e live in a world characterised increasingly by opposites: haves and have-nots, gated communities next to ghettos, extreme poverty and unbelievable riches. Some of us enjoy rights that are denied to others. Relative inequalities are exploding, and the world’s poorest, despite all the advances of globalisation, may even be getting poorer — Noreena Hertz, economist and author

For Pakistan, the road to prosperity is full of challenges. The ordinary citizens have little or no hope of an improvement in their situation any time soon. The trust deficit between the state and the citizens is widening. It has already reached a dangerous level. Many people blame the rulers and powerful state institutions for the hardships in their lives.

The elites’ monopoly and control over the resources have been getting stronger with every passing day. Ordinary people are forced to bear the adverse results of their imprudent economic policies and their disinterest in reforming the system. In the last 75 years we have failed to create a state that discharges its responsibilities towards its citizens. Our governance model protects the interests of the powerful elites, the direct beneficiaries of the system, at the cost of other citizens.

After more than seven decades of independence, people are still deprived of basic needs such as health, education, infrastructure and transport. In many cases, even clean drinking water. On the contrary, the elites have been exploiting state resources to their advantage, receiving unprecedented perks, concessions and preferential tax treatment.

Successive governments have failed to dismantle the outdated colonial administrative structure, and review the inherited Anglo-Saxon laws. Consequently, the cherished objective of a fair society offering equal opportunities to all citizens remains unfulfilled.

The Pakistan National Human Development Report 2020 by the United Nations Development Programme highlights inequalities prevailing in Pakistan in various forms. The report explores various dimensions of state capture by the elite through special provisions for the privileged in laws, rules and regulations – including special treatment by public institutions. It estimates that the benefits and privileges enjoyed by various vested interests in Pakistan amounted to Rs 2.66 trillion in 2017-18 – around 7 percent of the country’s GDP.

The report includes an interesting analysis of the situation as follows:

“The economic elites often use their wealth and power to influence government policies, political decisions and public debates in ways that lead to a greater concentration of wealth. Money buys political clout, which the richest and most powerful use to further entrench their influence and advantages. Many of Pakistan’s wealthiest people today have made their fortunes thanks to exclusive government concessions, tax exemptions, sweetheart contracts, land concessions, subsidies, privatisation (even in the education and health systems), corruption and the monopoly of power. Private healthcare providers, and a few organised private education institutions, have become so powerful in recent years that the government is unable to trim their influence and provide equal access to quality education and health care for all – both of which are essential to address inequality.”

The report analyses benefits and preferential treatments available for the military establishment, high net worth individuals, rich traders, corporate sector, exporters, feudal class and state-owned enterprises in the shape of tax exemptions, low effective tax rates, tax evasion, cheaper inputs, higher output prices through favourable pricing formulas and preferential access to land and capital, etc.

It claims that 92,919 people from amongst the feudal elite, representing barely 1.1 percent of the total number of farmers, own 22 percent of the nation’s farm area. Similarly, it observes that large-scale farmers enjoy preferential access to credit lines offered by banks. Farms with 50 acres or more consumed 56 percent of agricultural credit, i.e., Rs 972 billion in 2017-18. The report says that benefits enjoyed by the absentee landed class are around Rs 370 billion per year.

As per the report, the corporate sector has privileges amounting to around Rs 724 billion. These benefits eventually accrue to shareholders of the companies – less than 0.7 percent of Pakistan’s population. Further, corporate partners operating within different segments have formed alliances and partnerships in the form of joint action forums and bodies that protect and facilitate their commercial interests.

Some notable examples are the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the All Pakistan Textile Mills Association (APTMA), the All Pakistan Cement Manufacturers Association (APCMA), the Pakistan Sugar Mills Association (PSMA) and the Pakistan Automotive Manufacturers Association (PAMA). These bodies enjoy close liaison in corridors of power. Governments allegedly facilitate their key members through political appointments, etc. Businessmen also have direct links with political coteries, serving in federal and provincial cabinets. Ignoring blatant conflict of interests, political parties welcome people having strong financial backgrounds.

The latest data issued by the Federal Board of Revenue in its Tax Expenditure Report for FY 2022, estimates Rs 1.482.3 billion as tax expenditure i.e. 31.2 percent of the total collection in FY 2020-22 and constituting approximately 2.67 percent of the GDP.

The expenditure represents potential tax revenue that is foregone due to specific provisions of tax laws relating to exemptions, exclusions, preferential rates, tax credits, etc. During FY 2021-22, Rs 399.7 billion was foregone under Income Tax, Rs 739.8 billion under sales tax and Rs 342.8 billion under customs duty. The huge tax potential remains untapped by successive governments that go on burdening existing taxpayers with more and more taxes to meet their collection targets.

In Pakistan, wealth and power are still concentrated in a few hands. Ordinary people are losing faith in the system. They are left at the mercy of strong headwinds of inflation and macroeconomic adjustments. There is no comprehensive social protection mechanism. The only functioning mechanism, the Benazir Income Support Programme, has a limited impact. A comprehensive social protection system based on equity is needed to enable businesses to thrive. Resources of the state must be utilised efficiently in the country’s larger interest rather than for the benefit of a few powerful segments.

Dr. Ikramul Haq, an advocate of Supreme Court and writer, is adjunct faculty at Lahore University of Management Sciences (LUMS), a member of the Advisory Board and a Visiting Senior Fellow of the Pakistan Institute of Development Economics (PIDE).

Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in white collar crimes and sanctions compliance.

They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions with Huzaima Bukhari.