20 per cent to Rs451 billion from Rs375 billion in 2009-10. Total defence- and security-related grants amounted Rs682 billion (Rs232 billion for security), showing a nine per cent increase over Rs625 billion (Rs250 billion security grants) in 2009-10.
On the contrary, the development expenditure and net lending dropped from Rs653 billion in 2009-10 to Rs514 billion, showing a reduction of 21.3 per cent or Rs139 billion.
The expenditure on the public sector development programme (PSDP) dropped by 11 per cent to Rs461.5 billion from Rs517 billion.
This meant the expenditure on improving the lives of the people posted a sizable reduction when seen in the context of increased prices and deteriorating poverty situation.
To meet the deficit, the government had to borrow a record Rs615 billion from the banking sector, up Rs311 billion from Rs304 billion in 2009-10.
The non-bank borrowing increased by 8.3 per cent to Rs472 billion from Rs436 billion.
Interestingly, external financing to bridge the deficit posted a reduction of 43 per cent to Rs108 billion from the previous year’s Rs189 billion, showing a falling international confidence to extend financing to an economy battered by a war-like situation and devastating floods.
As a result, domestic deficit financing increased by as much as 47 per cent (Rs311 billion) to Rs1.086 trillion from Rs740 billion.
Here are some excerpts from an AP story on the impact Punjab govt's spurning of US aid:
......Like many government-run hospitals in Pakistan, Lady Willingdon struggles to provide even basic care. The hospital, built by the British in the 1930s before Pakistan's independence, was meant to house 80 patients. The country's population has since boomed, forcing officials to cram 235 patients into a facility that is now run-down. Paint peels off the concrete walls and black mold covers the ceilings.
There are only three working infant incubators, which were donated by NGOs, said Mohammed Athar, the doctor who runs the nursery for premature babies. The hospital is forced to use overhead warmers for other infants, leaving them more exposed to disease, he said.
"Without incubators, it's useless," said Athar.
The $16 million offered by the U.S. would have been used to purchase 10 incubators, build a new 100-bed ward and expand the nursery and emergency facilities, said Sharif, the hospital administrator.
The U.S. has financed similar efforts to transform two hospitals in southern Sindh province that treat tens of thousands of patients every year.
The head of the Punjab government, Shahbaz Sharif, tried to justify his decision to spurn American aid following the May 2 raid that killed the al-Qaida chief not far from Pakistan's equivalent of West Point. He said at the time that Pakistan needed "to break the begging bowl" and "get rid of the foreign shackles."
The U.S. operation outraged Pakistani officials because they were not told about it beforehand.
Sharif is a leading member of the main opposition party in the country, and many viewed his decision as a way to siphon votes away from the Pakistan People's Party, which controls the federal government. The Punjab government spokesman declined to comment on this interpretation.
Sharif and other members of his government are unlikely to feel much personal impact from the move to turn down U.S. aid.
Free government-run hospitals like Lady Willingdon are mainly used by the poor, who are already suffering from Pakistan's weak economy and surging inflation. Wealthier citizens opt for more expensive private institutions in Pakistan or abroad.
A large chunk of the American assistance, $100 million, was to be used to rebuild schools in southern Punjab destroyed by last year's devastating floods. An additional $10 million was meant to improve municipal services like clean water and sanitation.
The money will now be redirected to other areas of the country, said the U.S. Embassy.
Washington has continued several programs in Punjab that don't run directly through the provincial government, such as rehabilitation of power plants and small grants to female entrepreneurs in flood-affected areas, said the embassy.
The loss of aid for schools, water and sanitation also won't be felt acutely by the elite. Most send their children to private schools and live in leafy parts of Lahore dotted with Western restaurant chains, polo grounds and cosmetic surgery centers. The Sharifs own property in London worth millions of dollars.
Life is very different for Pakistanis who live in Shamaspura, a dirt-poor part of Lahore filled with ramshackle brick houses separated by a narrow mud lane coursing with sewage. Most of the roughly 15,000 residents are fruit and vegetable vendors who make about $2 per day. They are forced to tie pieces of cloth across their faucets to filter out dirt and insects in the water.
"We have asked the government to pave our road and build us a sewer system, but they said they don't have any money," said Jumma Khan, a 55-year-old vegetable vendor......
Here's an excerpt from a Dawn report on Ambassador Munter recounting how US AID has helped Pakistan over 50 years:
The US Ambassador further said Pakistanis who doubt that US assistance has borne fruit in Pakistan would be surprised to know that they have tasted it, adding, “Pakistan’s most popular citrus fruit, the kinoo, comes from California. USAID brought kinoo seeds to Pakistan in the 1960s. Today, we are helping export Pakistan’s sweetest fruit, the mango, in the other direction.”
“In the 1950s, we brought together the University of Karachi, the University of Pennsylvania’s Wharton School of Business, and the University of Southern California to establish a campus in Karachi to meet the demand for business managers in the bustling port city.”
“USAID sponsored the project and the Institute of Business Administration became Pakistan’s first business school and one of the first outside of North America. IBA is recognized today as one of South Asia’s leading institutions,” he maintained.
Ambassador Munter said in 1965, Dr. Norman Borlaug, who later won the Nobel Prize for his contribution to agricultural research, came to Pakistan to introduce his new high-yielding variety of wheat.
“We worked with the Lyallpur Rotary Club to support a program that gave individual farmers a bushel of the new generation of seed if, when the harvest came in, they returned the bushel so we could give it to someone else. While modest in scope, this small project brought Lyallpur into the Green Revolution that in turn converted a food deficit region into an exporter of grains,” he added.
In the 1960s and ’70s, a consortium of U.S. construction firms employing Pakistanis, Americans, Brits, Canadians, Germans, and Irish built the two mighty dams of Tarbela and Mangla with USAID and World Bank financing, US Ambassador said, adding, “Those engineering feats – more complex than anywhere in the world at that time – soon accounted for 70 per cent of the country’s power output and made Pakistan a leading provider of clean energy.”
In the 1980s, the US Ambassador said, with USAID’s assistance, Pakistan’s private industry founded the Lahore University of Management Sciences.
“Pakistanis approached us with the idea for the new institution and we agreed to support it with a contribution of $ 10 million. Today, LUMS incubates the ideas and nurtures the leaders who are critical to Pakistan’s future,” he remarked.
Ambassador Munter said, since the inception of the Fulbright scholarship program, nearly 3,000 Pakistanis have studied in the United States and close to 1,000 Americans have studied in Pakistan, adding, today, the U.S. Fulbright program in Pakistan is the largest in the world.
Key to all these successes was that Pakistanis owned them.
We may have helped sow the seeds but Pakistanis made sure the flowers blossomed, he said, adding, “aid is a catalyst and its success depends on those who receive it.”
“So today, while we help complete dams in Gomal Zam and Satpara and rehabilitate power plants in Muzaffargarh and Jamshoro, only Pakistanis can put an end to circular debt by paying their bills and holding the system accountable.”
“While we work to cultivate international markets for Pakistan’s fruit and fashion, only Pakistanis can deliver quality products that can compete. While we pay for road construction in South Waziristan, only Pakistanis can provide the local population with economic opportunities to make use of those roads.
While we build schools in Azad Jammu and Kashmir and Khyber Pakhtunkhwa, only Pakistanis can ensure that qualified teachers show up to teach in them,” the US Ambassador maintained.
Here's an excerpt from a piece by Nancy Birdsall of CGD published in Foreign Policy Magazine:
Meanwhile in Washington, debate in the U.S Congress about aid to Pakistan -- not just military aid but aid to shore up the civilian government along the lines that the late Richard Holbrooke advocated -- has grown increasingly hostile. Many in Congress assume that Washington's announced annual economic aid package of $1.5 billion provides leverage that can somehow bring both the civilian and military sides of Pakistan's government into line -- and are threatening to withdraw civilian aid in frustration with the inability or unwillingness of Pakistan's military and intelligence agencies to deal with the Haqqani Network and other threats to the security of Americans in Afghanistan.
The IMF saga makes clear that that leverage just doesn't exist. Using economic aid to push weak civilian governments into political steps they cannot take (unless they are willing to give up power altogether) doesn't work. It is even more far-fetched to imagine that the much smaller amount of U.S. civilian aid constitutes leverage with Pakistan's military and intelligence establishment, or that it's removal is a serious threat to them. If the government of Pakistan is willing to walk away from more than $3 billion of IMF money because it cannot implement a VAT, it seems unlikely that the powers that be will change their strategic calculus in Afghanistan for whatever Congress appropriates this year.
As we have emphasized before, the purpose of U.S. civilian aid to Pakistan is not to bribe or reward, nor would withholding aid be a useful punishment. Aid seldom constitutes leverage over tough domestic policy decisions, as the development community knows well. Apparently, so does the U.S. military. On the eve of his retirement, Chairman of the Joint Chiefs of Staff Adm. Mike Mullen told Congress that the U.S. needs to move beyond counterterrorism in Pakistan and focus on the development issues that constitute the foundation of that country's long run success. In his words, "isolating the people of Pakistan from the world right now would be counter-productive."
The issue is whether modest amounts of U.S. aid -- to help educate kids, create jobs, and strengthen democratic institutions -- might help give Pakistan a shot at becoming a more stable, prosperous and democratic country in the long term. Congress should be demanding evidence of that possible effect and targeting aid appropriately, rather than making superficial cuts that hurt America's image and impact in Pakistan for no apparent gain.
Nancy Birdsall is the founding president of the Center for Global Development, a Washington, DC based think tank. Milan Vaishnav is a visiting fellow and Daniel Cutherell is a policy analyst at the Center for Global Development.
I would like you to be cognizant of the fact that now in Pakistan, corruption is at a scale that boggles the mind - at least it should boggle the mind. We are talking no longer millions but BILLIONS. We are talking about Pakistan's external debt shooting up by ten billion dollars in a short span of 3 years with nothing to show for it. I suspect the borrowed dollars have been purchased with corruption billions and transferred abroad. In the next 2 years huge repayments are maturing to the IMF and other lenders. The oil price may shoot up. Our exports reduce and our water supplies may stunt our agriculture. I don't see how we will be able to cope.
Billions are 'spent' by the government and as much as 40-50% if not more is diverted for pay-offs. There is hardly any development or relief going on anywhere. debt service has gone through the roof, being the biggest item in the budget. Poverty is rising, employment growth is nonexistent. Spending on social services had collapsed as there is no fiscal space.
Corruption is a HUGE component in both out fiscal and current account deficits. It has made a huge increase in both our domestic and international debt. it can corrupted the moral fiber of the country, especially the bureaucracy. Now the younger generation is actually embracing corruption as a perfectly acceptable way of life, looking at the leadership, the tycoons and the senior government officers as role models. They are actually openly defending the corruption of their families and expressing their intention to indulge in the same.
US State Dept & Sen Feinstein defend US aid to Pakistan, according to Dawn:
WASHINGTON: The US State Department on Tuesday defended aid to Pakistan amid calls from senators for a full review of whether economic and military assistance there serves the US national interest.
“We believe our assistance to Pakistan still continues to provide dividends for the American people in trying to grow and strengthen Pakistan’s democratic institutions, boost its economy,” said spokesman Mark Toner.
“In the long term, you know, those are the kinds of things we’re seeking to achieve,” he told reporters one day after Republican Senators John McCain and Lindsey Graham made a full-throated call for reevaluating the aid.
His comments came shortly after US Senate Intelligence Committee Chair Dianne Feinstein said that cutting assistance to Pakistan would be unhelpful but warned that calls to do so had strong congressional support.
“I don’t think that’s useful,” she told reporters. “My understanding is that there’s some overtures under way to restore the relationship. Well, that’s fine, but I suspect that if a bill were to come to the floor which fenced money, the bill would have a good chance of passing,”she said.
US lawmakers have expressed mounting anger at Pakistan, accusing military and intelligence officials there of supporting the Haqqani network blamed here for attacks on US forces and targets in Afghanistan.
“I can only express my profound disappointment with the relationship” and the “deterioration” in an already troubled alliance that “goes up and down, and up and down, and up and down,” she said.
“My very strong feeling is you can’t walk both sides of the street with respect to terror,” said Feinstein.
Relations slid to a new low last month when Nato air strikes killed 24 Pakistani soldiers on the Afghan border, prompting Pakistan to boycott an international conference in Bonn on Afghanistan’s future.
“This is a very complex relationship,” Toner said, adding that the deadly border incident “was difficult for the Pakistani people, for the Pakistani government.”
“They have reacted in a way that shows how important and how significant this tragedy was for them,” Toner said.
“It’s absolutely essential that Pakistan, Afghanistan and the US, other international partners, work through this and beyond. It’s in all our interests.”
But Republican Senator Mark Kirk told AFP that McCain and Graham, who serve on the Senate Armed Services Committee, “are right.”
“Military aid to Pakistan is unsustainable, and in this time of deficits and debt, we ought to save the money,” he said, warning that if Pakistan has chose “to embrace terror and back the Haqqani network,” it should do so “without subsidies from the US taxpayer.
Kirk has also called for bolstering ties to India and “making India a military ally of the United States and to encourage India to fill the vacuum in Kabul once we leave.”
United Kingdom will likely to increase its aid to Pakistan upto 350 million (Pounds) a year till 2015, prioritizing uplift of education and health sectors, according to APP:
"The major portion of our aid will focus on getting more than four million children into school, recruit and train 90,000 new teachers and provide more than six million text books," George Turkington, Head of the UK's Department for International Development (DFID) in Pakistan said.
During his visit to a crisis centre for women (Bedari) in Chakwal, he said the UK government would provide assistance to prevent 3,600 mother's deaths in childbirth; another half a million children from becoming under-nourished and another 400,000 couple’s access family planning and contraceptives.
The UK will also support the country to empower women by strengthening legislation on land rights, marriage rights and domestic violence and get more girls and women involved in decision making at community and federal level so that they can demand their basic rights.
Head of DFID said that over recent years, UKaid has provided 35,096 women victims of violence with counselling, refuge, rehabilitation support and legal aid.
He said that UKaid provide monthly stipends to some 680,000 poor girls to help keep them in school and provided millions of free school text books.
He said that UKaid has also facilitated 1.2 million micro finance loans to poor women, helping them to lift their families out of poverty.
The DFID official also met beneficiaries at Bedari office a local NGO.
The State Bank said on Wednesday that the value of e-banking transactions aggregated to Rs12 trillion during the second half of 2010-11, showing an increase of 19 per cent as compared to the first half of the year, according to a Dawn report:
The Payment Systems Half Yearly Review released by the State Bank here noted speedy rise in e-banking transactions in the country.
The volume of such transactions during the period under review reached 125.9 million depicting an increase of 15.5 per cent as compared to the first half of FY11, the review said, adding that the payment system infrastructure has maintained an overall growth trend for the second half of FY11.
However, the review also said that the volume and value of paper-based retail payments during the second half of FY11 were recorded as 177.3 million and Rs84.6 trillion respectively, indicating an increase of 3.5 per cent in the volume of transactions.
“The value of transactions has increased by 13.3 per cent as compared to the first half of FY11. The contribution of paper-based payments in total retail payment transactions was 58.5 per cent in terms of volume and 87.5 per cent in terms of value,” it added.
The review said the Automated Teller Machines (ATMs), which are the largest channel of e-banking transactions, showed 16.5 per cent increase in number of transactions and 19 per cent increase in value raising the share of ATM transactions in total e-banking transactions to 58.8 per cent and 5.4 per cent respectively, the review said.
It said the number of Real-Time Online Branches (RTOB) transactions grew by 14.7 per cent and the value of transactions increased by 18.8 per cent as compared to first half of FY11. “These transactions contributed 31.6 per cent in total volume of e-banking and 93.2 per cent in the value of such transactions respectively,” the review observed.
According to the review, as many as 466 more Automated Teller Machines were added bringing the total number of ATMs to 5,200 while 380 more bank branches were converted into Real Time Online Branches (RTOBs).
“A total of 7,416 bank branches (78 per cent) are now offering real time online banking out of a total of 9,541 branches in the country. The number of plastic cards at 14 million also registered an increase of 6.2 per cent during the period under review as compared to the numbers during the preceding half year,” the Review added.
The overall increasing trend in payment system infrastructure was also witnessed in the large value payments settled through Pakistan Real-time Inter-bank Settlement Mechanism (PRISM), which increased by 14.8 per cent in volume and 21.9 per cent in terms of value as compared to the first half of FY11.
Here's a Global Post story on NATO using smugglers to supply its troops in Afghanistan through Pakistan:
With few other options available to it since Pakistan closed its border crossings almost two months ago, NATO has at times resorted to paying local smugglers to get much-needed supplies to its troops fighting in Afghanistan, Pakistani officials say.
The Pakistani and Afghan smugglers, who must pay bribes to militants to travel safely through some areas, navigate treacherous routes over the 1,800-mile mountainous divide that separates the two countries to bring containers of oil, food and other essential items — all at a price — to soldiers on the other side.
“Borders mean nothing to us. We have been crossing in and out for centuries,” Sahib Khan, a smuggler who said NATO had hired him, told GlobalPost.
The hiring of illegal smugglers came after a failed attempt by NATO to pay private companies, which truck goods across the border under the Pakistan-Afghanistan Free Trade Agreement (PATA). These private companies, Pakistani officials said, were secretly swapping out their normal cargo for NATO supplies until Pakistani security forces caught wind of the scam.
A senior officer for the Frontier Corps, an elite military unit that is responsible for security along the border, told GlobalPost that a total ban on the movement of containers under PATA, which was signed in 2010 to promote bilateral trade, eventually foiled the strategy.
“We had concrete evidence that some of the containers being imported by private companies, under PATA, were being used to smuggle supplies for NATO troops under cover of commercial imports,” the official said.
Smuggling between Pakistan and Afghanistan has long been a profitable and vibrant business. Various trade agreements have been signed between the two neighbors in a bid to contain the practice, but high import and export taxes coupled with little government oversight, thwarted those attempts.
Mostly items like flour, edible oil, lentils, dried vegetables, contraband cigarettes, and animals for meat are smuggled into Afghanistan, while spare auto parts, electronics and unregistered vehicles are smuggled the other direction.
Smuggling is so widespread that it has become the backbone of the economy in towns and villages along the border, where locally it is treated simply as normal trade. The mountainous terrain provides an edge over security to smugglers who regularly trickle across the border without any trouble.
Sahib said that most of the food and oil supplies he has carried across the border for NATO originate from the southern port city of Karachi, and are moved through Peshawar and Quetta, and finally through Pakistan’s tribal areas, which are largely under the authority of various militant groups.
For those militants, the smugglers have been an important source of income. Smugglers are required to pay “rahdari,” or “passage,” an unofficial tax that allows them safe passage.
“Once we are onto the route, it’s the responsibility of those who receive rahdari to ensure we are able to safely enter into Afghanistan,” Sahib said.
Any smuggling that is done on behalf of NATO can in no way make up for the closed borders, however. Smugglers say they carry between 20 and 25 small containers a day while, when the border crossings were open, NATO shipped an average of 250 large containers a day — making the reopening of the borders essential to the war effort.
The World Bank will extend an assistance of upto $5.5 billion over FY 12-14 to support Pakistan’s poverty reduction and development agenda, reports Pakistan Today.
According to Bank’s Country Partnership Strategy Progress Report, a mid term review and implementation assessment, the Bank has responded flexibly in the face of the tremendous challenges Pakistan has gone through over the past year or so.
World Bank Country Director for Pakistan Rachid Benmessaoud said they will continue strong support to Pakistan while keeping a keen eye on implementation to ensure that these efforts translate into real results on the ground.
The progress report says the overall focus of the Bank’s strategy- to help Pakistan’s economy get back onto the path of high, sustained growth –remains valid and consistent with the overall priorities of the government of Pakistan as articulated in its New Framework for Growth Strategy. Also, the Bank support will remain centred on the original pillars of the CPS- the economic governance, human development and social protection; infrastructure and security and conflict risk reduction.
The Bank engagement over FY 12-14 is projected at up to $ 4 billion in new International Development Association (IDA) credits and International Bank for Reconstruction and Development loans. This will be supplemented by a robust programme under the Multi donors trust fund (MDTF) with initial commitment of $ 140 million and IFC support projected at $ 1.5 billion.
Here are excepts of an Op Ed by Andrew Michell, British secretary of DFID, published in The News:
Over the last year, the UK has worked closely with Pakistan to deliver strong results, including supporting nearly half a million children in school; providing practical job training to more than 1,100 poor people in Punjab; providing microfinance loans to more than one hundred thousand people across Pakistan so they can start small businesses and lift their families out of poverty; and helping millions of people affected by the floods in 2010 and 2011.
Education is the single most important factor that can transform Pakistan’s future. With a population that is expected to increase by 50 per cent in less than forty years, it is worrying that half the country’s adults can’t read or write, and that more than a third of primary school aged children are not in school. That’s why the UK is committed to working in partnership with Pakistan to tackle its education emergency.
If educated, healthy and working, this burgeoning youth population will provide a demographic boost to drive Pakistan’s economic growth and unlock Pakistan’s potential on the global stage.
That’s why education is the UK’s top priority and why over the next four years, the UK will work in partnership with Pakistan to:
* support four million children in school;
* recruit and train 90,000 new teachers;
* provide more than six million text book sets; and
* construct or rebuild more than 43,000 classrooms.
Every full year of extra schooling across the population increases economic growth by up to one percentage point, as more people with better reading, writing, and maths skills enter the workforce.
The UK government is also working with Pakistan to empower and protect women and girls, to end violence against them and to help harness their talent and productivity. I welcome the legislation recently passed by Pakistan’s parliament that bans domestic violence, and congratulate Pakistan on its first Oscar for an outstanding film which throws the international spotlight on the horrific crime of acid attacks on women.
Other priorities for the UK include working with Pakistan to prevent 3,600 mothers dying in childbirth; enabling 500,000 couples to choose when and how many children they have; providing practical job training (such as car mechanics, cooks, weavers, carpenters, etc) to tens of thousands of people living in poverty; and enable millions of people, half of them women, to access financial services such as microfinance loans so they can earn more money and lift their families out of poverty.
The UK’s aid to Pakistan could potentially more than double, to become the UK’s largest recipient of aid. However this increase in UK aid is dependent on securing value for money and results, and linked to the Government of Pakistan’s own progress on reform at both the federal and provincial levels. This includes taking steps to build a more dynamic economy, strengthen the country’s tax base, and tackle corruption.
Here's a Business Recorder report on foreign assistance received July 2011 to March 2012:
The United States remains the major grant assistance provider to Pakistan during the first nine months of the current fiscal year while the Asian Development Bank (ADB) and the World Bank have been major lenders to Pakistan by releasing $470 and $269 million respectively during the period.
The total foreign assistance received by Pakistan from July 2011 to March 2012 was $1.6 billion with US as the major grant provider despite the recent tension between the two countries.
The foreign assistance provided by the ADB and the World Bank is 'loan-based' assistance while the assistance provided by the US is 'non-loan' assistance that in other terms is called 'grant'.
According to the data available with Business Recorder, the US has provided the grant assistance of $112 million to Pakistan during the first nine months of 2011-12.
Agriculture and Livestock ($3.4m) Food Assistance ($102.7m) Health and Nutrition ($1.1m) Crisis Prevention and Disaster Reduction (1.5mdollar) and Housing and Construction ($1.8m) are the sectors for which this amount has been released by the US.
The data reveals that $470 million has been released by the ADB for various projects including the projects on Crisis Prevention and Disaster Reduction (2.9m$), Rural Development( 6.9m$), Banking, Finance and Insurance ($200m), Education ($6.5m), Energy Generation( $73m), Health and Nutrition ($4.3m), Transport ($111.4m), Governance ($0.6m), Budgetary Support( $19.7m), Agriculture and Livestock( $11.4), Urban Development ( $5m),and Environment and Natural Resources ($28.4m).
The World Bank remains the second major lender to Pakistan by disbursing $269 million.
The projects under which this amount has been released includes Banking, Finance and Insurance ($2.5m), Urban Development (34.9m), Education ($34m), Agriculture and Livestock( $15.5m), Health and Nutrition ($41.7), Trade ($1.2m), Transport ($3.3m), Energy Generation ( $23m) , Social Welfare ( $21.1m)Water and Sanitation ($0.06m), Governance ( $1.4m)and Food Assistance ($5.6million).
The data says that the Islamic Development Bank (IDB) has provided $35.1 million.
Germany 23.2 million dollars, UK 22.2 million dollar, and UN has released $26.1 million.
The data reveals that Canada has disbursed $18 million to Pakistan from July 2011 to March 2012, Switzerland 1.2 million dollars, Japan 5.2 million dollars and EU has released $13.1 million.
Spain has released $3.15 million, Norway $3.3 million, Saudi Arabia 1 million dollar, Italy $1.6 million, Netherlands $17.3 million, Sweden $7.7 million, Australia $22 million, China $0.5 million, International Private Donors $0.6 million and Ireland has disbursed $3 million.
France has disbursed, according to the document, $0.5 million, Belgium $6.8 million, Denmark $1.4 million, Luxembourg $0.8 million, and New Zealand has released $0.4 million to Pakistan from July 2011 to March 2012.
Here's a Businessweek story on Pakistan's informal economy:
It’s early morning in Karachi, Pakistan’s biggest city, and Muhammad Nasir is outside his makeshift shelter of palm leaves, rags, and bamboo, washing up after breakfast. He uses water stolen from a nearby supply pipe that belongs to the local water utility. The 17-year-old bids farewell to his mother, an unlicensed midwife, and walks to his tire-repair shop, an open-air stand in a residential area with a table of tools and a wooden bench. He checks to make sure the electricity he’s drawing illegally from the overhead power line is on so he can run his tire pump. Then he sends 10-year-old Abid, one of his two employees, along with 12-year-old Irfan, to get tea from a nearby shop.
Nasir’s business, his home, his power and water supply, and even the cup of tea Abid brings him don’t exist in Pakistan’s official figures. They’re part of another economy that doesn’t pay taxes or heed regulations. It probably employs more than three quarters of the nation’s 54 million workers and is worth as much as 50 percent of Pakistan’s 18 trillion rupee ($200 billion) official gross domestic product. And while the documented economy had its smallest expansion in a decade at 2.4 percent in the year ended June 2011, soaring demand for cars, cement for houses, and other goods shows the underground market is thriving.
the nation’s purchasing power is more than estimated, says Nadeem Naqvi, managing director of the Karachi Stock Exchange. Rising crop prices have pumped an extra 1 trillion rupees into the rural economy in the past four years, most of it undocumented, Naqvi says. He estimates agriculture may account for as much as 35 percent of GDP, instead of the 21 percent reported.
Evidence of consumer demand is everywhere as new shopping malls and restaurants in Karachi are filled to capacity. Car sales rose 14 percent in February from a year earlier, as more people could afford a Toyota Corolla or Suzuki Mehran (a small hatchback), according to the Pakistan Automotive Manufacturers Association. More than half a million motorbikes hit the road in the eight months ended February, a 5 percent increase, perhaps a sign that Nasir’s tire business has a bright future. ..
The bottom line: If participants in Pakistan’s undocumented economy paid their taxes, the government would collect an extra 800 billion rupees.
Here's an excerpt from Express Tribune on FBR's efforts to collect taxes:
In an effort to document black economy in phases, the government has decided to gradually enforce the condition of declaring national tax numbers or identity card numbers at the time of bulk purchases.
In this regard, the Federal Board of Revenue (FBR) has amended existing rules and added a chapter to Sales Tax Rules of 2006. According to a statutory regulatory order issued here on Friday, the condition will gradually be enforced from March to July this year.
In the first phase beginning March 1, all manufacturers, importers and exporters have been asked to make minimum 60% of their sales to identifiable persons having either sales tax registration number, national tax number (NTN) or computerised national identity card (CNIC).
While there are no official estimates of the size of the black economy, independent experts and former tax officials put the figure in the range of 50 to 60% of the total size of formal economy. For the current fiscal year, the projected size of national economy is Rs21.04 trillion, according to the finance ministry.
The government had earlier tried to enforce the NTN/CNIC condition from July 2011 but fierce opposition from businesses forced it to defer the plan to January 2012. Now, it has decided to fully implement the much talked about condition by July this year.
An official of the FBR said the purpose of gradual implementation was to facilitate the industry and now this condition would also be applied to the sugar industry, which had earlier been granted exemption.
However, retail supplies will remain exempted. According to the notification, manufacturers-cum-retailers and importers-cum-retailers making retail sales to unregistered persons will not be required to provide CNIC number or NTN to the extent of retail sales, which will be separately shown in sales tax return.
The notification further states that provisions of the newly added chapter will be applied to registered manufacturers, importers and exporters while making taxable, dutiable or exempted supplies to unregistered persons.
The FBR has asked all registered manufacturers, importers and exporters to issue an invoice containing NTN or CNIC number of the buyers. The sellers will be bound to declare 60% sales to identifiable persons in March. In April, the ratio will increase to 70%, in May 80%, June 90% and in July all sales will be made to identifiable persons only.
Currently, only 146,000 traders have sales tax registration numbers while less than 100,000 regularly file returns.
The notification states that if any registered person gives an NTN or CNIC number, which is not verified from the FBR’s database or database of the National Database and Registration Authority (NADRA), such person will have to pay a penalty of Rs5,000 or 3 per cent of the amount of tax involved, whichever is higher. The amount would be considered as arrears against the supplier.
Furthermore, all payments of the amount for transactions will be made by the buyers through bank instruments.
Here's an ET Op Ed on taxation in Pakistan:
Due to increasing trust deficit between the Federal Board of Revenue (FBR) and taxpayers, incidence of avoidance and evasion is on the rise. As collections remain weak, the government struggles to generate money to run the country. The irony is that the taxpayers do not want to pay taxes because of the trust deficit. Thus, the government argues well – no money no honey. It is a kind of egg-chicken like situation.
Sadly speaking, the current tax-to-GDP ratio has been languishing below 10% since long. India has improved and its ratio has reached 16.4%, China 14.9%, Sri Lanka 14.8% and Bangladesh having the lowest of all at 8.1%.
Taxes should be equitable in the sense that the heaviest burden should fall more on the rich and incidence of evasion and avoidance is at the minimum. This is only possible when the economy has a more built-in capacity which means contribution of direct taxes (progressive or proportional) should be greater than indirect taxes (regressive).
In contrast, the current contribution of direct tax is around 39%. Indirect taxes contribute over 60% to the revenue collection. The major stumbling blocks in the way of improving direct tax collection are the increasing size of black or cash economy, leakages in tax collection, narrow tax base and politically motivated tax exemptions.
Topping the list is governance problem which has become putrid. The dogmatic position of some political parties and that of business community over the reformed general sales tax (RGST) has augmented the situation further. Its fate hitherto remains obscure.
Indeed, indirect taxes not only punish the poor the most but also stoke inflation. According to a joint study of the World Bank, IFC and PricewaterhouseCoopers, Pakistan’s ranking has slipped from 145 in 2011 to 158 in 2012 in terms of ease of paying taxes, 149 to 155 in terms of tax payments, 168 to 170 in terms of time required to comply with three major taxes.
Pakistan scores better on total tax rate (TTR) which measures the amount of taxes and mandatory contributions borne by the business in the second year of operation, expressed as a share of commercial profit. Only China scores high on the tax payment indicator.
With a narrow base and high enforcement cost, the need for additional revenues is substantial in Pakistan, but improving revenue mobilisation has importance beyond that. The role of the FBR thus is the centre of attention. Instead of undertaking piecemeal tax policy approach, the FBR should try to overhaul and modernise the existing tax administration which is free from all political influence.
Plugging leakages in the bucket can help but the FBR would need better quality buckets too.
Here's a GeoTV report on IMF assessment of Pakistan's fiscal situation:
SLAMABAD: Country’s budget deficit is likely to hover around 6.7 percent of the Gross Domestic Product (GDP) during the fiscal year 2012, revealed International Monetary Fund (IMF) Fiscal Monitor of April 2012.
According to an IMF report Pakistan’s revenues could be 12.8 per cent of the GDP during 2012 and may increase to 13.9 per cent of the GDP by 2017. Government’s expenditures, which are expected to be 19.2 per cent of the GDP 2012, are likely to come down to 18.8 per cent of the GDP by 2017.
Gross debt of the country to reach at 61.1 per cent in 2012 and would come down to 53.2 per cent of the GDP by 2017.
Net debt of the country is seen around 58.5 per cent of the GDP and would come down to 50.4 per cent of the GDP by end of 2017.
During 2012 country’s debt maturity may reach 23.3 per cent of the GDP and its financing needs 30 per cent of the GDP.
During 2013, the debt maturity could inch up to 24.3 per cent of the GDP, its budget deficit 6 percent of the GDP and its financial needs to go up to 30.3 percent of the GDP.
Here's an excerpt from Dawn report on Punjab's economy:
The slowing regional growth has led to contraction in Punjab’s share in the national economy to 54.9 per cent in 2011 from 55.5 per cent in 2000 and 55.7 per cent in 2007.
Punjab’s economy, according to the IPP, is composed of 24 per cent agriculture (17 per cent for the rest of Pakistan and 20.9 per cent for Pakistan), 21.2 per cent industry (31 per cent for the rest of Pakistan and 25.8 per cent for Pakistan) and 54.8 per cent services (52 per cent for the rest of Pakistan and 53.3 per cent for Pakistan). The provincial economy’s sectoral composition signifies relative importance of agriculture in its economy and underdevelopment of industry as compared to the rest of Pakistan, says the IPP.
The report identifies three major factors that have dragged down economic growth in Punjab in recent years: decreasing water availability for agriculture, growing energy crunch for industry and declining public sector investment in economic infrastructure.
The IPP points out that performance of agriculture plays a major part in the economic growth of the province. During the last few years, it contends, the performance of agriculture sector has been disappointing, especially of major crops that have shown little growth since 2007 due to growing water shortages and rising fertiliser prices. Wheat production was virtually stagnant and output of sugarcane and cotton dropped by 10 per cent and 17 per cent respectively. The only crop with significant growth of 26 per cent was rice. In addition, there was hardly any growth in minor crops. Given the relatively large share of agriculture in the regional (Punjab) economy, the growth rate is likely to be lower because even in good years agriculture is unlikely to average a growth rate above four to five per cent,” it underlines.
The annual average agriculture growth rate in Punjab declined to just one per cent between 2007 and 2011 from 3.3 per cent between 2000 and 2007. In contrast, the average agriculture growth rate rose to three per cent for the rest of Pakistan from 2.5 per cent.
Growing energy shortages have affected industrial output in Punjab disproportionately, according to the report. There has been cumulative drop in gas consumption in the province of 13 per cent in the last few years compared to an increase of 16 per cent in the rest of Pakistan, especially in Sindh.
Similarly, increase in electricity consumption since 2007 has been restricted to only two per cent compared to six per cent in the rest of Pakistan. Punjab’s share in the national production of cotton yarn, for example, dropped from 33 per cent in 2007 to 29 per cent in 2011 and in cotton cloth from 43 per cent to 37 per cent.
Additionally, the report underlines the weaker presence in Punjab of industry producing consumer durable and construction inputs compared to Sindh as another factor for slower growth. “In the peak of business cycle, industries producing consumer durables like automobiles and industries providing construction inputs like cement show very high growth rates. During 2003 and 2007, for example, production of automobiles showed extraordinarily high growth rate of 31 per cent. The growth rate of cement industry was also high at 18 per cent.
Here's an AFP report on Pakistan economy:
Pakistan's economy grew by 3.7 percent in the current fiscal year with tax collection up an "unprecedented" 25 percent, Finance Minister Abdul Hafeez Shaikh said Thursday.
He unveiled the statistics one day before presenting the next budget to parliament amid concerns that Pakistan is headed towards a financial crisis unless it returns to the IMF.
"The growth rate remained 3.7 percent and it is the highest in the past three years," Shaikh told a news conference of the current fiscal year that ends June 30.
"The growth rate for a country like Pakistan should be at least five to six percent and this is our medium term goal," he said.
Shaikh said that high oil prices in the international market had affected economies all over the world, including Pakistan's, and that Taliban and Al-Qaeda-linked violence deterred foreign investors.
Pakistan has also suffered from a second consecutive year of major flooding, totting up losses of $3 billion, Shaikh said.
The minister said the budget deficit was five percent for the period July 2011 to April 2012. External forecasts predict it will nudge closer to seven percent of GDP for the fiscal year amid warnings that the government is running out of ways to fund it.
The IMF bailed out Pakistan with an $11.3 billion loan package in 2008 that stopped last November after Islamabad rejected strict reform demands, largely over tax.
Shaikh said tax collection had increased by 25 percent compared to the previous year.
"For the first 10 months we had tax collection of 1,450 billion rupees as compared to 1,050 billion rupees last year and it is an increase of 25 percent which is unprecedented in Pakistan's history," Shaikh said.
The country's tax revenues are among the lowest in the world at just 9.8 percent of GDP in fiscal 2010-2011, says the Asian Development Bank. Less than two percent of the population pays tax on their income.
The minister said the government had reduced its expenses by 10 percent.
Inflation stood at 10.8 percent, compared to 13.8 percent during the previous fiscal year, he said, adding: "We have adopted a tight monetary policy."
Pakistan has also missed out on payments from the United States for its efforts to fight militancy under the Coalition Support Fund (CSF).
This brought around $8.8 billion into Pakistan's coffers between 2002 and 2011, including $1.5 billion in 2009-10, but Islamabad stopped claiming the money as ties with Washington collapsed in the wake of the raid that killed Osama bin Laden last year.
Here's a Bloomberg report on Pakistan's 2012-13 federal budget:
Pakistan cut taxes and raised government salaries in an election-year budget that risks missing a target to narrow the deficit from a three-year high.
The government pledged to narrow the budget gap to 4.7 percent of gross domestic product in the year ending June 30, 2013 from 7.4 percent of GDP in the previous 12 months, Finance Minister Abdul Hafeez Shaikh said in his budget speech in Islamabad today. Opposition lawmakers shouted anti-government slogans, held up placards and scuffled during the presentation.
Prime Minister Yousuf Raza Gilani’s government, facing a general election by February at the latest, is under pressure to counter growing public anger over power blackouts, the fastest inflation in Asia and an insurgency on the Afghan border. The government is relying on domestic borrowings after aid flows from the U.S. and the International Monetary Fund dwindled.
“Raising salaries, reducing duties and increasing expenditure means they are likely to miss the fiscal deficit target once again,” said Saad Khan, fund manager and economist at Askari Investment Management Ltd., in Karachi which oversees 25 billion rupees ($267 million) in stocks and bonds.
The budget was unveiled after the nation’s financial markets closed. The Karachi Stock Exchange 100 Index (KSE100) rose 0.7 percent today and has climbed 14.5 percent in the past year. The Pakistan rupee was at 93.67 against the dollar, having declined 7.7 percent over the past 12 months.
Here's a Daily Times report on US aid to Pakistan:
United States Agency for International Development (USAID) disbursed to Pakistan over $2.6 billion in economic, energy, health, education and infrastructure projects under Kerry-Lugar-Berman (KLB) Bill.
“The main emphasis of USAID assistance was on energy production, economic growth, agriculture improvement, education, health and infrastructure projects in the country,” USAID Acting Country Director Karen Freeman told newsmen Friday after function at National Institute of Health here.
“US wants prosperous, secure, stable Pakistan with improvement in all basic needs of life available to people at grassroots level. All USAID funded projects are on track,” she said adding besides producing 400 megawatts (MW) through new projects, assistance is being provided for improving existing energy projects.
She said US government through USAID provided assistance to help strengthen energy sector, enhance economic and educational opportunities available to Pakistanis, improve health care services and meet critical infrastructure needs in remote mountain areas. It also provided substantial relief, recovery assistance, such as when floods devastated the country in year 2010.
Earlier, addressing certificate distribution ceremony of disease control and prevention program, she said outbreak of infection diseases, malaria, tuberculosis, hepatitis threaten well being of entire society. Doctors training will improve their skill to face this challenge. Strong disease surveillance, analysis, control systems are imperative so that infectious diseases are stopped.
Freeman said 31 Pakistani medical officials completed four week training from intensive US funded training program in basic epidemiology designed to strengthen detection, surveillance, analysis of infectious disease at district, provincial level. Program seeks to improve public health, disease control by building capacity in epidemiology, public health surveillance and response, public health laboratories, information systems for disease surveillance. USAID provided $6.78 million for this program since year 2006.
Since inception USAID health program trained 11,000 health care providers, provided 126 ambulances, upgraded 89 community healthcare facilities. In 2010 USAID helped restore 150 schools, trained over 600 teachers in Malakand. USAID offered training in finance to 19,000 women business owners in Punjab, Sindh provinces in 2010. As part of flood relief efforts USAID established 190 mobile health clinics, helped provide safe drinking water to over 1.5 million people daily.
Here's a Dawn Op Ed by Sakib Sherani:
As a result of the agreement on reopening Nato’s ground routes, it has been reported that Pakistan will receive around $1.2bn of unpaid arrears pertaining to the Coalition Support Funds (CSF). This money is reimbursement for costs already incurred by Pakistan in military operations in the northwest in support of Nato/Isaf’s Afghanistan campaign, and not assistance.
Nonetheless, it represents a not insignificant potential reduction of the fiscal deficit (by 0.5 per cent of GDP) and the need to borrow by government. More importantly, it has the potential to calm the financial markets that are nervous about depleting forex reserves in the context of large debt repayments due this fiscal year.
However, beyond this the CSF inflow will have a limited effect. To put this money into context, $1.2bn is roughly the equivalent of 0.5 per cent of GDP, 2.5 per cent of Pakistan’s annual foreign exchange earnings and 2.7 per cent of projected imports this year. More importantly, for the benefit of friends who celebrate the arrival of each $1bn of foreign taxpayer money as if it was ‘manna from heaven’, this inflow (or the elusive Kerry-Lugar money for that matter) is the equivalent of a miniscule 2.9 per cent of potential tax revenue that Pakistan can collect — but chooses not to.
In terms of overall US assistance, Pakistan has been a recipient of substantial inflows from the US in fits and starts over the years, with the bulk being in the realm of military aid. In terms of US economic assistance to Pakistan, the defining features since inception appear to have been:
— It has not been enduring, but spasmodic;
— The US has invariably followed a short-sighted, ‘transactional’ approach in its relationship with Pakistan, and continues to do so despite a strong case having been made at the start of the Pakistan-US strategic dialogue for a ‘transformational’ relationship;
— Assistance has peaked in non-democratic set-ups;
— US aid has generally been pro-cyclical, reinforcing upturns in the economy, rather than supporting Pakistan’s economy in a downturn (as currently). As a result, the impact has not been ‘visible’.
— US programmes are mired in bureaucracy, with large ‘lags’ and high transactional costs (to be fair, the latter is pretty much the case with all aid programmes across the board);
— Spending has, until now, either ignored areas deemed high-impact by the Pakistan side (agriculture, water, market access, for example) or, has been spread too thin over a large number of projects. As a result, the impact has been diffused, denying the US visibility for the taxpayer dollars it has spent in Pakistan.
The most potent form of economic assistance the US can provide to Pakistan, one with the greatest externality, is allowing preferential market access to the country’s textile and clothing (T&C) exports. If focused on the right products, such as garments (labour-intensive and value-added), the US intervention has the potential to create hundreds of thousands of additional direct and indirect jobs, carving a powerful urban, educated (and possibly currently unemployed) constituency comprising the country’s youth.
This will also be the ‘lowest cost’ in terms of US taxpayer dollars, since the additional exports from Pakistan will most likely displace existing imports into the US from some other producer.
Strangely, this is proving to be the second hardest legislation to bring to Congress after domestic gun control. Pursued actively by Pakistan since 2004, this request has routinely met the same response: Congress will not sacrifice the interest of its states with a large textiles constituency. Since then, however, Congress has allowed duty-free access for textiles and clothing to large regional blocs in Central America, the Andean states, and a number of African countries....
Here's a report on US civilian economic aid disbursed to Pakistan since 2009:
The United States has disbursed $ 2.8 billion in civilian assistance to Pakistan since the passage of the Kerry-Lugar Berman Bill in 2009, according to the State Department.
“While figures for this fiscal are not yet available, since the passage of the Kerry-Lugar-Berman legislation in October 2009, the US government has disbursed $ 2.8 billion in civilian assistance, including approximately USD 1 billion in emergency humanitarian assistance,” the State Department said in a statement.
The non-humanitarian civilian assistance funds are spent in five priority sectors: energy, economic growth, stabilization of vulnerable areas, education, and health.
In 2011, the US supported construction of 210 kilometers of road in FATA and Khyber-Pakhtunkhwa, funded the world’s largest Fulbright exchange program, and sponsored initiatives promoting private sector growth and civil society development in Pakistan.
“The US remains committed to a strong, mutually respectful relationship with Pakistan. We consider bilateral US civilian assistance to be an important component of that relationship and believe it can help Pakistan become a more
prosperous, stable, and democratic state, which serves the national interests of both the United States and Pakistan,” the statement said yesterday.
“Civilian assistance to Pakistan has been ongoing throughout the closure of the Nato supply lines and has continued after their opening,” the statement said.
Here's HuffingtonPost on zakat collection in Pakistan:
KARACHI, Pakistan — During the Muslim holy month of Ramadan, Muhammad Tashfeen Khan does what millions of other Pakistanis do: tries to keep his money from the government's religious tax collectors.
The wealthy businessman pulls all his savings from his bank account right before Ramadan starts so the government cannot deduct 2.5 percent as zakat, the annual donation many Muslims are religiously required to make as a basic tenet of the Islamic faith.
Khan and many other Pakistanis do this, not to avoid paying zakat, but to make sure the money doesn't go to the government, which is viewed by most people as incompetent and corrupt.
For many years, Pakistan required all Sunni Muslims, who make up a majority of the country's population, to pay zakat straight to the government. That regulation changed recently, but many Pakistanis seem unaware and continue to pull their money out of the banks to elude the state.
Instead, they pay zakat to needy individuals and hundreds of private charities operating in the country – some of which are actually fronts for Islamist militant organizations seeking money for both social welfare activities and militant activity.
"When it comes to zakat, or any other religious issue, I can't trust the government," said Khan, who runs a chain of private schools in the southern port city of Karachi. It's a "corrupt system, which hardly cares about the poor," he said.
A former religious affairs minister was imprisoned last year for allegedly cheating hundreds of thousands of Pakistani Muslims out of money while they were making the annual Hajj pilgrimage to Saudi Arabia.
Khan said he gives over $1,000 to individuals and private charities every Ramadan, an amount he indicated was greater than what he would pay if the government deducted zakat from his bank account. Ramadan began in July and is expected to end in the next few days, depending on the sighting of the new moon.
"By taking matters in my own hands, I am satisfied that it goes to the deserving people and charity organizations," said Khan.
Here's a PakistanToday story on US aid for education:
MANSEHRA - Over the next two years, USAID will provide $15 million for the construction and rehabilitation of seven Faculties of Education buildings across Pakistan.
More than 2,000 students and 100 faculty members will use these buildings every year, including the recipients of the new ADE and B.Ed. degrees.
The United States reinforced its long-term commitment to advancing education in Pakistan through the groundbreaking for a new, $1.5 million Faculty of Education building at Hazara University in Mansehra.
“This new faculty of education building will go a long way toward helping Pakistan improve the quality of education in Khyber Pakhtunkhwa”, this was stated by the Vice Chancellor of Hazara University, Prof. Dr. Syed Skhawat Shah while he led the groundbreaking ceremony on Monday in Hazara University.
While addressing the gathering State Minister for Technical and Professional Education Shahjhan Yousaf said that there is need to concentrate more on education. We have educated and results oriented teachers but don’t have strong education policy. “there is a need to work over it and to introduce good policy to facilitate new generation in their further studies,” he added.
Vice Chancellor Prof. Dr. Syed Skhawat Shah awarded degrees to 49 students from the Regional Institute of Teacher Education in Abbottabad who have been awarded Associate Degrees in Education after successfully completing two years of studies. “These two-year degrees were introduced to Pakistan by the Higher Education Commission (HEC) with USAID support, along with a four-year Bachelor’s Degree in Education. USAID helped design and introduce these degrees in order to increase the quality of teacher preparation at universities throughout Pakistan,” he added.
The US Agency for International Development (USAID) Mission Director Jock Conly congratulated the graduates through a special message saying, “The United States government is deeply committed to helping Pakistan develop strong educational institutions. Together with the Government of Pakistan, the United States is working to improve the quality of education throughout the country.”
Chief of Party for the USAID Pakistan Reconstruction Program (PRP) Tarek Selim said that the faculty of education building being constructed at the Hazara University will have 16000 square feet covered area, having six class rooms, multi-purpose hall for hundred people, learning resource center, two laboratories, a seminar room and ten rooms for faculty.
He said that building will also have twenty postgraduate rooms besides a dean office, administration room and faculty lounge. “This building, to be completed by end of the coming year, will accommodate three hundred students and has been designed to resist earthquakes besides being environmentally sustainable and energy efficient.” Tarek told the journalists.
He said that teachers will also receive continuing education in the new, U.S.-funded facilities that will help train teachers working in some of the nearly 500 schools that the U.S. has helped build in Pakistan since October 2009.
Here's a News story on FBR trying to tax Google ad revenue in Pakistan:
KARACHI: The Federal Board of Revenue (FBR) is devising ways to tax internet search engine Google Inc on the revenue generated through its business in Pakistan, said sources.
“It is difficult to levy taxes on the Internet search engine as it has no permanent establishment in Pakistan,” said a tax official. “However, since revenue is being generated through local advertisements, local departments have the right to collect tax under this head,” said official.
Google Inc is an American multinational corporation, providing Internet-related products and services, including internet search, cloud computing, software and advertising technologies around the world.
The recent discussion in the FBR on taxing the foreign company came in the limelight following the reports that Indian taxation authorities had issued notices to Google Inc for tax evasion. The Economic Times of India on November 13 reported that Google India had been slapped with a fine of 760 million Indian rupees ($13.8 million by the country’s income tax authorities).
The daily also reported search giant’s Indian arm had misled the department, under-declared its income, violated accounting rules and attempted to underreport revenues.
“The FBR chairman has instructed the tax departments to identify the business activities of the company in Pakistan,” said another FBR official. “So far, the FBR headquarters has not assigned the job to any tax department,” said official.
The authorities are finding agents working on behalf of Google Inc in Pakistan to inquire about the permanent establishment of the company and to assign jurisdiction to a tax department.
The official, however, said that in this case there is a possibility that the United States might express reservations as the two countries have an agreement regarding double taxation.
The authorities admitted that online commercial transactions have become sophisticated and tax departments have failed to generate tax revenue from such activities.
According to media reports, Pakistani advertisers spent Rs32 billion on advertisement in the print and electronic media in 2010-11, in which one percent of amount went to Internet advertising.
It also reported that Google accounts for 35 percent of total online advertisement spending.
Google officials on the condition of anonymity said that Pakistani authorities have no jurisdiction to tax the international entity.
About withholding tax by local advertisers, they said, big vendors pay the tax through proper invoices, while small vendors made transactions through credit cards and other means.
Here's a News report on US aid disbursement to non-government entities in Pakistan under Kerry-Lugar Bill:
ISLAMABAD: Around 71 percent of the total amount worth $3.172 billion disbursed by the United States under the Kerry-Lugar-Berman (KLB) Act was off-budget assistance for Pakistan in the last three years, official sources in the Finance Division confirmed to The News. Both Pakistan and the US confirmed that a major chunk of money continued to pour outside the government of Pakistan’s channel.
“The total amount disbursed to Pakistan from October 2009 to September 30, 2012, since the adoption of the KLB legislation, is around $3.2 billion. If you’d like the exact figure, it’s $3.172 billion,” said spokesperson of the US Embassy in an email message.
When contacted, Federal Secretary Economic Affairs Division Javed Iqbal confirmed that so far the United States has disbursed $3.197 billion for development in the last three years. “There are ongoing projects with an estimated cost of $754 million at the moment,” he added. Official data suggests that the on-budget assistance from the US stood around $350 to $375 million per annum – almost the same pattern followed by Washington in the aftermath of 9/11 when Pakistan decided to side by the country in the war against terrorism.
..renowned economist Dr Ashfaque H Khan said that Pakistan received $14.950 billion from US since 2001 till August 1, 2012, of which $9.8 billion was received as Coalition Support Fund (CSF) and the remaining $4.8 billion for economic assistance. On average, cash inflows stood at $437 million per annum in the last 12 years. Against the total losses of $68 billion incurred by Pakistan’s economy, the United States reimbursed just 14 percent or $9.8 billion. However, US spokesperson stated that US assistance to Pakistan has delivered real results for various sectors of the economy.
“US has added over 400 megawatts to the power grid – enough to supply electricity to nearly 900,000 households, or roughly six million people,” she said. In view of the energy sector, key projects funded by the US include power plant renovation at Tarbela dam, modernising generators at Mangla dam, upgrading Guddu, Jamshoro and Muzaffargarh power plants, and building Satpara and Gomal Zam dams.
US funds certain projects that will provide electricity to an estimated two million households in 2013. For the education sector, she added, they were building and renovating 800 schools and providing scholarships to 12,000 students to attend universities in Pakistan. Washington is also helping Pakistan in creating jobs and increasing incomes with programmes that boost agricultural output, build roads, and help entrepreneurs grow their businesses. Furthermore, US has funded the construction and rebuilding of over 650 km of roads in Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA), while the Peshawar Torkham highway’s reconstruction is underway.
In a statement, US Ambassador Richard Olson said that he was struck by the economic potential Pakistan possessed and the industriousness and vitality of its people. “Washington helped train 14,000 Pakistani farmers to better protect their livestock from diseases,” he said.
“It is also helping Pakistan in building new irrigation canals that will expand the arable land by more than 200,000 acres.”
He further added that US will build more than 1,000 km roads in FATA, KP and Balochistan. “We are also assisting Pakistan in business entrepreneurship,” he maintained. “To promote trade and investment, US is Pakistan’s largest export market. Two way trade between both the countries stood at $6 billion in 2011.”
Here's Reuters on 70% of Pak lawmakers not filing tax returns:
Almost 70 percent of Pakistani lawmakers did not file income taxes last year, an investigative journalism group said on Wednesday, highlighting deep flaws in a taxation system that has drawn repeated criticism from Western aid donors.
The Center for Investigative Reporting in Pakistan released a report based on leaked tax returns, marking the first time that the records of 446 lawmakers and ministers have been published and focusing scrutiny on individuals ahead of polls next year.
Pakistan's inability to raise revenue has constrained government spending, depriving schools and hospitals of funds and exacerbating a power crisis, causing widespread hardship in the nuclear-armed country of 180 million people.
"This is what the people of Pakistan are upset about," said Jehangir Tareen, a trim, silver-haired businessman who paid the most tax in the National Assembly last year. He tried to set a precedent by making his returns public but no one followed suit.
"Taxes are the beginning and end of reform in Pakistan," said Tareen, who gave up his seat in parliament in frustration over his inability to push changes. "Right now the rich are colluding to live off the poor."
Umar Cheema, an award-winning journalist heading the Center for Investigative Reporting, said he hoped the report would make members of parliament more accountable to voters.
Cheema took legislators' identity card numbers from their public election nomination papers, then convinced employees at the Federal Board of Revenue to leak the tax returns related to the identity numbers. It took him a year to collect the data.
The report highlights why Pakistan has failed to improve its tax collection rates: politicians benefit from a lax regime. No one has been convicted of income tax evasion in 25 years and few Pakistanis see a failure to pay tax as shameful.
Although lawmakers have about $25 a month deducted from their basic pay in tax, almost all have second incomes.
They built this system for their own benefit," said tax expert Ikramul Haq. Poor laws and loopholes meant lawmakers often have their income exempt from tax, he said.
Huge swathes of the economy, like agriculture, are virtually exempt. Specially designated products also benefit from "zero-ratings" and are not subject to any tax.
"We want to cut down on zero ratings and loopholes," said Ali Arshad Hakeem, the head of the Federal Board of Revenue. He has vowed to crack down on tax cheats.
Most countries collect between 20 to 40 percent of their economic output in tax. In Pakistan, less than 10 percent is collected, Franks said.
Pakistan revenue authorities say 0.57 percent of adults pay income tax and the number is steadily declining.
"People know that the elites, the government, are corrupt but they don't understand how the corruption works," said report author Cheema.
"If our rulers are not paying for themselves, why should taxpayers in other countries pay for them?"
Part of the problem with going after tax evaders is the poor state of records at the Federal Board of Revenue. It's hard to distinguish ineptitude from corruption, officials said.
About three quarters of the time, people's declarations of what they paid did not match the actual payments, the officials said. An official said authorities never really tried to match up the records: "Oh dear God, no!" he laughed.
^^Suhail: "Pakistani intellectuals need to develop an existentialist approach rather than pure idealism prevailing generally. This essentially means that the situation as it exists should be clearly understood and accepted and then think of practical solutions to address important issues."
Aha! Suhail is an MQM-supporter.
How do I know?
See this: http://alturl.com/dxqfj
Here's a Dawn story on Pak tax collector urging wealthy to pay taxes:
LAHORE: Chairman Federal Board of Revenue (FBR) Ali Arshad Hakeem on Saturday issued a warning to tax evaders and said the FBR had located over three million citizens who had enormous wealth but had not been paying their taxes, DawnNews reported.
Speaking at a ceremony in Custom House, Lahore, Hakeem said out of a population of 180 million, only 800,000 people were paying their taxes.
He said tax evaders were being given 75 days’ time to fulfill their responsibilities as citizens after which their names would be added to the exit control list (ECL) and their national identity cards would also be blocked.
The FBR chief said Pakistan’s system of taxation was in dire need of reformation, adding that the country could not be run with the existing taxation system in place.
Hakeem added that Pakistan had one of the lowest tax-to-GDP ratios in the world.
He stressed that the country was in dire need of tax reforms and that the government should take immediate steps in this regard.
The FBR chief’s remarks come in the wake of the introduction of a controversial tax amnesty bill in the National Assembly.
The opposition says the bill is meant to provide opportunity to millions to whiten their black money whereas Finance Minister Dr Abdul Hafeez Sheikh has said that there were only 800,000 taxpayers in the country and the bill would bring a substantial number of people into the country’s tax net.
Here's a Dawn Op Ed by Economist Sakib Sherani on Pak informal economy:
NEW estimates indicate that Pakistan’s informal economy is larger than previously approximated, and is expanding at a rapid pace. On the other hand, the formal sector appears to be on the retreat.
Indications to this effect have been around for several years. These indicators have included, among others, a rising share of informal jobs in total employment, a static share of output and employment of the formal manufacturing sector, a growing level of cash transactions in the economy, and an increase in estimates of the “tax gap”.
In addition, firm-level behaviour has also provided clues to the underlying trend in the economy. There are fewer listings on the stock exchanges, and some prominent de-listings, while a fairly significant number of previously formal small and medium enterprises have chosen to become Association of Persons over the past few years, according to some tax experts. Finally, according to some reports, the number of firms on the tax register (for income as well as sales tax) has declined in the past five years.
In fact, anecdotal evidence suggests that in the past few years, there have been instances of even large manufacturing units that have either completely or partially “shifted” production to the underground economy. Evidence to this effect has come from the Federal Board of Revenue (FBR) in the case of at least one significant sector of the economy — cigarettes — where a sharp dip in federal excise duty collection in 2009-10 was attributed to this phenomenon.
Having set up and run my own small business in the formal sector for the past two years has given me some unparalleled insights. While Jamil Nasir in his article in January (in another newspaper) believes the tax structure is not a big contributor, and the regulatory burden is a bigger factor, my own experience suggests that it is both, the tax and regulatory burden, that are either preventing informal businesses from formalising, or are driving already documented firms into the informal economy.
Here’s how. For starters, a formally registered firm filing an income tax return has a 20 per cent disadvantage compared to an enterprise that is operating in the undocumented sector (the tax arbitrage for informal firms). But this is not the end of it. The direct costs of maintaining books, having the firm’s accounts externally audited by a professional auditor, hiring tax consultants and an accountant etc. are not insignificant.
More annoying from my perspective is the opportunity cost of devoting roughly 10-15 per cent of my management time to tax and SECP-related issues, not least of which are chasing up on tax deduction certificates and acting as a withholding tax agent for the government.
In addition, the number of corporate and tax-related filings that the company has to make each month, every quarter, and then on an annual basis is absurd. To incentivise informal sector players to formalise, both the Federal Board of Revenue (FBR) and the Securities and Exchange Commission of Pakistan (SECP) will have to reduce the number of filings, while the transactional relationship with FBR will need to be converted to “arm’s length” via the use of automation.
Finally, the government should consider a system of tax credits and rebates on investment and hiring by small registered businesses, and an initial lower income tax rate for newly corporatised firms as a powerful incentive.
At the other end of the spectrum, the tax and regulatory burden on large, formal firms also needs to be reduced by a comprehensive broad-basing of the tax regime.
Here's a Telegraph story of Pak tx collector fired by judges for "simply too successful in forcing people to pay more taxes":
In a country where almost no-one pays income tax, including more than two thirds of MPs, it only took seven months for Ali Arshad Hakeem to become a hated man.
As Pakistan's newly minted chief taxman, he built a database designed to monitor the spending habits of millions of people, and work out how much tax they owed.
At the click of a mouse, he could call up details of the elite's holiday habits, electricity bills and bank accounts, complete with photos addresses and vehicle details.
This quiet, technocratic revolution came to a juddering halt last month, when Mr Hakeem was suspended by judges over allegations that his appointment breached government rules that demand each job be filled from a shortlist of three.
In Pakistan's murky world of political appointments and patronage systems, few believe that was the real reason. Instead, his supporters say he was simply too successful in forcing people to pay more taxes. In other words, he was too good at doing his job.
A recent report by Pakistan's Centre for Investigative Reporting revealed that President Asif Ali Zardari and Rehman Malik, interior minister until mid-March when the government stepped down ahead of next week's elections, were among those politicians who paid nothing.
It made gloomy reading for anyone wondering whether there was any will inside Pakistan to reform. "The problem starts at the top," the report stated. "Those who make revenue policies, run the government and collect taxes, have not been able to set good examples for others."
Two of Mr Hakeem's key appointments have since transferred, moving them away from jobs where he said they would have helped bring more than £1.3 billion into government coffers.
"It's gone. And I'm not going to do it again," Mr Hakeem, 49, told The Sunday Telegraph - his relaxed demeanour and easy smile belying the bitterness he feels.
Much of his work has been undone in the short time since he was forced out, he said, and he had no appetite to take on the courts or challenge his suspension. His wife and children had already suffered enough stress.
"I hate it. I worked 20 hours a day. I've taken so much hatred for this, everyone is my enemy and out to get me - and then they sack me. Angry is not even the word," he said.
The decision to oust him will worry international donors who have kept pressure on Pakistan to shake up its anaemic tax system. They fear that without economic growth and an expanding revenue, the country's growing population could tip what is a fragile state into a failed state.
Pakistan is officially classed as a middle income country. It has the resources to build more than 100 nuclear warheads yet depends on handouts to keep its power stations, schools and hospitals running.
#PTI's #Imrankhan paid Rs 195K tax. Is his income Rs 1 m a year? Rs 84K a month? Can he afford his big house, lavish lifestyle #Pakistan
Pakistani tax officials said they arrested two executives employed by a local arm of computer giant Hewlett-Packard Co. HPQ -1.09% on suspicion of corporate tax evasion.
Arrests are a preliminary step in Pakistani legal proceedings. The two were detained following a raid on offices of a large Pakistani computer seller that found records that allegedly indicated equipment wasn't properly taxed.
The officials indicated the tax evasion accusations could be expanded after further investigation. They said many of the allegedly untaxed goods could not have been brought into Pakistan without the knowledge of customs authorities.
Tanveer Malik, director of intelligence and investigation for the country's Federal Board of Revenue, said Shahid Ali Khan, H-P Pakistan's country general manager for printing and personal systems, and country controller Salim Rawjani were arrested in Karachi after the agency received "overwhelming evidence" of wrongdoing.
Efforts to reach Messrs. Khan and Rawjani were unsuccessful.
Mr. Malik said the government agency "found no evidence" of the U.S.-based company's involvement in the alleged wrongdoing.
"We have no comment at this time, other than to say that H-P adheres to the highest ethical standards," a spokeswoman for H-P in California said.
Mr. Malik said the arrests were tied to an investigation that began with a February raid on the warehouse of Advance Business Systems Pvt Ltd., one of Pakistan's largest computer systems distributors. ABS could not be reached for comment.
Records seized during the raid eventually led to charges being filed against ABS management for sales tax evasion, he said. "The evasion was done by under-invoicing the products," Mr Malik said.
He said the probe led to Dell Inc. and H-P's Pakistani units, which were asked to provide records and details of their transactions with ABS.
"Dell replied promptly and gave us full compliance," Mr. Malik said. H-P Pakistan managers declined to share information, he said.
A Dell spokesman said it complies with laws and regulations in all jurisdictions and cooperates with law enforcement when necessary.
Here's a News Op Ed on devolution of fiscal power in Pakistan's constitution:
Fiscal devolution involving the transfer of taxing and spending powers to sub-national levels of government is totally non-existent in Pakistan despite clear command contained in Article 140A of the Constitution of Islamic Republic of Pakistan. Pakistan is in dire need of fiscal devolution — presently major fiscal powers are concentrated in the hands of federal government. Even the Constitution denies the provinces right to levy sales tax on goods within their respective territories.
The provinces have also shown apathy to devolve administrative and fiscal powers to local governments. Since all broad-based and buoyant sources of revenue are with the federal government, contribution of provinces in total tax revenues is only six per cent and in overall national revenue base (tax and non-tax revenue) just around eight per cent. This has made them totally dependent on the Centre for transfers from divisible pool.
What makes the situation more disturbing is the fact that right of provinces to levy sales tax on services is encroached by the federal government through levy of presumptive taxes on services under the Income Tax Ordinance, 2001, sales tax on gas, electricity and telephone services and excise duty on a number of other services.
Like other federations — notably India, USA, Canada — in Pakistan the provinces should have the exclusive right to levy indirect taxes on goods and services within their respective physical boundaries. Right to levy any tax on goods should be restored to the provinces as was the case at the time of independence. Despite levying of taxes by the federal government that should have been the provinces’ right, Centre has miserably failed to reduce the burgeoning fiscal deficit that is reaching a horrifying mark of Rs1.8 trillion this year. Had provinces been allowed to generate their own resources, the present chaotic situation could have been averted.
The provincial parliaments in Pakistan should be pressurised by civil society to enact laws for establishment of local governments as ordained under Article 140A of the Constitution on the basis of social policy — they have so far just copied the previous outdated ones with patchwork here and there. The ruling classes do not want to empower people through self-governance. They want to enjoy total control over resources. The local governments will not be meaningful unless entitled, within national economic policy, to have adequate financial resources of their own, of which they may dispose freely within the framework of their powers and for public welfare.
In a nutshell, for achieving the goal of fiscal devolution, local governments’ financial resources must be commensurate with the responsibilities provided for by the constitution and the law to ensure welfare of the people and ensure sustainable growth at grassroots level. Part of the financial resources of local authorities shall derive from local taxes and spent for providing universal entitlements and development. Pakistan must follow the model of welfare states where resources available to local governments are based on a sufficiently diversified and buoyant nature to enable them to keep pace with the real evolution of the cost of carrying out their tasks.
From VOA report:
The World Bank says that in Pakistan, roughly 70 percent work in the so-called informal sector, a part of the economy that is unregulated and untaxed.
On a good day, Jamil Hassan will have some 15 customers, and earn an average of $8 a day.
Hassan is one of the millions working in Pakistan's informal economy, the mainstay for the country's vast poor. He never went to school. Cutting hair is all he knows.
"I've been doing this all my life," he said. "My father and grandfather did it before me, so this is what I do."
About 40 percent of all workers in Pakistan have no education. Hassan says illiterate people like him will never make enough to be able to save money.
Economist Ali Kamal says the informal economy can be seen as helping the country's overall economy.
"It absorbs a labor who is otherwise unemployed, it provides services at a cheaper cost and cheaper price to the general public, and it complements the formal sector," he said.
Mohammad Naeem works in a modest seasonal wheat mill, when Pakistan's constant power cuts don't grind work to a halt. Naeem says he would like to have his own business. But he doesn't believe in bank loans or in savings.
"I feel that people should not take loans, not owe money," he said. "That is very important. You should only use what you earn."
Kamal says millions of workers like Naeem and Hassan don't pay taxes, meaning less money for an already cash-strapped state.
"If we collect sales tax from all those informal sectors, it may account for four to five percent of GDP, and if we collect four to five percent GDP in sales tax from those informal activities, then we don't have any budget deficit anymore," he said.
But as of now, the informal sector is providing cheaper goods, services and labor to the formal sector. Analysts say Pakistan would have to reform its entire economic structure to change the situation
The irony: Cost to collect tax higher than tax collection in many major cities in #Punjab #KPK #Balochistan #Pakistan http://tribune.com.pk/story/881537/the-irony-cost-to-collect-tax-higher-than-tax-collection/ …
Out of the 21 formations, only six were collecting taxes, which were more than the total administrative cost and salary of officials serving at these stations. All these stations are located in Lahore, Karachi and Islamabad.
About 90% of the Rs64.3 billion was collected in these major cities since all major businesses have their head offices in one of these cities. The three LTUs situated in Karachi, Lahore and Islamabad pooled Rs57.6 billion or 90% of the total assessments.
Faisalabad is the country’s third populous city and the textile hub. However, the station generated just Rs193.1 million in income tax through FBR’s efforts at a total cost of Rs527.6 million. RTO Multan pooled just Rs77.6 million because of taxmen’s efforts while its administrative cost was Rs523.5 million.
The RTO Peshawar that deals most of the Khyber-Pakhtunkhwa (K-P) collected a meagre sum of Rs56.2 million at a cost of Rs561.4 million. The other station in K-P, RTO Abbottabad, collected Rs69.6 million through assessment but incurred Rs95.5 million. RTO Quetta collected Rs24.8 million at a cost of Rs86.2 million.
RTO Gujranwala – largely capturing the industrial area – collected Rs30.8 million at a cost of Rs317.6 million.
RTO Rawalpindi pooled just Rs46.4 million through FBR’s efforts at a cost of Rs417.2 million. RTO Sargodha collected Rs46 million at a cost of Rs187.8 million. RTO Sukkur collected Rs22.4 million at a cost of Rs223.8 million.
RTO Sialkot – hub of surgical and supports manufacturing units – collected Rs25.5 million at a cost of Rs240.5 million.
Mass tax avoidance chokes #Pakistan economy - http://FT.com http://on.ft.com/1eOItqc via @FT
As an industrialist in Pakistan’s southern port city of Karachi recounts his woes, from frequent power cuts to a shortage of trained workers, his accountant barges in with a question.
“Sir, how much should we earn from the farm this year?”
“Let me see how much we need to earn from the farm and get back to you,” the industrialist replies.
The encounter provides a glimpse of one of Pakistan’s toughest economic challenges: reforming its chronically dysfunctional tax-collection system.
Only about 0.5 per cent of Pakistan’s 200m people pay income tax, compared with 2-3 per cent in India and 20 per cent in China, according to the OECD.
Compliance with income tax payments is so poor in parts of the country that the cost of running local tax offices exceeds the tax they collect.
“Frankly, the government could end up saving money in some of our remote areas if the tax offices there were shut down today,” says one government official.
The problem has not been solved by a plummeting poverty rate, which fell from 65 per cent in 1991 to 13 per cent in 2011 according to UN figures released last week.
Huge numbers of affluent Pakistanis dodge their tax by colluding with corrupt tax officials to understate their incomes, exploiting loopholes, or both.
In one of the most notorious ploys, people buy farmland — for which there is a tax amnesty — then overstate their agricultural income and understate earnings from other business interests.
The country’s parliament, dominated by landowners, has blocked attempts by successive governments to remove this loophole.
A December 2013 study by the Centre for Investigative Reporting in Pakistan reported that almost half of the country’s 1,070 lawmakers in provincial and national assemblies paid no tax the previous year. More than 10 per cent did not even possess tax numbers.
The tax problem, analysts say, risks undermining Pakistan’s recent run of good economic news.
Business confidence is on the rise, economic growth has been recovering, hitting 4.1 per cent last year, and official liquid foreign reserves have grown almost fourfold in the past year to $12.5bn. Last month the central bank cut its benchmark interest rate 1 percentage point to 7 per cent and consumer price inflation is about 2 per cent, having been stuck above 8 per cent only a year ago.
But plunging oil import costs have played a large part in the upturn. The International Monetary Fund says decisive action on taxation is needed to back up this good fortune.
“The tax to gross domestic product ratio is still very low at 10-11 per cent,” says Harald Finger, the IMF official leading discussions with Pakistan on the next instalment of a $6.6bn loan programme. “For vibrant emerging markets, this should be in the 15-20 per cent range.”
Ishaq Dar, the finance minister preparing to present his annual budget on Friday, hails the government’s early success in broadening the tax base, boasting a rise of 200,000 taxpayers since mid-2013 to a total of about 900,000.
Officials say people have been targeted for whom there was clear evidence of wealth, for example frequent foreign travel.
Meanwhile, the country’s ruling elite show few signs of backing reform, according to western economists in Islamabad. “The political system is controlled by people who neither consider tax collection a big priority nor want to do anything beyond lip service,” says one.
Back in Karachi, the industrialist does not expect his own tax practices to change in the near future. “Using a farm income to avoid paying your dues is a common practice,” he says. “Pakistan’s ruling class must first change its behaviour before they expect the public to follow.”
#USAID to spend $ 450m on health, education, ag, energy, women projects in #Pakistan: director http://www.pakistantoday.com.pk/?p=492255 via @ePakistanToday
The United States International Development Agency (USAID) has planned to spend about 450 million US dollars in next American financial year on various projects from education to health and energy to agriculture beside others in Pakistan.
This was stated by Mission Director USAID to Pakistan John Groarke while talking to APP on Sunday about projects being executed and planned to be executed by the USAID in various parts of the country
He said that the USAID had executed hundreds of projects focusing five major areas – health, education, agriculture, economic growth and energy besides other areas especially women empowerment programme.
Responding to a question about agriculture dairy potential, the Mission Director said that Pakistan has a huge dairy farming potential to earn billions of dollars by exporting agricultural and dairy products.
Giving examples of agriculture and dairy products, John Groarke said that Pakistan has potential to export a large quantity of mangoes and oranges as these two Pakistani fruits were known worldwide.
“Pakistan has capacity to earn billions of dollars by capturing the world market through exporting dairy products and vegetables,” the Mission Director said.
Speaking about the importance of Pakistan for USA, the Mission Director said, “Pakistan is an important country for USA and a stable, secure and democratic Pakistan with a vibrant economy is in the national interest of the United States and Pakistan.”
According to documents made available to APP about projects of USAID, the United States has demonstrated a continued commitment to Pakistan through Kerry Lugar Berman Act. Since 2009 and the US government has disbursed over 4 billion dollars in civilian assistance in partnership with the Government of Pakistan (GOP), civil society and private sector institutions.
The USAID is executing hundreds of projects in various parts of the country and AJK having its offices in Islamabad, Lahore, Peshawar and AJK.
#India's cash economy - Why #Modi wiped out 86% of its cash overnight? #DeMonetisation #corruption
India is in the middle of an extraordinary economic experiment.
On 8 November, Prime Minister Narendra Modi gave only four hours' notice that virtually all the cash in the world's seventh-largest economy would be effectively worthless.
The Indian government likes to use the technical term "demonetisation" to describe the move, which makes it sound rather dull. It isn't. This is the economic equivalent of "shock and awe".
Do not believe reports that this is primarily about bribery or terror financing, the real target is tax evasion and the policy is very daring indeed.
You can see the effects outside every bank in the country. I am in Tamil Nadu in the south of India and here, as in every other state in the country, queues of people clutching wads of currency stretch halfway down the street.
Mr Modi's "shock and awe" declaration meant that 1,000 and 500 rupee notes would no longer be valid.
These may be the largest denomination Indian notes but they are not high value by international standards - 1,000 rupees is only £12. But together the two notes represent 86% of the currency in circulation.
Think of that, at a stroke 86% of the cash in India now cannot be used.
What is more, India is overwhelmingly a cash economy, with 90% of all transactions taking place that way.
And that is the target of Mr Modi's dramatic move. Because so much business is done in cash, very few people pay tax on the money they earn.
According to figures published by the government earlier this year, in 2013 only 1% of the population paid any income tax at all.
As a result huge numbers of Indians have stashes of tax-free cash hidden away - known here as "black money".
Even the very poorest Indians have some cash savings - maybe just a few thousand rupees stored away for a daughter's wedding, the kids' school fees or - heaven forbid - an illness in the family.
But lots of Indians have much more than that.
It is not unusual for half the value of a property transaction to be paid in cash, with buyers turning up with suitcases full of 1,000 rupee notes.
The size of this shadow economy is reckoned to be as much as 20% of India's entire GDP.
Mr Modi's demonetisation is designed to drive black money out of the shadows.
At the moment you can exchange up to 4,000 (£48) of the old rupees every day in cash for new 500 (£6) and 2,000 (£24) rupee notes.
There is no limit to the amount that can be deposited in bank accounts until the end of December, but the government has warned that the tax authorities will be investigating any deposits above 250,000 rupees (£2,962).
Breach that limit and you will be asked to prove that you have paid tax. If you cannot, you will be charged the full amount owed, plus a fine of 200% of the tax owed. For many people that could amount to be pretty much the full value of their hidden cash.
This is brave politics. Some of the hardest hit will be the small business people and traders who are Mr Modi's core constituency. They voted for him because they believed he was the best bet to grow the economy and improve their lot. They will not be happy if he destroys their savings.
Loopholes in Pakistani law that facilitate tax evasion and undocumented economy, according to Haroon Akhtar Khan on Dunya News with Kmran Khan:
1. Prize bonds are bearer's certificates....can be used to launder money on which taxes have not been paid.
2. Overseas remittances are considered legitimate tax-free income.
3. Income can be labeled "agriculture income" which is exempt from income tax
4. Anyone with foreign passport or residency permits like iqama can falsely claim to be non-resident (Law says they must spend over 180 days abroad) whose income in exempt from taxes.
Pakistan amnesty draws 100,000 new tax filers, $450 million
Pakistan’s government, struggling to lift revenues and cut ballooning public debt, registered around 100,000 new tax filers and expects to have raised about $450 million from a tax amnesty on hidden assets, the finance chief said on Thursday.
The announcement came a day after the International Monetary Fund gave final approval to a $6 billion loan package designed to shore up the economy while the government cuts debt and builds up dwindling foreign currency reserves.
Finance chief Abdul Hafeez Shaikh said nearly 137,000 people had registered at the closure of the amnesty this week, of whom nearly 100,000 were first-time filers.
That was a significant total in a nation where less than 1% of the 208 million population file tax returns.
In total, around 3 trillion rupees ($19.25 billion) of assets were declared and tax revenue worth around 70 billion rupees ($449.15 million) was collected.
Prime Minister Imran Khan introduced the amnesty on undeclared assets, part of a broader drive to widen Pakistan’s notoriously narrow tax base, in a bid to identify high earners for more efficient tax collection.
The move represented a turnaround for Khan who had accused previous governments of using amnesties to legitimise illegally acquired wealth hidden inside Pakistan and abroad.
Under the IMF agreement, approved on Wednesday, Pakistan has undertaken to drastically increase revenue mobilization by 4-5% of GDP at federal and provincial level over three years.
There have already been protests by opposition parties at the squeeze on household revenues.
Hafeez Shaikh said the IMF agreement would open up more funds from other lending agencies and help the broader economy.
“Pakistan’s economy will stabilize, and we will take on the path of progress,” he said.
The government has set a target of raising 5.55 trillion rupees ($35.6 billion) in tax this year, an ambitious goal given that it missed a previous target of 4.4 trillion Pakistani rupees ($28.2 billion) by over 500 billion rupees ($3.2 billion).
Documenting a Country’s Real Estate Economy. 30-40% of #Pakistan's #economy is estimated to be undocumented. Pakistan has often been accused of not doing enough to curb #terror-financing from within its borders. #property #gold #PrizeBonds #Tax #FBR #FATF https://foreignpolicyi.org/documenting-a-countrys-real-estate-economy/
For too long, Pakistan’s economy has remained largely undocumented and informal. This has caused a lot of trepidation both within the country and internationally. Locally, everyone knows that the country’s real estate sector has been used to park a significant amount of black money as well as launder money.
When we say ‘black money’, we do not necessarily refer to the money earned from illegal sources but (as far as real estate is concerned) also that which has not been documented thanks to loopholes in the registering mechanism – caused, of course, by the negligence of the authorities. The people themselves are certainly to blame, too; it suited them to pay much lower taxes than they would have had to after registering their properties at their proper prices. Also, there was nothing actually stopping them from recording their properties at their actual market values.
Internationally, Pakistan has often been accused of not doing enough to curb terror-financing from within its borders. Regardless of the government’s willingness to effect some change in the prevalent situation – one overarching issue is that the economy isn’t documented enough to effectively restrain finances from being funneled towards any organization with potential terror links. Again the significant importance of taking account of the undocumented black money and the funds parked in real estate sector becomes evident.
All of this has eventually led the government to finally take action on the matter before the current decade sees its closure.
In general, for the economy overall, the issues caused by the undocumented economy can be understood this way:
The informal economy encompasses the entire economy, as well as that particular sector which is resistant to its advances. Any reforms introduced can be easily bypassed by its instigations, and when 30-40% of the economy is estimated to be undocumented (as is the case in Pakistan), this means that, at the end of the day, the reforms will not really take root.
As mentioned above, the informal economy can serve well to hide illicit and downright criminal activities; even more so when the sector is as large as Pakistani real estate, which, according to some estimates, has a volume running in billions of totally unaccounted-for-dollars.
Locally, an oft-discussed issue regarding the undocumented economy in general and real estate, in particular, goes along these lines: the authorities have been unable to tax the sector effectively because of its non-rationalized nature.
The unregulated nature of the sector has also meant that it is highly uncompetitive and random. The prices have been raised on the basis of mere speculation; hence the preponderance of the frequent ‘bubbles’ that deflate the prices significantly ‘all of a sudden’ after every few years.
Two issues attendant to and stemming from the ones mentioned above lead to the market not contributing anything, relatively speaking, to the national economy – when analyzed for its actual size and volume.
And, despite such a large amount of investment being poured into the sector, it doesn’t contribute as much to construction (developmental) activity. Most of the money is allocated towards buying and selling land, which, at the end of the day, serves no purpose at all. It is not, then, surprising that Pakistan has a housing shortfall running into millions of rupees.
Income #tax collection from return filers in #Karachi was Rs 573 billion for the tax year 2018 followed by Rs 204 billion from #Islamabad, Rs 200 billion from #Lahore, Rs 35 billion from Rawalpindi, and Rs 16 billion from #Faisalabad. #Pakistan #revenue https://www.brecorder.com/news/40019858
The income tax collection from return filers in Karachi remained the highest during Tax Year 2018, followed by Islamabad, Lahore, Faisalabad and Rawalpindi. The Federal Board of Revenue (FBR) has conducted a city-wise tax analysis of the Tax Directory 2018 having data of income tax return filers, and tax deposited in each city for the year ended June 30th, 2018.
The FBR has shared tax details of all major cities, small cities and areas adjacent to border areas of Pakistan including tribal areas.
The FBR analysis, "Tax Collection from Major Cities" revealed that the income tax collection from return filers in Karachi was Rs572,594,396,386 for the tax year 2018 followed by Rs204,148,673,059 from Islamabad, Rs200,717,435,894 from Lahore, Rs35,170,187,615 from Rawalpindi, and Rs16,264,148,003 from Faisalabad. The city-wise data of Karachi disclosed that administratively, the FBR had divided the coastal city into five areas.
Total collection from Karachi stood at Rs572,594,396,386.
Breakup of collection from the commercial hub of the country revealed that the tax from Karachi was Rs209,107,138,348; Karachi Central Rs9,059,371,508; Karachi East Rs34,092,500,901; Karachi South Rs114,229,955,253, and Karachi West Rs28,891,487,111.
City-wise income tax data revealed that filers from Lahore deposited Rs200,717,435,894 in tax.
Breakup of collection from the provincial capital of Punjab reveals that the collection from Lahore was Rs180,580,693,868; Lahore Cantt Rs5,270,469,564, and Lahore City Rs14,866,272,462, during this period.
The income tax collection from return filers in Rawalpindi amounted to Rs35,170,187,615 for the tax year 2018. Malir contributed Rs29,374,153,827 as tax from the income tax return filers falling within the jurisdiction of that area.
Multan city contributed Rs12,772,888,239, and Sahiwal contributed Rs1,770,291,678 as taxes from the return filers in the area. The income tax collection from Gujranwala city was Rs7,926,264,130, during the tax year 2018.
The FBR collected Rs4,499,262,113 from income tax return filers of Sialkot.
Tax collection from Abbottabad stood at Rs1,610,871,493, and the FBR collected Rs2,481,243,943 in tax from Bahawalpur.
The FBR collected Rs6,357,384,959 tax from Dera Ghazi Khan.
From Kohat, the FBR collected Rs1,640,625,913 as tax from the income tax return filers during tax year 2018.
Tax collection from North Waziristan Agency was Rs1,119,980, and tax collection from Okara Rs1,081,818,348.
The FBR has collected Rs13,643,621,461 from Peshawar during tax year 2018.
Collection of tax from Quetta stood at Rs10,052,581,291.
As per the FBR data, the tax collection from Sargodha was Rs2,210,683,221, and Rs2,611,985,052 from Sheikhupura.
The income tax return filers in Sukkur contributed income tax of Rs3,574,079,338.
The city of Haripur contributed Rs1,706,260,030 from the income tax return filers.
Total income tax collection from the return filers of Hyderabad amounted to Rs4,065,622,573.
Breakup of Hyderabad, as per the FBR data, revealed that Hyderabad contributed Rs2,502,654,699, and Hyderabad City contributed Rs1,562,967,874.
The income tax return filers in Taxila contributed Rs1,251,185,013 as income tax during tax year 2018, and return filers in Thatta deposited tax of Rs1,014,821,378 during the period.
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