Economic issues

LAHORE: Shortage of revenues is the major problem of the state. Revenue leakage occurs when a revenue collector gets a rent from a revenue evader. Rent seeking is as much a reality as the willingness to pay the rent to avoid rules.

Almost all entrepreneurs indulge in some type of malpractice. A culture where taking and giving bribes is a norm, this allows access to various benefits.

A bureaucrat sitting at a lucrative post (say at customs) seeks rent from all individuals that seek his approval on a document that benefits the bribe payer immensely when the rent is paid.

The benefit is very small for the rent seeker. But when the bureaucrat seeks the same amount from dozens of bribe payers for signing similar documents every day, the amount becomes sizable.

In a month, the bribe he gets is definitely at least 10 times his monthly take home salary. This two-way benefit is the reason that most of the entrepreneurs seldom (only few entrepreneurs are clean) ask the government for good governance or suggest ways to plug revenue leakages.

This bribe seeking and bribe giving has become a part of our culture. Since it benefits vested interests on both sides, the progress on good governance initiatives never succeeds. The growth would remain stagnated if the governance issue is not resolved.

Businessmen drag the government on non-issues like high sales tax, excise duties etc or the punitive withholding tax on utility bills and cheques. These factors have become a major issue for only those local entrepreneurs who either do not pay the taxes or under-file their tax returns.

Then, there is a need to change the mindset of the local entrepreneurs who genuinely think that they are the ones contributing to the revenues by depositing sales tax, excise duty collected from consumers in the national kitty.

In fact, even the custom duty and the withholding income tax they pay in the national exchequer is collected from the consumers.

Businessmen rightly charge the custom duty from the consumers, but most of them also incorporate the advance tax they pay at import stage in their cost and pass this burden to the consumers.

Sales tax is imposed on consumption and is paid by the consumers.

On record, direct taxes account for 35 percent of the total tax collection in the country. However, 70 percent of direct taxes are collected as withholding tax.

This means that practically 80 percent of the total tax revenue comes from the consumers.

This tendency of the entrepreneurs to pass on the impact of most of the taxes to the consumers has been the main factor that has widened the difference between the rich and the poor.

The tendency has also increased non-documentation of the economy.

Easy money that the entrepreneurs have generated during the past three decades has also made the local manufacturers inefficient. Ways should be found through dialogue to plug tax evasion through technology and by outsourcing tax collection to some creditable private institution monitored for five years by the World Bank.