"The institutional structure of Pakistan’s economy is designed to generate rents for the elite at the expense of the middle classes and the poor. It is this structural characteristic of the economy and not just bribery that prevents sustained high economic growth and equity" -- Economics of corruption, Dr. Akmal Hussain.

The curious paradox of Pakistan is that while legitimate money for worthwhile industrial investment, business growth and public benefits is scarce, there is colossal unaccounted cash supply circulating in the economy in search of further undercover gains. It is estimated that size of informal economy is three time that of formal one. What is more tragic is that this social evil inherent in our tax system gets doubly compounded as it necessitates greater and greater tax burden on those who are law-abiding.

The most crucial problem faced by economic managers is that of devising astute and stringent measures to curb tax evasion so that we can distribute the burden of taxes fairly and justly between different persons in the same or similar walks of life. Honest taxpayers in Pakistan are increasingly becoming disillusioned by the fact that tax evaders pay nothing in connivance with their friends in the tax machinery and also get unprecedented and frequent amnesties and immunities from lawmakers.

Many Pakistani experts are pleading for Notebandi [vernacular term for ‘demonetisation’ in India] to counter black money. They have no idea about this misadventure in India. The Guardian made apt remarks on this Modi’s move: "Demonitisation is not new in India, which last tried it in a smaller way in 1978. The result then was higher bank deposits and a bump in the tax take. Yet the scale and speed of Modi’s scheme has more in common with the failed experiments of dictatorships which led to runaway inflation, currency collapse and mass protests. While Mr. Modi campaigned to end corruption, it would have been better if the government had updated its antiquated tax system to realise such a task".

We, instead of mindless demonetisation, should introduce a fair tax system that effectively counters black money -- see details in 12 trillion reasons for 1 flat tax and Towards Flat, Low-rate, Broad & Predictable Taxes’, published by Prime Institute. At the same time, we must restructure our institutions that are capable of dismantling the very basis of corruption rather than providing only punishment/plea bargain/voluntary payments after plundering takes place.

According to a study, Documentation & demonetization, "The quantum of undocumented economy is too high in Pakistan. The Rs5000 note was first issued in 2006 in Pakistan and that has not had any meaningful impact on the Currency in Circulation [CIC]. Its average was around 24 per cent two years prior to the issue and it was 23 per cent five years from the issuance of new note. The ratio remained at the same levels till June 2015".

The study further claims: "Anecdotal evidence suggests that the Rs5000 notes availability from banking channels has been reduced; and Rs40,000 denomination prize bonds are in short supply. Prize bonds have long been used as safe haven for shady wealth. It is a bearer certificate where you can effectively earn a return of 5-6 per cent, if you buy a whole series, without having an iota of asset registered in your name. The prize bonds stock increased by 73 per cent to Rs682 billion in the PML-N regime. The lion’s share of increase is amongst big ticket bonds -- bonds of Rs25k denomination went up from Rs40 billion to Rs102 billion and Rs40k bond jumped from Rs118 billion to Rs194 billion. Still these bonds are in short supply.

The government surely has to rethink on the efficacy of the banking transaction tax. Ishaq Dar has to have more clarity -- whether it is meant for enhancing tax collection or to curb undocumented economy….Without having clarity on the very reason of jump in undocumented economy, demonetisation might be a futile exercise. Pakistan economy is much more open than that of India; and USD is actively being used in big size transactions. One can demonetise Rs5000 note but cannot take effective Rs10,000 note (USD100 note) from the market".

Countering corruption, rent-seeking, black money and tax evasion is a daunting task in every part of the world but in Pakistan till today no serious effort has been made by any government to eradicate these maladies by all-out reforms. On the contrary, our successive governments, civil and military alike, have been legitimising tax evasion.

Every year, billions are sent abroad and then a part of this untaxed money, hidden in tax havens, is legitimised using facility provided by the State -- section 111(4) of the Income Tax Ordinance, 2001 saying no question can be asked for any money received through remittance! Out of total remittances of over US$18 billion received in FY 2015-16, how much was on this account, nobody knows. Additionally, many billions pour into informal economy through hundi, hawala etc -- these inflows are Pakistan’s real financial lifeline.

Nobody talks about the beneficiaries of free and concessional plots. Federal Board of Revenue [FBR] never nabs those who make tonnes of money by transferring plots allotted to them at nominal rates at extravagant prices and yet do not pay a single penny as tax [though this constitutes ‘adventure in the nature of trade’ and is chargeable to tax under the Income Tax Law]. Many powerful men in khaki and mufti are engaged in this profit-making venture, yet not a single case has been registered by the FBR against them for tax evasion.

Pakistan is thus a classic case study of unchecked and unabated corruption, tax evasion and flight of capital. The Pakistan economy has been losing billions since 1992 when many money whitening schemes and Protection of Economic Reforms Act 1992 were introduced by Nawaz Sharif to legitimise untaxed and ill-gotten assets -- it was done skillfully in the name of liberalisation of economy [see details in Pakistan: Enigma of Taxation, Pakistan: From Hash to Heroin and its sequel Pakistan: From Drug-trap to Debt-trap].

The Protection of Economic Reforms Act, 1992 gives free hand to tax cheats and money launderers -- a law that has never been examined from this perspective. All public office holders who have taken advantage of this law [see details in 1998 PTD 34] should have been disqualified for open admission of cheating the State but they are ruling Pakistan. Not a single case has been prosecuted by National Accountability Bureau [NAB] till today for availing this law by any public officeholder.

Businessmen-cum-politicians have been "engineering" laws for self-aggrandisement and the poor and helpless of this Land of Pure, burdened with exorbitant indirect taxes, do not get even free health and education. Tax Directories for 2013, 2014 and 2015, published by the FBR, show laughable quantum of incomes by majority of elected members vis-à-vis their ostensible standard of living, yet the NAB has taken no action till today. They have assets inside and outside the country -- mostly held benami but none of the Chairmen NAB has shown the courage to investigate the same even after Panama Leaks.

The ultimate cynicism that afflicts a society is acceptance of corruption as a way of life. Unfortunately, after 70 years of independence, this is precisely where we have reached. There is a general perception that NAB has been only victimising political opponents at the behest of masters of the day. Not only the military dictators but the majority of the elected members on various occasions passed immunity laws and approved amnesty schemes for protecting mafias, controlling stock markets and real estate sector because they were/are their financiers and/or fund managers (many men in politics and holding government positions do benami business to legitimise tainted money).

Corruption, tax evasion, rent-seeking and black money are not isolated phenomena. These are symptoms of crony capitalism in a dominantly mendacious society. The real challenge is dismantling of structures giving rise and protection to these maladies. Pakistan, or any other country, cannot win the war against corruption and eliminate black money by demonetisation alone unless it destroys the very foundations of corruption and confiscates assets created by plunderers of the national wealth and tax evaders.