PTI’s flawed policies & forgotten promises

Huzaima Bukhari & Dr. Ikramul Haq

Prime Minister Imran Khan, while addressing top officials of Federal Board of Revenue (FBR) on November 13, 2019, sought their input/recommendations in respect of a three-year-long tax reform agenda, approved by him through a letter dated October 3, 2019. It was shocking that he approved the same without consulting the stakeholders and seeking the opinions from experts. In his address, the Premier rightly pointed out that masses get little in return for taxes, and that there exists huge trust deficit between the citizens and taxpayers.

The Prime Minister’s letter of October 3 contained the following major reforms in FBR and timelines:

• Establishment of Pakistan Revenue Authority (timeline June 30, 2020);
• Re-organisation and re-articulation of FBR Headquarters (November 30, 2019);
• Administrative and functional restructuring of LTUs/RTOs (December 31, 2019);
• Collection of sales tax on services by the FBR (October 30, 2019);
• Enhancement of collection charges of FBR for infrastructure development, automation and HRD (timeline June 30, 2020);
• Nationwide tax assessment and documentation drive (timeline November 30, 2019),
• Nation-wide survey of immovable properties (October 31), proposal for development of Alternate Border Economy (timeline October 31, 2019) and
• Process for automation of the FBR (timeline November 30, 2019).

According to a Press report, after meeting of Prime Minister with top officials of FBR, the Chairman FBR, Syed Muhammad Shabbar Zaidi, said that the timelines with reference to ‘reorganisation’ as given in October 3, 2019 letter shall be put on hold. “Meanwhile we at FBR shall strive to collect optimum revenue", he added. 

Prime Minister in his address of November 13, 2019 to FBR top officials emphasised the need to collect minimum Rs. 8 trillion by FBR “if we have to survive as viable State”. It was not a new statement on the part of Prime Minister, but as usual he and his economic team did not divulge any roadmap to achieve this goal. In the meantime, the people of Pakistan in general and businessmen in particular are disillusioned with the performance of Pakistan Tehreek-e-Insaf (PTI). In recent months, prices of items of daily use (food, medicines, petrol, utilities) have skyrocketed and business activities have been substantially slowed down leading to drastic cut in economic growth and unemployment. In the name of austerity, the PTI is pushing the economy to recession after stagflation. The cost of doing business has increased manifold making industries uncompetitive to produce exportable goods. Agricultural sector is also facing the brunt of wrong policies (heavy taxation of inputs and costly energy) and rural poverty is on increase.

Unfortunately, PTI after ruling for over a year now has forgotten what it promised to masses during 2018 election campaign. It also ignored what was suggested by us for meaningful tax reforms in various articles—Essential reforms, Business Recorder, March 29, 2019, Challenges for budget-makers, Business Recorder, March 22, 2019, Optimising tax collection, Business Recorder, March 15, 2019, Fixing the ailing tax system, Business Recorder, March 1, 2019, Country needs massive reforms, Business Recorder, January 25, 2019, Time up for fiscal integration, Business Recorder, December 21 & 23, 2018, Tax policy for investment, Business Recorder, December 14, 2018, Productive tax reforms, Business Recorder, October 27, 2018, Overcoming fragmented tax system, Business Recorder, October 19, 2018, PTI & revival of economy, Business Recorder, October 12, 2018, Bridging the tax gap, Business Recorder, October 5 & 7, 2018, Case for All-Pakistan Unified Tax Service: PTI & innovative tax reforms, Business Recorder, August 31, 2018, Overcoming debt burden, Business Recorder, August 27, 2018 and PTI and tax reforms, Business Recorder, August 17, 2018.

It is pertinent to mention that three-year-long tax reform agenda approved by Prime Minister on October 3, 2019 was not supported by any research or policy paper. It was reportedly approved by Prime Minister on the basis of a power-point presentation! This shows how our policy makers, even top technocrats, work and how chief executive takes decisions. Recently, the former finance minister and chairman of National Assembly’s Standing Committee of Finance and Taxation, Mr. Asad Umar, while speaking at a seminar hosted by Pakistan Institute of Development Economics (PIDE) reported to have said: “When he used to chair meetings of the Executive Committee of National Economic Council as the finance minister during his eight-month tenure he did not have any evidence-based research about how investment decision was going to benefit the economy”.

The salient features of the three-year long tax reforms programme, as reported in Press are:

• “Nation-wide tax assessment and documentation drive from Nov 30, 2019. The drive has been planned to be completed within two years and detailed proposals will be submitted later on. It will aim at ascertaining untapped segments including businesses, real estate and industries.
• Tax reforms must not create a choking effect for economy and correct taxation measures be taken with prompt implementation instead of entanglement in extended impasses.
• Launching a nation-wide survey of immovable property, starting from Islamabad industrial area this month. The nation-wide survey of immovable properties should be undertaken and completed over the next two years. It has been decided to involve Ministry of Interior and Ministry of Defence for completing the immovable property survey.
• Considering a proposal from a Chinese company for a digital land survey. In order to assess the wealth parked in the real estate sector a nationwide survey along with geo-tagging was imperative. A Chinese firm has offered to conduct the digital land survey but its proposal remains pending for the last two years.
• FBR’s broadening of tax base (BTB) zones have completed mapping of major shopping malls and plazas in the main cities but it was not clear whether the authorities used this information to enhance revenue collection.
• Prime Minister asked to fully implement the value-added tax (VAT) regime for all business segments over next three years. The deadline for the full VAT implementation is June 2022 for the FBR. The VAT will be progressively implemented across various segments commencing with Third Schedule products and gradually absorbing the complex value chain products. During the last stint of Dr Abdul Hafeez Shaikh as Finance Minister (2010-2012), the then government had tried to implement a VAT system under an IMF programme. But the Pakistan Peoples Party (PPP) government had to retreat after opposition from the business community.
• PM approved to enact VAT related legislation and formulate rules on need basis. The FBR will undertake surveys to assess particular business and industrial sectors to know the revenue potential of VAT of particular industrial sectors.
• Adopting the computerized national Identity card (CNIC) as common identifier by June 2020 –a thing that the FBR is trying to implement for the last many years without any success.
• Formulation of comprehensive proposal for establishing the Pakistan Revenue Authority (PRA) by June next year.
• The Ministry was also directed to make plans for centralised collection of General Sales Tax (GST) on goods and services by the PRA—that cannot be implemented without the support of the provinces.
• Restructuring of the FBR including appointing a Deputy Chairman for Inland Revenue and Deputy Chairman Customs. The restructuring and new appointments will be made before end of November, 2019. In the interim period, the FBR headquarters will be restructured on functional lines by segregating Inland Revenue and Custom Operations into North and South Zones.
• On the customs side, there will be two members for customs north and south operations, member transit trade and export and member legal and accounting.
• There will be four director generals in grade-21 looking after exports and transit trade, strategic planning, investigation and prosecution, valuations, input-output coefficients.
• On the Inland Revenue side, there will be member IR operations north and south, member taxpayers’ audit and member legal and accounting.
• There will be six director generals looking after investigations, strategic business analysis, international tax compliance, reforms & automation, VAT and broadening of the tax base and amnesty regime.
• The approved restructuring includes a Tax Policy Board that will be assisted by member human resource management and administration, member strategic planning, chief management information system, and member facilitation and taxpayers’ education.
• There will be six director generals in addition to four members. The PM approved the post of chief management officer and also to initiate the process of total automation of the income tax architecture of the FBR.
• In the Revenue Division, there will be secretary revenue, additional secretary customs policy, additional secretary income tax policy, additional secretary sales tax and federal excise and additional secretary international conventions.
• The prime minister also approved to restructure the existing regional tax offices, large taxpayers units, customs collectorates and district tax facilitation centres on fast track basis.
• It was also conditionally approved to enhance the FBR’s collection charges from 0.65% of the total collection to 1% over a period of three to five years subject to increase in collection. The first review of collection charges will be undertaken after June next year”.

The above proposals are more in the nature of patchwork than a complete re-hauling of the existing outmoded, inefficient, corrupt and ineffective tax machinery. Pakistan needs paradigm shift in tax policy and revamping of entire tax apparatus to broaden tax base, reduce tax rates, facilitate taxpayers, encourage investment and incentivise employment—these measures would automatically yield more taxes.

Strangely, PTI, after coming into power in 2018, forgot that it unveiled a comprehensive plan of tax reforms on August 24, 2012 before 2013 elections. The details of the said plan can be seen in ‘PTI agenda not a tough sell’, Business Recorder, August 31, 2012. It is strange that during election campaign in 2018 and after coming to power, PTI forgot what it prepared way back in 2012! The said plan contained concrete and rational measures for economic growth and revenue generation in Pakistan. The tax measures, proposed in 2012 by PTI, if implemented even in 2020, can change the fate of Pakistan. But, even PTI’s stalwarts like Shah Mahmood Qureshi, Asad Umar and Jahangir Tareen are not aware what the party proposed and pleaded in 2012!! Prime Minister Imran Khan also is oblivious about it!!!

In 2012, PTI in tax reforms strategy plan noted that one of the main reasons why democracy had failed to take root in Pakistan was monopolisation of resources by the a ruling trio—indomitable military complex having control over many businesses and state lands, feudal aristocracy enjoying political clout and businessmen-turned politicians on the hunt for bank loans and their subsequent write-offs. It proudly added: “Empowerment of the have-nots, imparting of education and skills to all without any discrimination is our agenda, which distinguishes us from traditional political parties”. Where is that agenda now? Obviously, the actions are just in opposite directions.  

Pakistan is ruled and controlled by a few who pay less than 2% in terms of personal taxes despite holding 95% of national wealth and assets. Since they are not ready to pay taxes due from them and bent upon looting the wealth of nation through corrupt practices, Pakistan is moving towards complete economic collapse. Present tax system of Pakistan negates the basic precept of democratic dispensation requiring that those who possess more economic power (income and wealth) contribute more towards national exchequer—progressive taxation being the most equitable and just method is emphasized upon primarily for its redistributive role. In Pakistan it is the other way around. The rich are thriving on the money collected—rather extorted—unjustly from the poor. The PTI has failed to reverse the prevailing scenario though it promised to do so in election manifestos of 2013 and 2018.

Article 3 of the Constitution of Islamic Republic of Pakistan says: “The State shall ensure the elimination of all forms of exploitation and the gradual fulfilment of the fundamental principle, from each according to his ability to each according to his work”. The ruling trio, mentioned above, enjoys complete immunity from this principle. The existing tax system, contrary to the Constitution, protects the rich and mighty—the establishment and exploitative elements have complete monopoly over economic resources and the poor are dying of hunger and diseases. Since the privileged classes are not ready to pay taxes and share resources with the masses, the incidence of tax is mainly on the less privileged classes and the poor. What makes the situation more tragic is the fact that the major portion of what is collected as revenue or non-revenue receipts or borrowed internally and externally, goes for debt servicing, defence and meeting the luxuries of elites— militro-judicial-civil complex and their cronies in politics. In the end nothing is left to provide even for fundamental services of health, education, transport and housing for the masses and government borrows money for running day to day affairs of the State.

Determination of a tax base capable of measuring an individual’s ability-to-pay is a major problem of our tax system. This rule is incorporated in the form of progressive rate schedule for personal income tax, estate duty, and property tax worldwide. In Pakistan we have moved from this policy to regressive taxation where the mighty civil and military bureaucrats (now an integral part of our landed aristocracy by earning State lands as meritorious awards and rewards), rich industrialists and greedy businessmen are paying meagre personal taxes. On the contrary, the poor are compelled to pay sales tax on goods and services (levied under federal and provincial laws) at the exorbitant rate. This is absolutely criminal and blatant violation of Article 3 of the Constitution.

The dream of making Pakistan a self-reliant and egalitarian State can never be realized unless the mighty sections of society pay personal taxes. At the same time the tax policy must be a tool for industrialization—taxing the unproductive sector to divert money towards productive sectors. Above all, it is necessary to provide socio-economic justice to all the citizens—progressive taxation ensures redistribution of income and wealth by taxing the rich for the benefit of the poor. At present, we are taxing the poor for the benefit of the rich. This trend must be reversed if we have to progress.   

On October 4, 2018, the Government of PTI launched a website (pm100days.pmo.gov.pk) for “public to know progress about the PTI’s 100-Day Agenda”. Adviser to the Prime Minister on Establishment, Mohammad Shehzad Arbab, made tall claims about “track our performance” and threw a challenge that “after 100 days you can hold us accountable and we will tell where we stand. What we have achieved”. The retired bureaucrat-turned-adviser publically averred that “K-P’s model of governance would be applied all over Pakistan”. The model of Khyber Pukhtunkhwa is before us—the disastrous handling of BRT project! The same thing happened to website aimed at “trekking PTI’s performance”. This presents a classic study to prove how our existing and retired bureaucrats capture every political party in power and then play havoc with everything! Fault lies with political parties that allow them to undertake what they are not capable of and check their inefficiency, corruption and nepotism—hallmarks of our bureaucracy. One can only cite Mir Taqi Mir for this situation: Mir kya sada hain, beemar huay jis ke subub; Usi attar kay londay say dawa laity hain (What a simple soul is Mir that he seeks medication from the healer’s boy, who is the cause of his ailment).

The economic plan of PTI as part of ‘Imran Khan's First 100 Days Agenda’, as elaborated by Asad Umar on May 18, 2018, included creation of 10 million jobs within five years, imparting skills to youth, promotion of the manufacturing industry and paving the way for speedy growth of small and medium-sized businesses. He announced that all government guest houses would be turned into hotels and made available for the public, and that four new tourist spots would be discovered within the first 100 days. He said that PTI, if elected would transform Pakistan into a business friendly country, undertake tax reforms and construction of 5 million houses, among the main points of the proposed 10-point economic policy. He promised constituting of "Council of Business Leaders" to improve Pakistan's global business standing. He also gave the idea of "Pakistan Wealth Fund" to bring about revolutionary changes in Public Sector Enterprises (PSEs) such as the Pakistan International Airlines, Pakistan Steel Mills and power distribution companies etc. He made a pledge to turn the ongoing China-Pakistan Economic Corridor (CPEC) into a revolutionary project and improve the citizens and industrialists' access to capital.

The tenure of Asad Umar as finance minister was disastrous. First he resisted to go to International Monetary Fund (IMF), and then said it was inevitable—this created utter confusion and uncertainty that was fatal for business and investment. Later, after going to the IMF for another bail-out with tough conditionalities, the then Finance Minister, Asad Umar, in an interview in Washington, said: “PTI is trying to protect the Pakistani people from further, immediate, hard-hitting policy interventions”. The interviewer made an observation: “On the whole, I came out of the conversation feeling bullish about Umar having good intentions and a fierce personal discipline and competency to solve Pakistan’s problems. I do fear that lack of bureaucratic capacity to execute his policies and high expectations that PTI set for itself are significant challenges that can sink or swim Asad’s reform journey for Pakistan”. What happened afterwards is a history. Now we are fully controlled by IMF-imposed economists and they are playing havoc with economy, making the lives of common people a hell!! Tax Czar of Imran Khan from private sector is no exception.

The issue of ‘bureaucratic capacity’ has not been tackled effectively by PTI after coming into power though in initial days it showed eagerness to take administrative reforms as top priority as appointed Ishrat Hussain as Advisor to Prime Minister for Institutional Reforms & Austerity. In his inaugural address to the nation after assuming office, Imran Khan gave an impressive speech outlining his vision for ‘Naya Pakistan’, promising sweeping changes at a massive level, to cut down on expenses and to introduce structural reforms for revamping the cash-strapped country. What happened afterwards is known to all. He started depending on powerful ex-DMG (now PAS) cadre and they frustrated every effort of meaningful structural reforms in bureaucracy, especially in FBR, the most vital organisation for economic salvation of the country by optimizing taxes and facilitating investment and growth. The PTI even after two supplementary Finance Acts and Finance Act, 2019, failed to give any positive direction to ailing tax system. It conveniently allowed FBR to follow the old policies of Ishaq Dar—resorting to oppressive taxes, destroying economic growth and widening fiscal deficit.

If Imran Khan really wants to make Pakistan a viable economic entity, he must understand that institutional reforms are sine qua non for achieving sustainable economic growth leading to adequate revenues. At the same time, he needs to concentrate on delivery of public services and right-sizing the monstrous government machinery. The elitist structure is the main hurdle that needs to be dismantled. Revenues are byproduct of growth, which is being retarded by ill-advised policies of austerity and creation of fear by PTI Government. Threatening the existing businesses through FBR/FIA/NAB or refraining the prospective local and foreign investors by way of hostile policies, laws, rules and regulations is a sure recipe for economic disaster and this is what has been done so far by the PTI economic team.

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The writers, lawyers and partners in HUZAIMA, IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)