The writer for this post is Executive Editor of The Express Tribune
More than 99.9 per cent of our population would perhaps find it almost impossible to grasp, in clear terms, what is meant by the phrase “tax-to-GDP ratio” or why we need to rush to the IMF every now and then, missing completely, therefore, the connection between this strange sounding phrase and the begging bowl that has now become our perpetual oxygen tent. But our rich, who make up a minuscule part of even less than one per cent of our population, understand very well what the phrase means, why we need an IMF bailout so very often and what is the relationship between the two. The reason why our rich comprehend the issue better than the rest of the population is inherent within the very process through which they have continuously succeeded in cornering the national wealth.
Since most of our rich do not fall in the category of true entrepreneurs, they have, therefore, consistently failed to understand that by not paying their national dues, and at the same time, by indulging in pilferage of utilities like power, gas and water, they are only jeopardising the chances of their own growth and risking self-destruction in due course of time, if by that time, their shenanigans have not destroyed the very country that has offered them such vast opportunities to write so many rags-to-riches stories. Interestingly, most of these rags-to-riches stories are not the usual tales of trials and tribulations, or accounts of high risks and high profits or mental epics of when and where to invest. Almost all such stories in Pakistan are more or less anecdotes of having the right connections, nepotism and favouritism and of out and out corruption, promoting rent-seeking.
We started with permits and licences. The well-connected made millions by simply selling the official paper. Next came, vertical and horizontal monopolies flowing out of the private banking sector concentrated in the hands of a few families. This was preceded immediately by the bounties generated by the Pakistan Industrial Development Corporation, which used to set up industries in lucrative sectors, make them profitable and then sell them at throwaway prices to the well-connected. Around this time, state-run banks were providing 75 per cent of the equity for investment to people with the right connections. Even before the launch of the unit, the sponsors would retrieve their part of the equity by floating shares and then buying them back after manipulating the market to depress their prices to next to nothing. And even before the first batch of goods went out of their factories, they would have pocketed huge profits by over-invoicing imported machinery. And many would make millions routinely by siphoning off investments in the loan-burdened units and declaring them bankrupt.
Even the nationalisation phase of the 1970s did not curb their rent-seeking habits. While nationalisation soon turned into bureaucratisation, the incoming military regime of General Ziaul Haq returned many of the nationalised units back to their owners almost for nothing. In some cases, the buyers were allowed to borrow from nationalised banks without any collateral to buy nationalised units. And when the denationalisation spree was launched in the 1990s, highly profitable public-sector units were sold for a pittance and since then, the amount of tax these units used to pay has gone down considerably.
Every time an attempt is made to make them pay their dues, the big business would get the urban-based media to focus on exemptions allowed on income from agriculture, while at the same time, it would use this very concession to increase its own quantum of tax avoidance. In fact, the two — the big business and the agriculturists — have contributed equally to keep our tax-to-GDP ratio so low. Between the two, they have cornered our entire economy and using this clout, they have bought off both the establishment and the political parties. So, whether you have a military regime or an elected civilian government, the two moneybags would continue to call all the economic shots and that is the reason why our tax-to-GDP ratio continues to remain so pathetic and we continue to need the IMF’s oxygen tent to escape default.
Published in The Express Tribune, July 3rd, 2013.