Making policies with clear objectives

By Ridhwan Khan

Prudent policies that deliver on outlined objectives and foster the growth and development of the country are the need of the hour. Amidst rampant inflation and the current financial crisis, the Pakistani government needs to step-up and play a more active role. We need to move away from a myopic standpoint to embrace a more farsighted view in order to allow for a more progressive Pakistan.

A whole new debate can be started on what policy measures the government should take as a first to help bring out the country from the grasp of recession; and inflationary pressures. However, there are a few underlining principles that stand out unanimously. For starters, there is no room for ad hoc policies – the policy makers have to be farsighted and take policy measures that will not only deliver on consistency but in the long run serve to ease the pressures faced by the common man whilst also help boost the industry and stabilise the economy.

The recent fiscal policy measure taken by the government of levying Regulatory duty on a list of 379 so called luxury items in August 2009 is a typical example of an ad hoc policy decision which unfortunately our policy makers continue to make, failing to have a long term, futuristic approach. The most striking feature of this list is the wide range of products that have been specified as Luxuries – one fails to understand how someone can club items like 1500–3000 cc cars, weapons, perfumes, televisions, etc with day to day use basic hygiene items like soap, toothpaste, shaving preparations, shampoo, etc under one category. Moreover, the levy of this additional duty on these basic hygiene items has affected the common man directly as these item form a major part of his monthly purchase. At the same time, this is acting as a protectionist policy for locally produced goods by disrupting the level playing field between imported and locally produced goods.

The rationale given by the government for introducing the list was that it would help in reducing the out flow of the valuable foreign exchange from the country. It seems like a good argument but only at the face of it as a closer look reveals a few discrepancies. Had the listed items constituted a major chunk of the import bill, the explanation provided by the government would have actually made sense but such is not the case. It seems like the government has totally disregarded the 80-20 rule in this respect, else 80 per cent of the items in the list would have not have formed such an insignificant part of the import bill. Levying additional duty on these basic day to day items will only result in increasing inflationary pressures on the common man and has even reduced the already diminishing margins of many industries.

The all important budget exercise for 2009 - 2010 has been initiated and all the think tanks are sitting together to figure out policies that would enable the country to emerge as a stronger nation in the coming year. This is the best time for the government to undo policies that do not work in favour of the common man, trade, commerce and industry as well as our beloved country.

The government must seize this opportunity to make things right and change its approach as experts also agree that the cost of the duties imposed on this category may very well outlive/ outweigh the benefits of the same i.e. the revenue loss to the government in the form of taxes and duties from the negative impact on the affected companies is much more than the addition in revenue from the increase in import duties. Therefore in the long run the government will be forgoing a lot more revenue in the form of taxes on corporate earnings assuming it does not alter its import policies to assume a more lenient position so as to create a climate that is more conducive to business expansion and burgeoned economic activity.

It all boils down to the fact that the government needs to do something about the increasing burden on the companies and consumers. It needs to realise that it has to act in the best interest of the common man as well as do everything in its power to minimise the negative impact of the economic downturn on corporations in the form of subsidies or reduced taxes and duties. This will enable these corporations to invest and be in a better position to safeguard its consumers’ interest whilst making decent profits to fuel growth and consequently contribute to increased government revenue.

Pakistan is a developing country and as a nation that wants to be in the forefront of economic progress, it is our appeal to the policy makers to consider the bigger picture and avoid myopic, short term and ad hoc policy measures – and the first step in this direction can be the elimination of the heavy regulatory duties imposed on non-luxury items, which include basic hygiene products of daily use like soaps, toothpaste, shampoo, etc consumed by the masses.