circus of contradictions
Growth in South Asia
Students and parents keep looking for an education system that best serves the purpose
By Hamaad Mustafa
The United Kingdom has recently revamped its entire education system. With re-doubled stress on languages and communication skills they are trying to emphasise the age-old point about education not being about the destination but the journey. Systems have already replaced the A levels in many of the leading schools in Britain, such as Charterhouse and Westminster. Of course, we Pakistanis still lag behind, and as each year passes, the number of pounds we pay foreign bodies such as the CIE only increase. Don’t forget the good news
Afghanistan’s huge mineral resources remain to be tapped; when and how are the questions
By Haider Abbas
The discovery of untapped lithium deposits in Afghanistan by the United States is far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself.
Beyond political opportunism
Perhaps a valid critique of RGST is that mechanisms to implement this bill are weak, which leads to issues of tax evasion and corruption
By Raza Rumi
While Pakistan’s policy debate hovers around political machinations and power configurations, the neglected issue of economic recovery remains central to the viability of country’s future. We are sandwiched between two economic giants who are growing despite the global recession. China has eradicated absolute poverty after decades of high growth rates and effective social policies. India’s GDP growth rate is projected to be 9 percent this year. Both India and China have also improved tax administration, enhanced their revenue generation capacity and implemented economic reforms, which are likely to result in long-term sustainable growth rates. India needs years to catch up with its issues of hunger, poverty and inequity, but its progress appears to be in the right direction.
What have we done to ourselves? We have no consensus on economic reform and tackling poverty. We are living with the lowest growth rates of our history and perennial inflation with little prospects of change. Had it not been for Pakistan’s resilient population, its formidable remittances and the mammoth black economy, we would have faced an economic collapse and resultant, massive social unrest. Having said this, inflation has eaten into the purchasing power of the population. The fixed-income groups and the poor in Pakistan have suffered the most.
The causes of the rising price levels are manifold: the increasing budget deficit, the withdrawal of subsidies, the manipulative behaviour of hoarders in the commodities market and excessive borrowing of the government to finance its operations. The government had borrowed almost a quarter of the total money supply so as to finance its needs for a short period of five months. This is illustrative of a textbook case of the excessive printing of money leading to inflation. All these factors make one thing clear: it is misgovernance that is actually leading to inflation.
The rise of the informal economy in our case has also wreaked havoc on the stability of pricing mechanisms. If there was ever a need of accelerating the documentation of economy, it is now.
This is perhaps why the introduction of RGST is a much-needed reform. Admittedly, the RGST will cause a one-off round of inflationary pressure given the indirect nature of the tax. However, the reality is that the opposition to RGST is being mounted in the name of the poor by powerful lobbies. RGST reforms have caused uproar in the business community, fuelled by sections of the print and electronic media. While many politicians have run with hares and hunted with the hounds on the issue of RGST, only a few have debated the actual nature of the reforms. Unfortunately, this issue has turned into another populist rhetoric platform, standing on which politicians and political actors are likely to gain some short-term mileage.
The ‘exemptions’ culture
Pakistan’s power culture celebrates exemptions: from standing in a queue at the airports to respecting traffic lights. Similarly, the rich and the powerful have created a web of tax-exemptions. The RGST package will withdraw many of these state favours. There are no new taxes being implemented in the form of the RGST. While pegging the rate at 15 percent — brought down from 17 percent in many cases — only the exemptions are being withdrawn largely sparing the food items.
The list of proposed withdrawal of sales tax exemptions forwarded to the government by the Federal Bureau of Revenue (FBR) includes computer software, aircrafts, ships, defense stores, tractors, bulldozers, live animals and live poultry, vegetable ghee, cattle feed and fruit juices among others.
Still, there are a few exemptions that are being retained. The proposed list of retained exemptions include wheat, pulses, vegetables, peas, newspapers, books, ambulances, fire-fighting trucks, artificial parts of the body and glucoses testing equipments. Relief goods will also be exempted as authorized by the government.
It is nothing short of falsifying facts when various TV anchors lament the prospective increase in prices of vegetables, etc, and blame it all on the RGST.
Why do we need the RGST?
It is true that being an indirect tax, the withdrawal of exemptions in various commodities will lead to a rise in prices but at the same time it will also expedite the much-needed documentation of the economy. Let’s face it. We have to increase our revenues in order to control the burgeoning deficit, which has already been contributing to rising price levels. Inflation is a real issue regardless of the RGST. No doubt, the placement of progressive taxes is the best way to go but in order to increase the tax base and to document the different sectors of the economy at every stage of the supply chain, the reforms in the general sales tax were inevitable.
According to the finance minister, in total Rs40 billion will be generated from the 10 percent flood surcharge, while Rs25 billion will be raised from the withdrawal of GST exemptions on goods and services. RGST will also increase the number of taxpayers if properly implemented. This will lead to an increase in our tax-to-GDP ratio, which is unfortunately one of the lowest in the world.
Perhaps a valid critique of RGST is that mechanisms to implement this bill are weak, which leads to issues of tax evasion and corruption.
If RGST is passed in the National Assembly, the government will have to fix the issues of capacity and institutional mechanisms.
Suffice it to say, bolder steps will be required in the future to expand the revenue base of the economy. This would include increasing the agricultural sector taxes. The problem with this sector is that most legislators in the provincial assemblies represent the landowning classes. Furthermore, provinces have little capacity to implement an effective tax regime. But this should not undermine the much-needed reform and debate on this must continue. However, to present agricultural income tax as a substitute for RGST is a fallacy at best.
At the same time, Pakistan would need to manage expenditures, especially on the current side (administration, defence and debt-servicing) and find an alternative paradigm for development spending, which has been a victim of contractors’ greed and the major source of rents and malfeasance.
As mentioned above, the coalition partners have used the RGST as a tool to bolster their position within the power matrix. The Awami National Party (ANP) is the only political party that has supported the PPP in imposing the RGST.
The Pakistan Muslim League Nawaz (PML-N), Pakistan Muslim League Quaid-e-Azam, (PML-Q) and the Muttahida Qaumi Movement (MQM) have rejected the RGST. The Jamiat Ulema-e-Islam (Fazlur Rehman) (JUI-F) sits on the fence and is gaining brownies in the form of the chairmanship of the Council for Islamic Ideology and perhaps more in the days to come. The MQM chief Altaf Hussain has repeatedly called for taxing the landlords instead of imposing RGST. PML-N, PML-Q and JUI-F have also reiterated the need to check corruption within the current tax collection system instead of burdening the common man through the proposed reforms.
The Bill was passed through the Senate as the recommendations by the Senate Standing Committee on RGST were approved on the 26th November 2010. The Committee made 15 recommendations to the GST Bill 2010 and four recommendations as an amendment to the Finance Bill 2010. It proposed exemptions for food items, medicines and stationary for education purposes. PML-Q’s walkout helped the government. Intriguingly, Ishaq Dar, a senator belonging to PML-N, a party that has been a vociferous opponent of the RGST bill, signed the bill in the Finance committee.
The RGST Bill is likely to be tabled in the National Assembly on 18th December 2010, where recommendations from the National Assembly Standing Committee on Finance will be debated.
It is unclear whether the government will be able to get the bill passed through the NA. However, the government will try to negotiate with its recalcitrant allies, i.e. MQM and JUI-F to seek their support. Otherwise, there are signs that PPP has entered into a pact with PML-Q for tacit support. Already, a PML-Q MNA has been appointed as the Chairman ERRA and the process of including PML-Q legislators in the Cabinet might continue. PML-Q could simply walk out of the NA proceedings, which will provide the government with a majority at the time of the voting.
Ideally speaking, given the importance of this reform, the federal government ought to restart dialogue with PML-N. Given that the Punjab province is being ruled by PML-N, such a course of action will augment political stability. If we want to revive the economy and improve our long-term prospects, hard reforms will need to be taken. RGST may be the first step in this direction. Otherwise, we will continue to be a rentier state, dependent on the global strategic games and life-support mechanisms such as the IMF.
The writer is a policy adviser and writer based in Lahore. He blogs at www.razarumi.com. Email: firstname.lastname@example.org
On World Competition Day, governments in developing countries need to be reminded to join in and prosecute international cartels
By Pradeep S Mehta
On 5th December, 1980, the United Nations adopted the international standard for competition laws under what is called the United Nations Set of Multilateral Principles and Rules for the Control of Restrictive Business Practices, better known in the international community as the UN Set on Competition Policy.
This Set has guided a large number of developing countries to draft and adopt new competition laws. From about 30 countries in 1995, today over 120 countries have adopted a new law or improved their existing competition law, and few more are in the queue.
Recently, the Set was reviewed at Geneva at the UNCTAD’s 6th Review Conference on the Set in the midst of enthusiastic delegates from over 100 developed and developing countries, which was also celebrated as the 30th anniversary of the Set.
To mark this anniversary, a proposal was mooted to observe 5th December the World Competition Day by the International Network of Civil Society on Competition (INCSOC), an international coalition of 164 competition practitioners, civil society organisations, researchers and legislators spread across 66 countries.
Large number of delegates at the conference supported the idea and have agreed to celebrate the World Competition Day in their own countries on Sunday 5th, or Monday 6th being the next working day. Incidentally, many countries are already celebrating National Competition Days, such as European Union member states, Brazil, Zambia etc and other countries are also considering doing so.
It was also agreed that the day be used to raise awareness and rally common people around the issue of air cargo cartels which have been causing serious harm to consumers and the economy.
While cartels are most pernicious of all anticompetitive practices and are very difficult to detect and investigate for their inherently secretive nature, the task gets more difficult in aviation industry because it operates across borders. However, once one airline was caught it had a domino effect around the world.
A bit late, but the EU did act on it by slapping one of its biggest fines in history on eleven airlines totalling 799.4mn euros ($1.1bn) for running a global cargo cartel, which manifested itself through coordinated action on surcharges for fuel and security between 1999 and 2006. Those penalised included Air France-KLM, British Airways, Cargolux, SAS, Singapore Airlines, Air Canada, Qantas, LAN Chile, Martinair and Japan Airlines. Lufthansa was pardoned because they spilled the beans.
The prosecution by the EU was not the first for most of the airlines, as earlier the US Department of Justice, had also found that some of the world’s biggest airlines had conspired between 2000 and 2006 to fix cargo prices. In 2009, three cargo airlines in the US, agreed to pay fines totalling $214mn for the same crime. In this case, 15 airlines were prosecuted and a total fine of $1.6bn was imposed. In addition, three senior air cargo industry executives agreed to serve jail terms. This concerted practice to fix cargo rates started in 2001 and continued till February 2006. Before this, in 2008, four airlines, including Air France-KLM and Cathay Pacific, had to pay fines in the US totalling $504mn for their roles in a criminal conspiracy to fix surcharges on air cargo shipments.
The Japanese Fair Trade Commission, in 2009, was also reported to have notified more than ten companies that they would be fined about ¥10 billion for operating a cartel for international air cargo fees. This year, the South Korean Fair Trade Commission imposed a total fine of 119,544 million won (nearly US$100mn) on 19 airlines for their conspiracy to levy fuel surcharges and continued to raise surcharge rates for air cargo to-and-from Korea between 1999 and 2007. The South African and New Zealand authorities are also investigating similar cartels which affected their markets.
Cartels in the air cargo industry should be of concern to all stakeholders as they have a serious negative impact on efforts towards economic development and poverty reduction in developing countries. A study done for the International Air Cargo Association and Air Cargo Forum by John Kasarda and others in 2006 showed that the air cargo industry is responsible for transporting about 29.9 percent of all international trade, with an annual value of $2.7tn.
The study also showed that Korean Air, Lufthansa, Singapore Airlines, Cathay Pacific and China Airlines were the largest combination passenger-cargo carriers in terms of capacity. American Airlines and United Airlines were found to be providing substantial cargo service even without use of dedicated freighters, while airlines such as Lufthansa, Air France and KLM had broad geographic coverage, servicing more than 50 countries and British Airways offered cargo service to over 100 countries.
It is, therefore, very alarming to see that almost all the major players in the air cargo market were part of a cartel, and one shudders at the impact in terms of overcharges that consumers across the globe suffered due to the cartel.
The air cargo transport also specializes in high value to weight products (e.g. minerals), perishable goods, emergency deliveries and products requiring high security. Mostly, air lines are used by developing countries to transport either finished goods for resale or raw materials for value addition to produce finished goods. Most of these products find their way into the value chain of most finished products; hence cartelizing their transportation has serious multiplier effects on the prices of the final products.
Developing countries are not spared from the impact of the cartel as there is significant amount of air cargo trade going on in these regions, a proportion of which is handled by members of the cartel. The proportion of exports shipped by air from less developed regions such as Africa and some parts of Asia exceeds 10 percent.
What is, therefore, apparent from this is that competition authorities in developing countries also need to be in a position to join in and prosecute such international cartels once they are discovered. Being hamstrung by resources and perhaps their own weak laws, competition authorities in developing countries should innovate and use various means at their disposal in handling international anticompetitive practices. This could include initiating and enlarging informal cooperation between authorities in the countries targeted by the cartel. The first World Competition Day on December 5th should be the D-Day for launching a global crusade.
The writer is Secretary General of CUTS International and Chairman of INCSOC
Getting to the victims and helping them is what counts, whoever and wherever they may be
By Zaman Khan
The youthful Lars Oberhaus has been in Lahore as Head of the International Committee of Red Cross (ICRC) since February 2009, a stay he claims he has enjoyed helping people in real need of rescue and assistance in many parts of the country. Born in 1976 and raised in Germany, Oberhaus holds an MA in International Relations and Political Economy from the University of Aberdeen, Scotland (2000) and an MSc in Security Studies from the Department of International Politics, University of Wales, Aberystwyth (2001). Prior to joining the ICRC in 2004, Lars worked for Reuters in Geneva and Frankfurt. German being his native language, he also speaks English and French, and knows Latin. Oberhaus is married with one child. He has worked in many courtiers, including Afghanistan, Sudan, and Palestine in the field of humanitarian assistance from 2004 to the present day. The News on Sunday happened to sit with Oberhaus the other day and talked about his experiences of working in different regions around the globe.
TNS: Why did you choose to join ICRC?
LO: I had the curiosity about the world and the determination to help people, less fortunate than myself. As a student of global politics, I have a natural interest in humanitarian matters.
The News on Sunday (TNS): Where were you born and educated?
Lars Oberhaus (LO): I was born in 1976 in Hanover, Germany. My father is a civil engineer and my mother an artist. I was raised and went to school in Frankfurt and Main. I attended graduate school in Scotland and Wales. A defining event during my childhood was the 1989 fall of the Berlin Wall and the end of the Cold War, a great relief!
TNS: How do you compare your experience as a journalist with working in ICRC?
LO: I was working for a financial media firm and that was very different compared to journalism. The key difference is confidentiality. The ICRC seeks to address issues discretely and directly with the actors involved, without publicity. Working for the ICRC can also be very hands-on and intense. Getting to the victims and helping them is what counts, whoever and wherever they may be.
TNS: What is the mandate of ICRC?
LO: The mandate of the ICRC is to help people affected by armed conflicts and other situations of violence. This comprises humanitarian protection and assistance in emergency situations and promoting respect for International Humanitarian Law or IHL. The mandate is based on the 1949 Geneva Conventions, their Additional Protocols and the Statutes of the International Red Cross and Red Crescent Movement. The ICRC is strictly neutral and independent, never taking sides and focused only on the needs of victims.
TNS: In which fields ICRC has been involved?
LO: The main areas of activity are visiting detainees, protection of civilians, reuniting families, ensuring economic security, water and habitat, health, cooperation with the National Red Cross or Crescent Society and building respect for International Humanitarian Law. The ICRC is active in 80 countries worldwide, with a global budget of 1 billion Swiss Francs. The biggest operations are in Pakistan, Afghanistan, Iraq, Israel and the Occupied Palestinian Territories, Congo and Sudan.
TNS: What role ICRC has played in flood-affected areas in Pakistan?
LO: The ICRC’s mandate is related to man-made disasters, but due to the scale of floods the ICRC launched a major relief operation in all four provinces and FATA. To date, the ICRC, in cooperation with the Pakistan Red Crescent Society, has distributed food rations and relief items to almost a million people, including 200,000 in south Punjab. In KP, the ICRC has treated over 4000 patients in diarrhea treatment centers. In KP and FATA, the ICRC has been helping to restore water supply for 100,000 people. The flood relief budget is 70 million Swiss Francs, bringing the total 2010 budget to 130 million Swiss Francs, the biggest ICRC operation in the world. Our work is conducted in close partnership with the Pakistan Red Crescent Society, to whom we provide substantial material and technical support.
TNS: In what other fields the ICRC has been working?
LO: The ICRC has been assisting people affected by fighting in KP and FATA. The ICRC operates a surgical hospital for wounded patients in Peshawar and supports medical facilities in FATA with medicines, materials and training. We are also helping to enhance mass casualty preparedness by conducting war-surgery seminars and emergency room triage training. We have been visiting detainees in Pakistan and abroad. The ICRC helps Pakistani detainees in Afghanistan and Guantanamo Bay to stay in touch with their families by transmitting letters, or by organizing phone and video calls for the exchange of personal and family news.
TNS: Has the ICRC worked for Internally Displaced Persons (IDPs)?
LO: Yes. Last year, in cooperation with the PRCS, we set up camps and assisted some 1 million IDPs from Swat as well as host communities in the Malakand division. After their return, the ICRC provided farmers with seeds and fertilizers to get started again. The ICRC has also been assisting 200,000 IDPs from FATA in Hangu.
TNS: You have worked in Palestine, Afghanistan, Kabul. Kandhahar, and Sudan (Darfur). What have been your experiences?
LO: In Darfur, I was part of a large relief operation in a very remote area, which included for example providing safe water to thousands of IDPs and carrying out measles and polio vaccinations in areas where government workers were afraid to go. In Afghanistan, I was in charge of the visits to detainees in the US detention facility in Bagram Airfield. In the Occupied Palestinian Territories, my role was to work with farmers to ensure that they maintained access to their land where the so-called West Bank Barrier deviates from the green line. These were all complex and meaningful assignments. I am grateful for all those experiences.
TNS: How do you see your stay in Pakistan?
LO: I arrived in February 2009. Pakistan has been going though a tough period since then. There was the fighting in Swat and 2 million IDPs and civilians were targeted in blasts in the major cities, including Lahore. This summer the floods occurred. The ICRC was involved in mitigating the humanitarian consequences of all these events. I am glad I could play a role in this (humanitarian assistance) and be useful.
TNS: What’s your personal experience of living in Lahore?
LO: Lahore is full of wonders. I have a very good experience living here and have made good friends. I wish to thank Lahoris for their outstanding hospitality.
The WikiLeaks ‘revelations’ appear to confirm the impression that Washington truly does call all the shots in Pakistan.
By Aasim Sajjad Akhtar
Mao Tse-Tung wrote prolifically on many subjects that are nowadays considered anachronistic. Indeed, the vast majority of the young and educated may never have any exposure to Mao’s ideas, notwithstanding Pakistani rulers’ exhortations about our ‘special relationship’ with the People’s Republic. In the wake of the never-ending scandal that is the WikiLeaks phenomenon, I believe it is necessary to revisit one of Mao’s enduring themes — and that of Marxism in general — so as make sense of the media frenzy that has erupted around us.
Marxist philosophy is premised on the notion that social conflict — and particularly class inequality — is the driving force of history. More generally, Marxist praxis entails identification of the prevailing contradictions in any given society and an appropriate politics on the basis of what are principal and secondary contradictions. Mao distinguished between antagonistic and non-antagonistic contradictions — the former when pushed through to their logical conclusion produce revolutionary transformation whereas the latter can be managed judiciously.
Certain Marxist analyses of Pakistani state and society have oversimplified the extent to which the ruling establishment has maintained a consensus over time; even non-antagonistic contradictions have been left unacknowledged. In particular, Pakistani governments have too often been depicted as virtual puppets of imperialist powers. The WikiLeaks ‘revelations’ appear to confirm the impression that Washington truly does call all the shots in Pakistan.
To the contrary, I believe that what emerges from the thousands of diplomatic cables that have the global media foaming at the mouth is a complex and contradictory picture which precludes overly simplistic assertions. This is not at all to suggest that empire does not exercise its influence within Pakistan or that successive regimes in this country have been meaningfully autonomous from the machinations of imperialism or the broader effects of the capitalist world-economy. But the relationship has ebbed and flowed and recognition of the various ups and downs is necessary to understand the non-antagonistic contradictions between imperialism and Pakistan’s establishment, the non-antagonistic contradictions within our ruling circles, and the antagonistic contradictions between the Pakistani people and the global-domestic structure of power.
For the best part of our history the combination of generals, bureaucrats, landlords, industrialists, mullahs and co-opted segments of the middle class has willfully served the geo-strategic interests of the American Empire. But at the same time, different governments have maintained varying levels of commitment to their own parochial interests, which at any given historical conjuncture, may or may not correspond fully to the interests of our imperial patrons. So, for example, Ayub Khan publicly offered Pakistani territory and troops to the United States suggesting that there was no need for Americans to come all the way out east when Pakistanis could do the job for them. However, the same Ayub Khan assiduously cultivated a relationship with China following the Sino-Indian border dispute in 1962; this policy flew in the face of Washington’s dictates and reflected how even the most shameless of imperialist touts could antagonize his patrons. In a very different way, throughout his tenure Zulfikar Ali Bhutto decried imperialist conspiracies, yet made sure never to seriously annoy Washington. Bhutto was known to be quite proud of renewing the supply of arms from the Pentagon and famously arranged the secret meeting between US Secretary of State Kissinger and Chou-en-Lai.
But perhaps the most important relationship that needs to be understood is the largely autonomous one between the Pakistani Army and Washington. For the best part of the last two decades, the army has played a public relations card that positions it in opposition to "American interference" in Pakistan’s sovereign affairs. In practice of course, the army has been the single biggest beneficiary of American largesse both in bygone eras and in the so-called "Age of Terror". GHQ’s efforts to distinguish itself from the "soul-selling" politicians reflects only its desire to deflect criticism of the increasingly shameless manner in which imperialist policies are operationalized by our very own national saviours.
In much the same way as WikiLeaks cables shed light on the actually existing relationship between empire and our rulers, they also make clear how consistent — and sometimes even acute — tensions notwithstanding, mainstream political parties and the military establishment share a basic commitment to an exclusive political and economic system. There can be no doubt that the long-standing mistrust between our mainstream politicians and the GHQ has far from dissipated, and that there is an undeniable contradiction between the two. But Mao would suggest that this contradiction is non-antagonistic insofar as our elected rulers are only marginally more progressive than the men in khaki when it comes to basic structures. Of course, those of us who are unequivocal defenders of this flawed political process maintain that successive military adventures into the political realm have actually helped to insulate our elitist parties from substantive organic changes from below.
This brings us to the antagonistic contradiction. In the final analysis, WikiLeaks will precipitate nothing more than a sensationalist media orgy. Indeed, it is not beyond the realm of possibility that the leak of diplomatic cables is part of some well-thought out imperialist conspiracy (although such assertions are best left to the dream world of the religious right).
In a time and place when genuinely anti-establishment and anti-imperialist forces were organized enough to take advantage of this de-masking of our rulers’ antics, we might even have believed that the recluse Australian founder of the website was committed to substantive political and social change. But the fact of the matter is that, in contrast to times past, diplomatic cables dealing with Pakistan in this day and age make no mention of left-wing intellectuals, working-class movements or student rebels. Those of us who go beyond sloganeering have always known that contradictions within the ruling class are ever-present. But to take advantage of these non-antagonistic contradictions and foment systemic rupture requires the working people of this country, whose contradiction with the establishment and dominant social forces is of an antagonistic nature, to be mobilized and armed with an appropriate political strategy. WikiLeaks is hardly interested in fomenting such things.
Under the 18th Amendment, federal government does not have the right to collect RGST on behalf of the provinces
By Huzaima Bukhari and Dr. Ikramul Haq
Senator Mian Raza Rabbani of Pakistan People’s Party deserves kudos for pointing out in the Upper House that after the passage of the 18th Amendment, Parliament cannot debate or pass any law providing for sales tax on services as it is a provincial subject. He categorically opined, "First, the provincial assemblies must pass the GST Bill and also adopt a resolution. It is only then that the federation could enact it".
The objection raised by Senator Raza Rabbani was valid as section 8 of the proposed law (The General Sales Tax Bill 2010) reads as under: "8. Administration and collection of Provincial Sales Tax — (1) Where a Provincial Sales Tax law authorises the board to administer, regulate, and collect the Provincial Sales Tax imposed under that law, the Board shall, subject to the conditions specified in that law, collect, regulate and administer the Provincial Sales Tax and shall apply all provisions of this Act and the rules made thereunder necessary to ensure that the Provincial Sales Tax and the Federal Sales Tax operate together as an integrated tax regime.
(2) The provisions of this Act relating to penalties, offences, and default surcharges shall apply irrespective of whether the tax payable, or the adjustments allowable, relate to supplies of goods, services, or supplies of goods and services, and irrespective of whether the tax is payable under this Act, a Provincial Sales Tax law, or under one or more such laws".
At the time of presentation of General Sales Tax Bill 2010 in Senate no provincial assembly has authorised the Federal Board of Revenue (FBR) to administer, regulate and collect sales tax on services. The tabling of bill vis-à-vis provisions of its section 8 was, thus, blatant violation of Constitution pre-empting the right of provinces.
Earlier, Finance Minister, Abdul Hafeez Shaikh, told the Senate that there was no other option but to implement the agreement with the International Monetary Fund (IMF) on the General Sales Tax (GST). Mr. Hafeez Shaikh, like his predecessor Mr. Shaukat Tarin, seems least pushed about the command of supreme law of the land that forbids the government to table this kind of bill having provisions falling outside the Federal Legislative List without first seeking the resolution from all the four provincial assemblies.
It may be remembered that in a two-day conference on Value Added Tax (VAT), held in Islamabad jointly by FBR and International Monetary Fund (IMF) on September 4-5, 2009, controversial issue of levy of VAT on services by the federal government came into focus. The then Finance Minister, Shaukat Tarin, assured the IMF that he would get the law passed by Parliament. He asked the FBR "to go ahead with the proposed plan of VAT from July 1, 2010". We criticised him in these columns observing, "One wonders how he could have spoken on behalf of the entire parliament and more seriously against the 1973 Constitution that bars the federal government to levy VAT on services".
It is lamentable that even after the 18th Constitutional Amendment the federal government is bent upon transgressing the supreme law of the land by tabling a law requiring prior consent from the provinces. It is a classic case of federal highhandedness; gross encroachment on the rights of provinces. The federal government has no authority to draft any law for any province — it is obvious that the stalwarts sitting in the Ministry of Law and FBR have blatantly violated Articles 141, 142 and 144 of the Constitution of Pakistan. Mian Raza Rabbani has rightly warned the government of possible consequences of such unconstitutional act. Even if this law is passed by National Assembly, it will be challenged in High Courts under Article 199 of the Constitution.
Successive governments in Pakistan — civil and military alike — have never bothered to work out judicious distribution of taxation rights between the federation and the federating units. Provinces were deprived of their right to levy tax on goods and serves emanating from their territorial boundaries. Perpetual abuse of constitutional provisions by Islamabad has created disharmony and animosity between the Centre and the provinces.
In all major federations — US, Canada and India for example — the federating units have the exclusive right to levy indirect taxes on goods and services transacted within their geographical boundaries. In Pakistan, the federal government has denied this right to the provinces till today — this issue was not raised by any province during the NFC meetings. The federal government, even after the 7th NFC Award and 18th Constitutional Amendment is collecting enormous amount of taxes on services that constitutionally belongs to the provinces.
Sales tax at the time of independence was a provincial subject. However, in 1948 it was made a federal subject by the Constituent Assembly of Pakistan through the Pakistan General Sales Tax Act, 1948 enacted on 31st March 1948. The right to levy sales tax on services remained with the provinces — this Constitutional position has always been unambiguous. This Constitutional position has never been challenged by anyone. The Centre derives powers from the Federal Legislative List, Part I, Fourth Schedule to the Constitution of Pakistan, through Entry 49, for the levy of sales tax on goods.
The exact language of this Entry is: "Taxes on the sales and purchases of "goods" imported, exported, produced, manufactured or consumed". How, on the basis of this Entry, the federal government can draft any law proposing sales tax on services on behalf of provinces? If the National Assembly cannot levy GST/VAT on services, how can such a law be tabled for debate, let alone be passed?
On the dictates of IMF and with the consent of PPP leadership, FBR proceeded to work on the draft of a law part of which was outside the Constitutional competence of the National Assembly — it did not even bother to secure prior resolution(s) of at least two provincial assemblies under Article 144 of the Constitution. Through Section 8 of the General Sales Tax Bill 2010, federal government has already pre-empted the right of the provinces to collect GST on services at their own.
No entries related to taxes in Federal Legislative List caters for GST/VAT on services by the Centre, but IMF is insisting that FBR should collect it on behalf of all the four provinces. The federal government even did not bother to wait for the provincial assemblies to pass resolutions to this effect under Article 144 of the Constitution. Needless to say that blatant violation of Constitution is being committed by the federal government by tabling the General Sales Tax Bill 2010.
IMF and World Bank are of the view that levy of VAT will be an important measure for documentation of the economy and ultimately leading to better income tax collections. They cannot comprehend that in our milieu where corruption is rampant in tax machinery and businessmen are unscrupulous, it will open new vistas of tax evasion. The crooked businessmen would collect GST from the masses but would not deposit the entire amount in the government treasury to avoid actual quantification of their turnover/income—the large portion of GST would go in the pockets of dishonest tax collectors and their friends in business and industry
The independent economists also stress that from pure economic point of view, leaving aside the legal dimensions of the conflict, levy of tax at 15% in the peculiar Pakistani conditions will have disastrous consequences. They apprehend that imposition at such a high rate would be a final deathblow for the country’s weak economy and would lead to further recession and poverty. Sales tax in its very nature is a regressive tax, being an ad valorem imposed on the seller; while the consumer ultimately bears its burden.
It is well established that such taxes take a larger proportion of smaller incomes than of larger incomes. Pakistan needs reintroduction of progressive taxes e.g. inheritance tax, wealth tax, gift tax, capital gain tax — abolished by military dictators. Instead of regressive indirect taxes, we must tax collossal wealth of rich and the mighty, especially that of absentee landlords. If untaxed and looted wealth of nation is confiscated through an asset-seizure legislature, current tax-to-GDP ratio of below 10 percent can jump up to 20 percent in just one year.
In 2001 we destroyed our income tax law by promulgating Income Tax Ordinance 2001 on the dictates of IMF — adjudged by the apex court in 2009 PTR 23 (S.C. Pak) as a law that was hurriedly enacted and uncaringly amended. Now in 2010 we intend doing the same with Sales Tax Act, 1990 — interestingly it is again IMF that is twisting our arm to go for new sales tax codes, both at federal and provincial levels. Pakistani tax experts have been pointing out over and over again that the country would be better off with a single-stage simple sales tax (at a low rate of 3% to 5%) as in Singapore and Japan, two highly developed economies. However, the tax bureaucracy wants complex rules and cumbersome procedures coupled with legal loopholes with unfettered discretionary powers — creating ideal conditions for corruption to thrive and flourish unabated.
The writers, tax lawyers, are Adjunct Professors at Lahore University of Management Sciences (LUMS)
Pakistan’s eastern neighbours in the region — India and Bangladesh — seem to be making progress; where do we stand?
By Alauddin Masood
South Asia Subcontinent, which was reputed to be the ‘golden sparrow’ in the medieval ages, seems to be poised for rise, once again. However, the economic growth of Pakistan’s eastern neighbours — India and Bangladesh — is more impressive at present compared with the former.
The Indian economy is expected to rise by 9.2 percent in 2010-11 following impressive growth in the manufacturing and services sectors, according to the Centre for Monitoring Indian Economy (CMIE).
The foreign investment in the Indian stock market has crossed Rs1 trillion ($22 billion), hitting Rs1,005,742 million on October 13, 2010, for the first time in history. According to the Daily Tribune (Chandigarh, October 13), analysts predict that the overseas inflows will continue to increase in the coming months.
Going by the pace of foreign fund inflows, analysts are positive about the continuation of the trend in the near term, given that the country is one of the hottest destinations for investment by overseas fund houses. Last year, Foreign Institutional Investors (FIIs) purchased shares of Indian companies worth Rs834,230 million. During the same year, the stock market benchmark — SENSEX recorded a gain of over 80 percent.
The surge in the Indian market is primarily due to inflows by FIIs that have been pumping funds into emerging markets on account of their strong growth prospects and fundamentally sound companies.
Driven by FII inflows, Indian bourses picked up significant momentum during the second quarter of the current fiscal year. This helped the stock market to break out of the tight range that it was confined in the previous three quarters.
Analysts believe Delhi’s plans to disinvest in public sector companies, including Coal India Ltd; will give more investment opportunities to FIIs.
As regards Bangladesh, the International Monetary Fund (IMF), in its latest economic outlook, has projected the country’s economic growth at 6.3 percent for the current year, higher by 0.5 percentage point than last year.
Compared with India and Bangladesh, Pakistan’s economic outlook is depressing. "Hardly had our economy started showing signs of recovery when it was hit hard by the recent calamity," President Asif Ali Zardari said, on November 6, 2010, during a dinner meeting with some ambassadors of countries in the Friends of Democratic Pakistan (FoDP) forum.
Economy is the most vital element of national power because it is the one element which keeps the other moving. In addition to the recent unprecedented devastating floods, the war on terror, global financial crises and internal security conditions are some of the factors which adversely affected Pakistan’s economy.
After an impressive and above 5 percent growth for a couple of years, Pakistan’s GDP growth is projected at 2.8 percent during the current financial year. The foreign direct investment (FDI) in the country has tumbled down by 50 percent and economic activities have slowed down massively in the wake of non-provision of power and gas.
Meanwhile, with a burden of Rs9 trillion public debts, the country’s debt to GDP ratio has swelled alarmingly to 69 percent. (According to officials, the existing public debt hovers around Rs8.6 trillion.) The economic experts say that the debt burden is too much and the poor country has no debt carrying capacity.
Officials working for the IFIs and diplomats representing FoDP (Friends of Democratic Pakistan) member states believe that no one in the government looks serious to bring the economy on radar screen, upsetting FoDP and IFIs, including IMF, WB and ADB, as to why the state hierarchy are not serious to increase the national resources.
In a report entitled "Doing Business 2011," the World Bank has lowered Pakistan’s ranking as a place to do business by eight places, from 75th in 2010 to 83rd in 2011. The report might cast adverse impact on the potential investors and keep them away from the country, thus negatively impacting the efforts and hopes of economic turnaround that the nation and the country need so desperately.
In eight of nine categories, Pakistan’s ranking has slumped from 69th place during the previous year to 85th place; while globally the country has fared the worst in terms of its ability to enforce contracts. However, the report commends Pakistan’s judiciary because of the improvement in the time taken to settle cases.
According to Sultan Ahmed Chawla, President of the Federation of Pakistan Chamber of Commerce and Industry (FPCCI), Pakistan’s economy was in a critical situation only due to mismanagement and one-sided decisions. Addressing a meeting at FPCCI’s Lahore office on November 5, 2010, he exhorted the government to take the private sector on board in the process of policy-making.
Mired in poor governance and rampant corruption, Pakistan has paid almost Rs2.6 billion ($ 30 million) as commitment charges to ADB for not using efficiently, timely and in transparent manner the credit lines amounting to $4billion.
One of the perceived pre-requisites of good governance is transparency in administration and, in fact, in public life as a whole. If the government business is conducted openly, the authorities can afford transparency in most of public activities. It is now universally agreed that the more the transparency the less the corruption.
On the other hand, corruption inhibits good governance. It undermines economic development, stunts growth, fuels poverty and creates political instability. No nation can develop to its full capacity or realize its full potential in any field if its social system is plagued by corruption and inefficiency. Corruption not only causes a severe drain on the national economy, it also acts as a major disincentive to foreign investment.
The World Bank report brings to the fore the implications of poor governance, which has stifled growth, raised unemployment and depressed the economy in innumerable ways. The bleak picture painted by the World Bank must be taken seriously because without investment there can hardly be any prospects for turn around that Pakistan so urgently needs.
The writer is a freelance columnist based in Islamabad
For a balanced land management
An effective regulatory body must be created to supervise land transactions
By Dr Noman Ahmed
There have been quite a few reports about land scams these days. Procedures of land transactions, development, and transfers are executed. In urban areas, advertisements of land schemes are found everywhere.
Eye-catching images of lush green access ways and an overall up market profile make most of these schemes the ultimate aspiration for the masses. Despite the reality that city and regional planning is seldom applied in real professional sense, no proposed township stops short of claiming the ambience of technological advancement.
Land is not comparable to other commodities because it is finite. Technology or science can create many entities but land remains a non-extendable measure. Intelligent, judicious and sustainable use of land is the underlying principle of most city planning exercises. Livable cities are those where this principle has been respected in a letter and spirit.
London, New York, Sydney, and Los Angeles are all mega cites. They have experienced enormous pressures on their land development priorities. In comparative terms, these cities have been able to grapple with speculative pressures on land in a commendable manner. Ankara, the capital of Turkey, for example, experienced very rapid urbanisation. To deal with the issue of safeguarding its land assets as well as urban environmental quality, a huge plantation drive was undertaken by the Middle East Technical University — a well-known institution in Ankara.
Millions of full-grown trees were added to cityscape in a couple of decades. The effort was so outstanding that it was bestowed the Aga Khan Award for Architecture a few years ago. Approach in all of these and many other attempts is common — to protect the land from misuse and undesirable commercialisation. They offer worthwhile lessons to be learned.
Despite economic slowdown, new real estate ventures are picking up. The investments in the real estate are considered to be safer in comparison to the other options. This aspect automatically creates an attraction, especially for small and medium-scale investors. The capitalists connive with the land owners, land management agencies, influential politicians, and the armed forces authorities to carve out schemes of various kinds. These schemes supposedly serve mutual interest of the stakeholders who collectively steer them to achieve the best of market returns.
Trusts, foundations, and other similar organizations make use of their connections with the powers that be to acquire favours in the land sector. Permissions, approvals, no objection certificates, and concept clearance all fall in their way, apparently without scrutiny or in disregard to standard practices.
There are many problems in some land development schemes. According to some reports, hardly any schemes present correct internal zoning plan to the approving authority. What is normally done is that the submission documents are prepared in total conformity to the available guidelines. The plans are thus granted approval. Thereafter, the management of the schemes changes layouts, plot sizes, density provisions and even price schedules. A few of them announce schemes on incorrect information, interim approvals or other fraudulent means.
For example, many development schemes in our cities have developed along the path of natural storm drains. After occupation, such neighbourhoods are inundated during monsoons. The provision of appropriate infrastructure is another promise advertised without restraint by scheme managements. Scrutiny of the status of various schemes has shown many deficiencies. Some schemes have never even applied to the concerned departments/agencies for obtaining consent for the provision of the said services.
It is true that the existing load on services is beyond the capacity of service providing agencies. Obviously, the schemes are either delayed for decades or become an under-valued slum in case of non-availability of services. The management of such schemes only lure prospective customers through craftily-worded ads. Another way of advertising is about self generation of infrastructural services. From electricity to water, every service is pledged to be provided through self-generation. For electricity, thermal power plants are refered to as the solution. No one, however, explains as to how the colossal capital cost would be met or how its operation and maintenance would be financed.
Desalination plants, which are considered to be the ultimate solution for water supply in coastal belts, are an expensive proposition. Access roads are the next costly element in the set of requirements in any scheme. More often than not, they are left undeveloped even after possession is granted to occupants. Larger promises such as swimming pools, gymnasium, sports and recreational facilities are announced without giving details of design or completion. Either they are left completely unattended or developed much below the announced targets. Disgruntled buyers often end up in lengthy legal proceedings which add more to their financial woes.
Some institutional inputs need to be launched to make things better. An effective regulatory body must be created to look after land transactions. This body must hold dialogue and meetings with the stakeholders. Broad-based need analysis must be carried out to control land supply in relation to the need. Bogus land sales must be discouraged. Regulatory mechanism must ensure the participation and input of infrastructure providers.
Finally, laws and regulations related to safeguarding natural environment, land titles, and investment must be implemented through regulatory framework. The announcement of schemes may be tied up with clearance/approval from the regulatory body. It must be remembered that land is a finite asset. If it is lost to the unbridled ravenousness of a few, the forthcoming generations shall be more impoverished than us.
system suits us best?
Students and parents keep looking for an education system that best serves the purpose
By Hamaad Mustafa
The United Kingdom has recently revamped its entire education system. With re-doubled stress on languages and communication skills they are trying to emphasise the age-old point about education not being about the destination but the journey. Systems have already replaced the A levels in many of the leading schools in Britain, such as Charterhouse and Westminster. Of course, we Pakistanis still lag behind, and as each year passes, the number of pounds we pay foreign bodies such as the CIE only increase.
The problems with the education system in Pakistan can be divided into two main categories. Firstly, the structural problems in the system would require the entire set up to be overhauled. Secondly, there are procedural issues which have come about due to the sheer lack of regulation in both our public and private educational systems.
First come the problems with the structure of our educational system. One of the guiding principals of any educational system is equal opportunities for all. In fact, one purpose of education is to counter act the inequalities prevalent in society. The system in Pakistan is strictly divided into the haves and have nots.
The gap between the public and private systems is great in many countries all around the world. But in Pakistan, the discrimination is more institutionalised, it is in fact a part of policy. We have the local matriculation system and the British GCSE O/A level system running side by side.
The British system clearly provides a better standard of education, a fact that universities seem to have caught up on. A student from the inter system, no matter how bright, will never be on a level-playing field when competing with the GCSE students. Apart from a few half-hearted efforts by our medical colleges, little seems to have been done to correct this.
As it stands, our government has little incentive to remove this disparity. As long as their own children and the children of the influential educated upper middle class have access to quality education, little heed will be paid to the children in the matriculation system.
If anything, the direction the government is heading towards is providing greater incentives to students studying in foreign systems. Until and unless our policy-makers’ own children have to go through the same system as the masses, they will have little incentive to try and improve it. The best and only way to give our law-makers a stake in the system is to make it compulsory for all students across the board.
India started off in a predicament very similar to ours. They chose to focus on their own domestic system of education. Even though initially it was not internationally recognised, after a few years it became so. Now universities across the world recognise and widely accept Indian students. In fact, Pakistanis doing the GCSE have little edge over regular Indians when it comes to university placements.
The problems with education in Pakistan don’t just end there; we have issues which make even our high end GCSE set-up an embarrassment for any god-fearing educationalist. As mentioned before, education should be about the journey, but such is not the case in Pakistan. We have effectively killed any seed of creativity our young ones may have possessed by deliberately boxing education into 3-month crash courses. But it’s not all bad, these courses come with a guaranteed A grade, or at least the more expensive ones do. Thus, another more way in which parents can buy their children’s future.
Naturally, these crash courses hardly inculcate in one things like ettiquettes and grooming which are supposed to be as integral a part of education as learning. Their focus is entirely on the exam at the end of the three months, and they will stuff you with information they know you will forget as soon as the exam ends just so you can get that grade you were aiming for.
Retaining information or getting more out of the school experience than just one’s CIE certificate, these are things one can’t gloat about or which don’t make a student look smarter in drawing room discussions. In a society as materialistic as ours, where one reason kids are so pressurised is this social pressure parents themselves feel, it is not a surprise that we have so conveniently turned education into a tool to promote conformity and social inequality.
Afghanistan’s huge mineral resources remain to be tapped; when and how are the questions
By Haider Abbas
The discovery of untapped lithium deposits in Afghanistan by the United States is far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself.
Lithium has multiple uses in the modern world, including as a mood stabilizing drug, but its first serious industrial use was during the Second World War as part of high temperature greases that were perfect for use in aircraft engines.
The US was the world leader in lithium production from this era until the 1980s when vast South American deposits began to dominate. It is said that Afghanistan could be the "Saudi Arabia of lithium," a key raw material in the manufacture of batteries for laptops and mobile phones.
While it could take many years to develop a mining industry, the potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable, providing the possibility of jobs that could distract from generations of war.
With the potential being great and the possibilities of making an enormous profit, certain realities make us ponder whether lithium could be the miracle that would turn around the situation in this war-torn Afghanistan.
The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion, whereas these vast deposits could become the backbone of the Afghan economy.
However, while looking at all these possible prospects certain questions come into our mind. Firstly, instead of bringing peace, the newfound mineral wealth could lead the Taliban to battle even more fiercely to regain control of the country. The corruption that is already rampant in the Karzai government could also be amplified by the new wealth, particularly if a handful of well-connected oligarchs, some with personal ties to the president, gain control of the resources.
Just last year, Afghanistan’s minister of mines was accused by American officials of accepting a $30 million bribe to award China the rights to develop its copper mine. The minister has since been replaced. Endless fights could erupt between the central government in Kabul and provincial and tribal leaders in mineral rich districts.
While these are internal problems we have the external threats. Another question is the role of the White House. Taking a trip down memory lane when we look at Iraq and how the war on terrorism was a disguise to smuggle oil. We have our doubts whether the lithium may actually be used to reform Afghanistan and not the United States. At the same time, American officials fear resource hungry China will try to denominate the development of Afghanistan’s mineral wealth, which could upset the United States, given its heavy investment in the region.
With all this, another complication in the technical aspect is that because Afghanistan has never had much heavy industry before, it has little or no history of environmental protection either. The big question is, can this be developed in a responsible way, in a way that is environmentally and socially responsible? With virtually no mining industry or infrastructure in place today, it will take decades for Afghanistan to exploit its mineral wealth fully.
Still, good news is hard to find in Afghanistan these days. Will the attempt to remain positive despite the "ifs" that surround this news succeed? Is there really a choice?