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Pakistan Economy

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Economy on verge of collapse, Hafeez tells MPs

By Khalid Mustafa

Wednesday, January 26, 2011

ISLAMABAD: The country is facing unprecedented economic challenges and the economy is in dire straits. And if drastic measures are not taken urgently, the budget deficit could exceed eight percent of the GDP (equivalent to Rs1,370 billion) against the target of 4.7 percent while inflation could swell to over 22 percent.

Finance Minister Dr Hafeez A Shaikh presented these disturbing figures while briefing the parliamentary leaders of some political parties on the economic situation of the country. Federal Minister for Water and Power Raja Pervaiz Ashraf and Federal Minister for Petroleum and Natural Resources Naveed Qamar represented the government.

Senator Professor Khurshid Ahmad of Jamaat-e-Islami told media persons after the briefing that the country’s economy was on the verge of collapse. The parliamentary leaders of the political parties in the next meeting to be held next week will come up with their recommendations and suggestions to wriggle the country out of the economic morass.

But, at the same time, Dr Hafeez claimed that in the first six months of the current fiscal, the government has performed very well and managed to achieve 2.9 percent fiscal deficit against the target of 3.3 percent.

As far as eight percent budget deficit is concerned, the minister said that the government needed the support of all the political parties for major steps to bring the economy on track, failing which the economy was bound to nosedive. The minister, however, in the same breath said that the president, prime minister and political leadership would not allow the economic landscape to deteriorate to such a level.

The government has reduced the expenditures and achieved budget deficit of less than three percent in six month period. The minister said that the government was in contact with all the political parties and the consensus is that fiscal discipline had to be maintained.

Khurshid said the meeting was told that although all major sectors of the economy present a bleak picture, there are some positive signs also as exports are improving and will hit the $22 billion mark this year. Likewise, remittances have also increased substantially and will cross $10 billion. Apart from it, the government is also expecting a bumper wheat crop.

He said that the government should concentrate on reducing non-development expenditures and establish good governance. “Corruption is rampant, which should be checked with prudent steps.”

The government has already reduced the development budget, first from over Rs400 billion to Rs280 billion which was further slashed to Rs180 billion. According to one estimate given by the government, the size of tax evasion has increased to a staggering Rs700- 750 billion while corruption amounts to over Rs300 billion. The government is also spending huge amount on debt servicing, defence and security. It has already spent 35 percent more that the budgeted target on defence and security in the first six months of the current fiscal.

“I have suggested to the government to come up with integrated and coherent economic policies along with good governance,” Prof Khurshid said, adding that if the tax evasion and corruption were contained, the country will have a major increase in its revenue.

He said the current shape of the Reformed GST was not acceptable and in case the government introduces some changes in the existing RGST, then the Jamaat-e-Islami will be ready to review it.

To a question, he suggested that the government should avoid increasing the power and POL prices. Instead, it should concentrate on reducing 30 percent line losses through better efficiency.

Munir Aurakzai, parliamentary leader of Fata members in parliament, urged the government to rationalise expenditure. Salman Siddique, FBR Chairman, told The News that in the month of December, FBR’s performance has been outstanding as it managed to collect Rs159 against the target of Rs147 billion and in the month of January, it has so far collected Rs72 billion in 22 days. To a question, he said that out of $1.3 billion arrears under the head of the Coalition Support Fund, Pakistan has managed to get $743 million.

Aziz

_________________________________________________________________________

Save for projected exports, the economy of Pakistan is in dire straits. Anecdotally a client of mine who has worked with tractor producers in Pakistan has basically confirmed that in the current administration it is impossible to get anything done as too many people want their cut. The same individual told me that there was corruption during President Musharraf's govt but not from higher echelons and during PM's govt things did get done.

I also saw a list of Pakistan's fastest growing companies the other day and one of the CEOs mentioned that the present govt was entirely incompetent and had achieved nothing whatsoever during its tenure.

The biggest shame is that Pakistan was coming out of the debt cycle and had no package with the IMF but now we have returned to the dark days of before.

Aziz

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the masses have democracy, who cares about the economy!

ndad

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We still cannot decide and choose between 'good governance' and 'western democracy'.

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EU trade concessions may hurt textile sector

By: Erum Zaidi | Published: February 05, 2011

KARACHI - The State Bank of Pakistan has expressed serious concern that exporting low value textile products to the European Union market, under trade concession scheme, could create supply-side constraints for the local exporters. The local market may face shortage of raw materials such as cotton and yarn, forcing the exporters to import these textiles raw material into the country to meet their demand, which would result in an increase in the cost of production of the textile sector.

The expected shortfall especially hurt the production and exports of towels and bed sheets which have not been provided any concession.

Estimating the impacts of European Union’s trade concessions on the textile exports of Pakistan, the central bank in its recent quarterly report stated that as a result of the direct benefit of this package, the prices of Pakistani products would lower in the EU market.

However, analysis of EU’s textile and apparel imports showed that Pakistan’s unit prices in most of the categories are already much lower than competitors but still Pakistan’s share in EU market is lower than its peers.

According to the SBP, lack of modern technology; designing techniques and exporter’s inability to meet large orders are the major impeding factors.

The central bank, however, further stated that the tariff on different categories of yarn is already low, so a zero tariff on these categories would not drastically lower the unit prices. On the other hand, few categories of fabrics and knit-clothing could benefit from the trade concession as the current average tariff on these categories is relatively high. Unit prices would decrease dramatically in this case and Pakistan’s price competitiveness would increase.

It must be mentioned here that European Union (EU) offered trade concessions to Pakistan on 75-items mostly related to textile sector. After legal modalities, i.e., approval from EU governments and European parliaments, tariff concession would be given for a period of three years effective from January 1, 2011.

These 75-items account for approximately 27 per cent of Pakistan’s total exports to the EU. In 2009, export earnings from these textile-related items were around $1.0 billion. Average export earnings during the last three years were $1.2 billion. Pakistan’s export share of these commodities in EU imports is approximately 3 percent.

Out of 75-items, 68 are related to textile sector, 6 are associated with the leather industry, while the remaining items are dried mushrooms and truffles.

EU Clothing Imports in H1-2010 (Unit Value)

US$ per kg

Woven Cloths B’Desh China India World Pakistan

Men overcoats 11.2 15.8 18.5 17.2 9.8

Men suits 11.6 9.6 14.3 12.6 10.1

T-Shirts 10.1 15.1 19.0 16.1 10.6

Knit Clothing

Men overcoats 19.4 18.5 23.2 21.0 18.4

Men suits 12.4 15.3 19.6 18.4 12.9

T-Shirts 13.7 18.2 33.2 22.5 14.0

EU Clothing Imports in H1-2010 (Volume Share)

Share in Percent

Woven Cloths B’Desh China India World Pakistan

Men overcoats 5 62 3 24 6

Men suits 11 53 5 25 5

T-Shirts 35 22 8 34 1

Knit Clothing

Men overcoats 2 77 1 19 1

Men suits 16 45 6 27 7

T-Shirts 8 54 7 28 3

http://nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/05-Feb-2011/EU-trade-concessions-may-hurt-textile-sector/1

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I hope atleast some issues will be resolved and it would be nice to move from cold chilly and hostile relationship to more economical relartionship. Military it sounds even good cause all that cash could be useed to lft poverty and improve Pakistan as a nation. We have so much to improve in our beloved and beautiful nation. I wish better times.

JAMMU: India’s prime minister said Friday he was approaching new peace talks with Pakistan with an “open mind”, saying all disputes including a long-running feud over Kashmir would be discussed.

New Delhi and Islamabad announced on February 10 that they would resume full peace talks which were suspended more than two years ago after militants from Pakistan attacked India’s financial capital Mumbai.

“We wish to resolve all outstanding issues between the two countries through friendly dialogue and constructive and purposeful negotiations,” Manmohan Singh said at a function at a university in the disputed state of Jammu and Kashmir.

“This includes the issue of Jammu and Kashmir,” he said in Jammu, Kashmir’s winter capital which has been largely unaffected by the insurgency that flared in the Muslim-majority region in 1989.

Kashmir is divided between the two countries along a de facto border, but is claimed in full by both.

Pakistani foreign minister was slated to visit India in July at the start of the full-scale resumption of talks.

Ties between nuclear-armed India and Pakistan, which have fought two of their three wars since 1947 over Kashmir, have been dogged by border and resource disputes, and accusations of Pakistani militant activity in India.

“We are willing to discuss all issues that have a bearing on the peace, dignity and well-being of the people of Jammu and Kashmir,” Singh added.

Indian Kashmir last year saw some of its biggest protests against Indian rule, leaving more than 110 protesters dead, mostly in police firings on stone-throwing young men.

“This subcontinent of ours will not realise its full development potential unless relations between India and Pakistan are normalised,” Singh said.

India and Pakistan embarked on a formal peace dialogue in 2004, which continued until the rupture caused by the Mumbai attacks, blamed by India on Pakistan-based militants. – AFP

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Pakistan’s IMF man regrets move for bigger loan

By Shahbaz Rana

Published: March 26, 2011

ISLAMABAD: The man who pleaded Pakistan’s case in the International Monetary Fund (IMF) Board for enhancing the bailout package limit from $7.6 billion to $11.3 billion now regrets the decision to go for a larger loan.

“I made a mistake in arguing for the augmentation in the IMF board, and also got the IMF to allow us to use a part of the 2009 August tranche as a bridging loan for budgetary spending,” wrote Dr Ehtisham Ahmed, Pakistan’s former representative in the IMF board, in an email to a business tycoon and an economist.

In August 2009, the IMF augmented the size of Pakistan’s standby arrangement programme to $11.3 billion $3.7 billion more than approved in November 2008. Pakistan had sought the increase and permission to use a portion of it for budget financing after the Friends of Democratic Pakistan refused to provide a promised loan.

According to Dr Ahmed, “We are currently unable to repay the IMF for the $8 billion already borrowed. We will soon be looking for debt relief.”

Dr Ahmed, who is senior fellow in the Centre for Development Research, University of Bonn, criticised former finance minister Shaukat Tarin. “Had I known that Tarin had already thrown in the towel on tax reforms, I would never have made the (augmentation) case in the board,” wrote Dr Ahmed in the email on February 5, 2011.

Tarin was not available for comment.

“It initiates a debate on whether we needed such a huge amount and who is responsible for this mess,” said Dr Ashfaque Hasan Khan, former director-general of the debt office, when asked about Dr Ahmed’s comments. He said Dr Ahmed and Tarin were both to blame for the “irresponsible borrowing”.

Officials who in 2008 worked in the finance ministry said that there had been two views about the bailout programme within the ministry.

Asif Bajwa, who was then special finance secretary, believed that Pakistan needed the IMF’s confidence more than its money. The other view, backed by Shaukat Tarin, was that Islamabad must go for a big chunk of money to build its reserves.

“Those who advocated going for a big amount didn’t think about the cost at which the $11.3 billion was obtained,” a finance ministry official who had backed Bajwa’s plan said on condition of anonymity.

Dr Ahmed also downplayed the relevance of Pakistan’s $17 billion central bank reserves. “Policymakers and the public seemed to be lulled into a state of paralysis by the level of reserves. Unfortunately, these are not our reserves,” he wrote.

Of the $17.5 billion reserves, almost $8 billion is borrowed from the IMF, one billion from China and Saudi Arabia, and over $3.5 billion belongs to commercial banks, leaving the net balance at near the level in 2008 when Pakistan rushed to the IMF for a bailout.

Since last May the IMF has suspended the bailout package due to the government’s failure to carry out tax reforms and is still holding $3.5 billion in balance payments.

“Shaukat Tarin, being a banker, was keen more to restore confidence, but the problem is that despite the huge borrowing, if you take out the IMF and commercial banks’ reserves, Pakistan’s reserves are sufficient only for two-and-a-half months of imports,” said former finance minister Dr Hafiz Pasha.

Pakistan’s total debt and liabilities reached the unprecedented level of Rs11.01 trillion in 2010, which is 69.1 per cent of the total size of the economy, according to the State Bank of Pakistan. Under the Fiscal Responsibility and Debt Limitation Act, the government must keep the debt level below 60 per cent of GDP.

Domestic debt amounts to Rs5.3 trillion and external debt to over Rs5 trillion. Apart from this, public sector enterprises have borrowed Rs390 billion, while the federal and provincial governments have borrowed Rs364.3 billion for commodity operations.

Repayment plan

According to finance ministry estimates, Pakistan will pay over $1 billion in interest on loans obtained from the IMF. The repayments start next year when Islamabad is to repay $1.2 billion to the IMF including $230 million in interest. It must repay $2.9 billion in 2013; $4.3 billion in 2014; $2.6 billion in 2015; and finally remove the debt with payment of the last tranche of $430 million in 2016.

At that point, Pakistan is to start repayments of $8.9 billion in Paris Club loans, which were rescheduled in 2002 as a reward to Islamabad for joining the US-led war in Afghanistan.

Published in The Express Tribune, March 26th, 2011.

http://tribune.com.pk/story/137948/pakistans-imf-man-regrets-move-for-bigger-loan/

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It just behooves me to ask why in a country of 180 million people, we cannot find one economist who can finally figure out why the Forex and economy are so anemic and what needs to be done to put things on the right track? Its like a cast of bloody monkeys running a bank for the past 50 years. Morons can run their own businesses and make billions, but give them the reins of the country's economy and watch them get it into the $hitter faster than bolt's 100m sprint times.

Without the economy, Pakistan is nothing. No matter how many nukes we boast about.

As one can clearly see from the above article, by the time the repayments start, the current government would have clearly made this someone else's problem by having gotten themselves kicked off from the government. Then the idiotic rants and stupid drama will start all over with "the previous government did this and that....". What a misery!!!

Edited by SSAAD

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the problem has always been the poor payment and collection of tax by the majority. People like NS who pay only 5000 rupees and claim to be honest. my family lives in the UK and we paid more tax last year than he did. why doesnt the governmnet tax agriculure? becuase its not a vote winner - thats where consensus is needed amongst the parties but they are too busy point scoring to give a shit about the country.

ndad

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Actually the current finance minister has tried a few times to raise taxes on pretty much everything, including agriculture and property. But each time he failed to get support in the cabinet, only the PM supported him out of the 50-60 minister we had in the previous cabinet. If the cabinet is so much against it, then parliament (including opposition - who rants on that taxes will ONLY hurt the poor, bla bla) will be similarly opposed. Our current crop of politicians dont want to pay taxes, come what may.

Zardari/PPP is playing a perfect game. He will leave this entire mess to the next government to handle. As we can all agree the challenge is getting huge day by day. Next government will face public anger over budget cuts and increase in taxes, and this will give PPP a massive vote-getter for the following election, and Bilawel becomes PM in 2017...

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Just to make things a little more dark... I'm hoping that IMF doesnt give them the new loan. How on earth will they children of Pakistan be able to repay all this??

Fiscal crisis: Pakistan to seek second loan to pay off the first

By Shahbaz Rana

Published: March 27, 2011

ISLAMABAD:

Pakistan has decided, in principle, to seek another International Monetary Fund (IMF) programme to return loans that it has so far obtained from the IMF, according to sources familiar with the matter.

The government and the IMF are already in the preliminary stages of negotiating the second loan programme, in the first confirmation of rumours that had been circulating in the capital for the last few weeks.

Islamabad is currently reviewing various options to begin loan repayments of the current $11.3 billion IMF loan programme, of which Pakistan has received $8 billion. The last two tranches of the loan, worth $3.3 billion, were suspended after Pakistan failed to levy a value added tax, also referred to as the reformed general sales tax (RGST). Repayment must commence from early 2012 and must be completed by 2016.

It is looking increasingly likely that the government will seek another IMF loan programme to pay off the last one, according to a senior government official who spoke on the condition of anonymity because he was not authorised to speak on the subject.

The source, however, was quick to point out that the new IMF programme was the result of government insolvency.

“The size of the new programme is not so important but what is critical is the signal it would give to the rest of the world,” said the official. He said the options on the table include a revival of the suspended programme “bridged” with a new programme or “completing” the suspended programme and “getting a new one.”

Another option would be to terminate the existing programme and apply for a new one, but the signal that would send to international creditors makes the government wary of proceeding with it. According to the source, the government’s final decision will depend on what conditions the IMF attaches to any new programme.

Under the ‘bridge’ option, Pakistan would meet some of the IMF’s conditions and obtain a tranche of $1.7 billion, marking an end to the existing programme’s suspension. It may then request the IMF to convert the last tranche into a new programme.

The size of the new loan programme will be directly linked to the strength of the country’s balance of payments for the current fiscal year as well as the next. According to the latest by the government and the IMF, Pakistan’s current account deficit – the gap between external receipts and payments – is expected to remain at comfortable level during the current and upcoming fiscal year.

The second loan programme will be discussed during Finance Minister Hafeez Sheikh’s visit to Washington. The finance minister is scheduled to visit Washington from April 12 to attend spring meetings of the IMF and the World Bank. He will also hold talks with the United States Treasury Department.

In a bid to convince the IMF that Pakistan is serious about tax reform, the government plans on enhancing the income tax base in the upcoming budget, rather than relying on indirect taxes as has been the case in the past.

If the government fails to secure a second IMF programme, the government may try to float a sovereign bond in the international capital market, but without IMF backing, it is unlikely that the government will find many takers.

A second back-up option the government has is to deplete the country’s foreign exchange reserves, which currently stand at about $17.5 billion. Finance ministry officials estimate that they can deplete this up to the $8 billion mark, though it would likely also result in rampant inflation and massive currency depreciation.

According to the latest data from the central bank, Pakistan’s total debt stands at Rs11 trillion, which is equal to 69.1 per cent of the total size of the economy.

Published in The Express Tribune, March 27th, 2011.

http://tribune.com.pk/story/138285/fiscal-crisis-pakistan-to-seek-second-loan-to-pay-off-the-first/

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People like NS who pay only 5000 rupees and claim to be honest. my family lives in the UK and we paid more tax last year than he did.ndad

I am fairly sure that I paid more in tax, as a single person in the UK than the entire Pakistan parliment!!!!!

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Just to make things a little more dark... I'm hoping that IMF doesnt give them the new loan. How on earth will they children of Pakistan be able to repay all this??

Pakistan needs a dose of cold Turkey under the current goverment. Any new loans should be disapproved. Why wait for the next goverment ?? The "culture of kicking the problem down the street" needs to be broken, and I don't see why we should wait for that "lesson" to be learnt by the goverment. No time like the present..

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perfect policies - take debt to repay debt! In Feb 2008, the debt was $41 billion. Now? and what economic stability have we achieved in return? demon-crazy!

Pakistan did invite an economist i.e Shaukat Aziz, and he did turn around Pakistan's economic condition marvelously, but he couldn't lie like these Qaiser Bengalis, wise head behind Benazir Income support (as accepted by him in a DAWN program).

Edited by abaig

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Excellent piece...

The missing taxpayers

by Murtaza Haider on 03 28th, 2011 | Comments (10)

They travel abroad regularly, live in palatial homes and drive luxury vehicles. They are 2.3-million strong – they are the affluent Pakistanis who are also distinguished because they do not pay any taxes. They don’t even have a tax number, which suggests that these 2.3 million affluent Pakistanis have never paid taxes in Pakistan.

This is about to change, if one were to believe Salman Siddiqui, Chairman of the Pakistan’s Federal Bureau of Revenue (FBR). The FBR has issued notices to the 700,000 wealthiest of the 2.3 million affluent Pakistanis to pony up withheld taxes. Mr. Siddiqui did not elaborate on the penalties for those who would continue to evade taxes.

Tax evasion in Pakistan leaves the State with no option but to borrow money from lenders, such as the IMF. Consider this: in a nation of 180 million, fewer than two million are registered tax payers. Furthermore, tax revenue accounts for roughly 10 per cent of Pakistan’s GDP, which is extremely low even for Pakistan. The average among western European states is around 30-plus per cent. In neighbouring India, tax revenue accounts for 18 per cent of the GDP, which makes me wonder whether Indians have a better sense of citizenship than Pakistanis.

In the words of the famous Canadian-born economist, John K. Galbraith, this leads to the classic case of “private opulence and public squalor” where the desire and demand for private goods is enhanced while spending on public utilities such as schools and parks decreases. In fact, Pakistan’s society and economy epitomises private opulence and public squalor where the fortunes of the rich and wealthy keep growing, while the State of Pakistan gets buried deeper in domestic and international debt.

The FBR has to squeeze hard these bloated tax-evading lemons. I would argue that even the sovereignty of Pakistan rests on the unpaid taxes of these 2.3 million affluent citizens. Consider the following numbers: if the very rich tax evaders are charged a nominal annual tax of $2,500, and the remaining 1.6 million not-so-wealthy evaders are charged $1,500 annually, this would generate an additional $4.2 billion in tax revenue.

Remember that the US is offering Pakistan annually $1.5 billion (in aid) through the Kerry Lugar Bill, in exchange for drone attacks on its own people. The $4.2 billion from the wealthiest tax-evaders could buy Pakistan its freedom from the United States.

And what of the tax penalty for avoiding taxes in the past? May I recommend a one-time penalty, $5,000 for the very rich and $2,500 for the second-tier rich, which would generate a one-time revenue of $7.5 billion. This is exactly the amount that the Kerry-Lugar Bill has promised for Pakistan over 5 years. Again the very rich, by paying their back taxes as one-time penalty, can off-set Pakistan’s dependence on American assistance.

The amounts I have suggested in taxes are not excessive by any account. It was only last month when we learnt that renowned Pakistani singer, Rahat Fateh Ali Khan was caught with undeclared $124,000 in cash at the New Delhi airport. Rahat Fateh Ali Khan reportedly has no tax history in Pakistan. Would people like him find a few thousand dollars in taxes, burdensome?

Asking the very rich in Pakistan (who make several trips abroad for which the airfare of a single trip alone is around $1,500) to dole out $2,500 (or $1,500) in taxes is certainly not excessive. If you consider the equity they hold in their palatial homes or the luxury vehicles they drive, the amount I have suggested in taxes would appear insignificant for the very rich.

I live in a middle-class neighbourhood in Toronto, Canada, where I pay over $5,500 in property tax alone. My total tax bill (income and other consumption taxes) is an order of magnitude higher than my property tax bill. In fact, in Canada income taxes are the largest single line item in a household’s budget, followed by shelter and transport costs.

Canadians pay taxes even when they disagree with how the government spends their tax dollars. Consider the current right-wing government of Prime Minister Stephen Harper that has followed a more fear-laden agenda and has shifted towards spending on building prisons and buying fighter jets from the United States. Most Canadians abhor such spending decisions because Canada has experienced a significant decline in violent crime rate over the past decade and hence, does not need new prisons. Furthermore, Canada does not face any security threats from other countries for which it may need new fighter jets. Building prisons and buying fighter jets seems a huge waste of tax-payers’ dollars. Yet, I and other Canadians do not even for a second think of withholding taxes on the pretext that our tax dollars may be wasted on futile projects.

The relationship between the State and the citizen is defined by the citizen’s willingness to pay taxes. Withholding taxes weakens the State. A weakened State has no alternative but to compromise. In Pakistan’s case, it is not the politicians alone who have pushed the State to beg from the IMF or the United States. Instead, it is the citizens of Pakistan who refuse to buy a stake in the country’s future by paying taxes, have forced the State to borrow from IMF and other lenders.

All Pakistanis, irrespective of their political or religious persuasions, hate their country’s dependence on handouts from the United States, the IMF, the World Bank and other similar institutions. The easiest and surest way to break free of this economic dependency is for Pakistanis to pay their taxes.

Murtaza Haider, Ph.D. is a professor of supply chain management at Ryerson University in Toronto. He can be reached at murtaza.haider@ryerson.ca

http://blog.dawn.com/2011/03/28/the-missing-taxpayers/

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Govt accepts advice to tax farm income

By Khaleeq Kiani | From the Newspaper

(8 hours ago) Today

Finance Minister Dr Abdul Hafeez Shaikh presided over the meeting. It was also attended by State Bank Governor Shahid Kardar and Deputy Chairman of the Planning Commission, Dr Nadeemul Haq. — File Photo

ISLAMABAD: The government concurred with leading economic advisers in the country on Thursday to tax supply chain of the agriculture sector and to ask the provinces to immediately send notices to landholders of more than 50 acres to file tax returns for additional revenue mobilisation.

This was the outcome of the first meeting of the Economic Advisory Council (EAC), headed by Dr Hafeez Pasha and comprising former finance minister Shaukat Tarin, former industries minister Jehangir Khan Tarin, former State Bank governor Salim Raza, Dr Ijaz Nabi, Nasim Beg, Farooq Rahmatullah, Ali Habib, Shahnaz Wazir Ali and others.

Finance Minister Dr Abdul Hafeez Shaikh presided over the meeting. It was also attended by State Bank Governor Shahid Kardar and Deputy Chairman of the Planning Commission, Dr Nadeemul Haq.

According to a statement issued by the finance ministry, the council discussed the idea of taxing all incomes irrespective of the source of origin, including agriculture and services sectors.

A participant told Dawn that almost all members were of the view that agriculture was a provincial subject and, therefore, all provincial finance ministers should be invited to the next EAC meeting. But before that, they suggested, notices should be issued to big landholders to file tax returns to show the government’s resolve for introducing an equitable tax system.

The meeting decided to hold consultations at the provincial level to also engage the chief ministers in the proposed plan because the provinces had a major role in public finances after the 18th Amendment and the 7th National Finance Commission.

At the same time, the participants were of the opinion that agricultural value chain like wholesalers and middlemen was very much in the federal domain and it should be taxed by the centre.

The meeting also noted that already there were provincial taxes on agricultural incomes and the government would have to tax this sector if it wanted to ward off other pressure groups which had created an impression that urban populations were being penalized through the reformed general sales tax without bringing rural incomes into the tax net.

The meeting was informed that all provincial governments had introduced the land revenue act in 2000 to tax agricultural income through verification of growers’ incomes, but had done nothing to collect such taxes.

Under the act, an income of Rs80,000 per crop has been exempted from the tax, while five per cent tax is applicable on an income of Rs100,000, 10 per cent on income up to Rs200,000 and 15 per cent on all agricultural incomes exceeding Rs200,000.

The EAC members warned the government that they would stay away from future consultations if their recommendations were not made part of the next budget because they were contributing their time and expertise in the larger economic interests of the country.

“We have come together to try to sort out economic difficulties and will defend the budget if our consensus recommendations are adopted,” one participant told the finance minister.

Dr Hafeez agreed to oblige.

There was a broad consensus among participants that the next budget should be “growth-oriented” and aim at increasing revenues, and not only concern itself about meeting the requirements of the International Monetary Fund.

A council member said the EAC had expressed concern over an ambitious revenue target of Rs1,604 billion recently set by the government. The council was of the opinion that the tax machinery would at best be able to collect Rs1,530 billion.

It advised the government to avoid imposing new taxes before June if there was a shortfall in revenue and instead focus on audit recoveries and other administrative measures.

The PC deputy chairman said the country needed to achieve a growth rate of at least eight per cent of GDP to provide jobs to the increasing number of young people joining the market.

http://www.dawn.com/2011/04/08/govt-accepts-advice-to-tax-farm-income.html

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Iraq wants to provide oil to Pakistan unconditionally

ISLAMABAD: The Ambassador of Republic of Iraq to Pakistan, Dr. Rushdi Al-Ani on Wednesday said his country considers Pakistan a super power.

He said that his country is ready to provide oil to Pakistan unconditionally so that this great country can cope with energy crisis.

He said that Baghdad is eager to import technology, edibles, and medicines from Pakistan and want investment from Pakistani companies as the situation in his country has improved to a great extent.

Talking to a delegation of women entrepreneurs led by Samina Fazil, President, Islamabad Women’s Chamber of Commerce and Industry (IWCCI), the Ambassador said that international media is intentionally painting a gloomy picture of Pakistan to harass investors and isolate this great Islamic country.

Dr. Rushdi Al-Ani informed that Iraq imports over 40 million tonnes of cement, wheat, rice, sugar and other items from many countries but now it has been decided to make Pakistan a major trading partner.

He said that Iraq offers tremendous investment opportunities in construction, manufacturing, education and other sectors which can also benefit Pakistani investors.

While inviting Pakistan pharmaceuticals to Iraq, he said that only American and Indian medicine are available in his country.

I will personally facilitate Pakistani businessmen to get visa at the earliest, he promised. Al- Ani said that he will help Pakistans business community in developing contacts in Iraq so that they can run the affairs smoothly.

The business women of the two countries should also establish links to enhance bilateral trade, he advised.

On the occasion Samina Fazil and others expressed interest in exporting items concerning to health, agriculture, livestock, garments, jewellery, handicrafts, marble and granite and emphasized on joint ventures.

They said that direct flights are imperative to accelerate the trade between the two countries.

Samina said that private sectors of both countries should come forward to explore the opportunities of trade and investment and demanded removal of tariff and non-barriers.

She stressed channelizing the trade related information and regular exchange of business delegations.

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Only if our leadership wakes up from their deep moral slumber and tackle the problems facing the Pakistan.

I hope GOP and all the business/trade groups take advantage of this opportunity to available in trade and commerce. It would help in balance of payments, help the local industry with a new market and hopefully increase employment opportunities.

With the change in government in Egypt, Tunisia and soon to be Libya, there are ample opportunities for Pakistan to expand trade and sphere of influence.

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Not related to Pakistan, yet I had to post it here.

BBC has an article titled, “China 'losing edge' as low-cost manufacturer, says KPMG”.

Here is an excerpt from this article, “According to KPMG estimates, Indonesia's footwear exports grew by 42% in 2010 to $2.1bn (£1.3bn), while Bangladesh saw textiles exports grow by 43% to more than $18bn in the year to July 2011.”

I remember reading on Dawn recently Textile exports from Pakistan $13bn. However, some of the textile manufacturers are planning to relocate or have relocated to Bangladesh to take advantage of incentive offered by Bangladesh and constant power supply.

It is disheartening that despite being one of the largest growers and exporters of raw cotton, Pakistan exports of textile products are less than Bangladesh. If Indonesia can export $2.1 bn worth of footwear than why Pakistan could not do the same. It is very easy to blame Mr. 10% & current government but there have other governments in power both military & civil.

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a lot of Pakistani textile manufacturers have moved their factories, lock stock and barrel, to Bangladesh, Vietnam and anywhere else they find better working conditions and export potential. The main reason for high Bangladesh, vietnam etc. exports is their quotas. Pakistan is heavily restricted by quotas to export to the US and EU. The power situation which makes it hard to run factories doesn't help either.

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Masood, Thank you for the reply. Who and how quotas apply for each country? How come Quota for Pakistan is less than B'desh and Vietnam?

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Masood, Thank you for the reply. Who and how quotas apply for each country? How come Quota for Pakistan is less than B'desh and Vietnam?

Quotas as just one aspect of it and for a while Pakistani textile manufacturers avoided it by reshipping from another location Dubia or Lebnon. key issues are law and order situation and power related issues. Quotas are political gimmicks and can be worked around and had been worked around if there is solid maufacturing base.

In 2006-7 when Bangladesh was going through political turmoil pakistani textile exports simply doubled. Also textiles are low tech high volume products with little or no barrier to entry in market and Pakistani manufacturers never tried to diversify and go into comparatively higher tech products while going was good for a while.

Foot wear for example need fairly complex and higher technology manufacturing to compete in international market and Pakistani companies never invested in further research/development.

With China losing competitive edge , can be blessing for Pakistan , if Pakistan can improve law and order situation and real estate prices in China for manufacturing facilities is sky rocketing and Chines manufacturers want to expand in Pakistan ...but law and order situation is big question mark

Cheap imports/smuggling from China is another issue which manufacturer face

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Very nice and lucid article on Taxation issues of Pakistan

The missing taxpayers

They travel abroad regularly, live in palatial homes and drive luxury vehicles. They are 2.3-million strong – they are the affluent Pakistanis who are also distinguished because they do not pay any taxes. They don’t even have a tax number, which suggests that these 2.3 million affluent Pakistanis have never paid taxes in Pakistan.

This is about to change, if one were to believe Salman Siddiqui, Chairman of the Pakistan’s Federal Bureau of Revenue (FBR). The FBR has issued notices to the 700,000 wealthiest of the 2.3 million affluent Pakistanis to pony up withheld taxes. Mr. Siddiqui did not elaborate on the penalties for those who would continue to evade taxes.

Tax evasion in Pakistan leaves the State with no option but to borrow money from lenders, such as the IMF. Consider this: in a nation of 180 million, fewer than two million are registered tax payers. Furthermore, tax revenue accounts for roughly 10 per cent of Pakistan’s GDP, which is extremely low even for Pakistan. The average among western European states is around 30-plus per cent. In neighbouring India, tax revenue accounts for 18 per cent of the GDP, which makes me wonder whether Indians have a better sense of citizenship than Pakistanis.

http://blog.dawn.com/wp-content/uploads/2011/03/graph.jpg

In the words of the famous Canadian-born economist, John K. Galbraith, this leads to the classic case of “private opulence and public squalor” where the desire and demand for private goods is enhanced while spending on public utilities such as schools and parks decreases. In fact, Pakistan’s society and economy epitomises private opulence and public squalor where the fortunes of the rich and wealthy keep growing, while the State of Pakistan gets buried deeper in domestic and international debt.

The FBR has to squeeze hard these bloated tax-evading lemons. I would argue that even the sovereignty of Pakistan rests on the unpaid taxes of these 2.3 million affluent citizens. Consider the following numbers: if the very rich tax evaders are charged a nominal annual tax of $2,500, and the remaining 1.6 million not-so-wealthy evaders are charged $1,500 annually, this would generate an additional $4.2 billion in tax revenue.

Remember that the US is offering Pakistan annually $1.5 billion (in aid) through the Kerry Lugar Bill, in exchange for drone attacks on its own people. The $4.2 billion from the wealthiest tax-evaders could buy Pakistan its freedom from the United States.

And what of the tax penalty for avoiding taxes in the past? May I recommend a one-time penalty, $5,000 for the very rich and $2,500 for the second-tier rich, which would generate a one-time revenue of $7.5 billion. This is exactly the amount that the Kerry-Lugar Bill has promised for Pakistan over 5 years. Again the very rich, by paying their back taxes as one-time penalty, can off-set Pakistan’s dependence on American assistance.

The amounts I have suggested in taxes are not excessive by any account. It was only last month when we learnt that renowned Pakistani singer, Rahat Fateh Ali Khan was caught with undeclared $124,000 in cash at the New Delhi airport. Rahat Fateh Ali Khan reportedly has no tax history in Pakistan. Would people like him find a few thousand dollars in taxes, burdensome?

Asking the very rich in Pakistan (who make several trips abroad for which the airfare of a single trip alone is around $1,500) to dole out $2,500 (or $1,500) in taxes is certainly not excessive. If you consider the equity they hold in their palatial homes or the luxury vehicles they drive, the amount I have suggested in taxes would appear insignificant for the very rich.

I live in a middle-class neighbourhood in Toronto, Canada, where I pay over $5,500 in property tax alone. My total tax bill (income and other consumption taxes) is an order of magnitude higher than my property tax bill. In fact, in Canada income taxes are the largest single line item in a household’s budget, followed by shelter and transport costs.

Canadians pay taxes even when they disagree with how the government spends their tax dollars. Consider the current right-wing government of Prime Minister Stephen Harper that has followed a more fear-laden agenda and has shifted towards spending on building prisons and buying fighter jets from the United States. Most Canadians abhor such spending decisions because Canada has experienced a significant decline in violent crime rate over the past decade and hence, does not need new prisons. Furthermore, Canada does not face any security threats from other countries for which it may need new fighter jets. Building prisons and buying fighter jets seems a huge waste of tax-payers’ dollars. Yet, I and other Canadians do not even for a second think of withholding taxes on the pretext that our tax dollars may be wasted on futile projects.

The relationship between the State and the citizen is defined by the citizen’s willingness to pay taxes. Withholding taxes weakens the State. A weakened State has no alternative but to compromise. In Pakistan’s case, it is not the politicians alone who have pushed the State to beg from the IMF or the United States. Instead, it is the citizens of Pakistan who refuse to buy a stake in the country’s future by paying taxes, have forced the State to borrow from IMF and other lenders.

All Pakistanis, irrespective of their political or religious persuasions, hate their country’s dependence on handouts from the United States, the IMF, the World Bank and other similar institutions. The easiest and surest way to break free of this economic dependency is for Pakistanis to pay their taxes.

http://blog.dawn.com/2011/03/28/the-missing-taxpayers/

Murtaza Haider, Ph.D. is a professor of supply chain management at Ryerson University in Toronto. He can be reached at murtaza.haider@ryerson.ca

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