Revenue blues

LAHORE: Annual budgets presented by governments in Pakistan are always over ambitious and the revenues always fall too short of expenditures; still rulers have the guts to announce additional concessions and development projects.

There is no clarity in economic decisions. The resources are limited. If they announce additional expenditure measures, the rulers should point out from where the resources would come or which expenses they intend to cut to provide resources for the new measures. Keeping the economic affairs non-transparent is not in the interest of the economic well-being of the country. How is it possible to increase the subsidies and concessions by over a trillion over the budgeted allocation without compromising on some essential expenditures?

It is time that the powers of the government to overspend over the approved budget be allowed subject to the approval of the legislature, where the state functionaries should explain how the additional resources would be generated to finance new expenditure measures. The capacity of governments in Pakistan has always been lower than the resources at its disposal.

A country mired in debt cannot increase subsidies or concessions. Borrowing in this regard should be totally banned. In fact, government borrowing should be limited to infrastructure upgrades.

The government should fix realistic budgetary targets, keeping in view the capacity and the capability of the resource generation and the present state of the economy. Unfortunately, the expenditures side increases in every budget without corresponding increase on the revenue side. The gap increases with each passing year that is plugged with borrowing.

There is no plan in place to service the consumptive loans. With time borrowing is becoming expensive. Infrastructure deficit is increasing as the cut in development budget does not directly hurt people in the short run. In the long run the infrastructure deficit slows down real growth.

Federal Board of Revenue (FBR) is the institution assigned to generate revenues. It operates on 1960s technology, whereas available technology adopted even in our regional economies has helped generate revenues fairly from all segments of society.

More than the technology there is a need to create a will among revenue officers to confront tax evaders. The FBR has amassed huge data with the help of technology that gives an insight into the wealth and incomes of several million Pakistanis who are not registered in tax net.

Ours is a unique country, where despite having irrevocable proof of non-tax paid wealth and income, the revenue department has not recovered the due taxes. There is a tendency in bureaucracy to let things drift slowly until the problem grows out of proportion.

Power sector staff are unable to collect power bills worth over Rs1 trillion from the private sector defaulters. These defaulters must be special VIPs because if an ordinary citizen does not pay their power bill for a month their power supply is cut off.

The environment protection departments look the other way when they see factories polluting the water channels or their chimneys emitting thick black smoke. Industrial production is on decline because grey economy is flourishing. The state generates three times higher revenues from the manufacturing sector than their weight in the national GDP.

The service sector is growing at a fast pace without corresponding increase in taxes from this sector. It currently accounts for 54 percent of the GDP of Pakistan. Yet, its contribution in FBR revenues is only 30 percent. It will go down to 15 percent if we deduct the revenue that FBR collects from the telecommunication sector. The revenues from the telecom sector are collected through technology, where slippage is not possible.

The rest of the service sector pays nominal taxes. Efforts are needed from FBR to double the taxes from the service sector. Development of the services sector is beneficial to the economy only if it pays fair taxes. Otherwise, this sector creates few jobs and has little impact on the lives of common man.

It is said that unrealistic federal targets also adversely impact the performance of the provinces that mainly depend on federal transfers to run their affairs. The economists regret that no measures are taken to force the provinces to generate their own revenues.

Against rupees one trillion revenue collections by the federal government, Punjab, the largest province of the country, collects less than Rs30 billion, which is only three percent of federal tax revenues. Dependence of the provinces on federal transfers is risky and efforts are needed to gradually transfer sales tax collection to the provinces since that in fact is a provincial tax.

The concept of public-private partnership is more practicable when the economic fundamentals are under the control of the government. With inflation rising, growth has slowed down, and the value of rupee is under question, in these circumstances, the private sector will participate in development projects only after discounting all these drawbacks.

Private sector will also demand a higher rate of return on investment. General public as users of those projects will pay higher usage rates in such projects. The public-private partnerships, according to economic experts are more suitable in a stable economic atmosphere.