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50 pc taxable income goes unreported

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Annual tax evasion in Pakistan exceeds Rs 12 bn

From Shamim Ahmed Rizvi, Islamabad
Oct 04 - 10, 1999

Almost 50 per cent of taxable income in urban areas goes unreported while practically there is no tax on income from agriculture in rural areas while the annual tax evasion in Pakistan exceeds Rs. 152 billion. If the tax evasion in urban areas is checked, Pakistan can easily clear off the entire fiscal deficit.

This is not a layman's estimate. It is the part of the report on "Human Development in South Asia 1999," prepared by the UN experts after extensive research work and released by Dr. Mehboob-ul-Haq Human Development Centre in Islamabad last week. The finding of the report relating to the various countries are just startling.

Dr. Khadija Haq, Chairperson of Mehboob-ul-Haq Human Development Centre, while releasing the report, said that South Asia was one of the most poorly governed regions in the world. Pakistan is among the lowest in the region. When she said this at that time chief economist of Pakistan, A. R. Kemal, and politician Javed Jabbar were sitting beside her. The High Commissioner of Canada Mr. Ferry de Kerchhove was the chief guest on this occasion.

The 208-page report contains eight chapters with technical notes and a profile of governance in South Asia along with human development indicators. It has all the relevant tables and boxes.

Though South Asia comprises 28 per cent of total world population, it is home to more than 40 per cent of all those living in poverty worldwide. This is because of erosion of democracy, rampant corruption, crisis of governance, deprivation of the poor, economic crisis and vulnerability of Civil Society organisations in the member countries.

On the "Crisis of Governance in South Asia", the report says that from an inefficient and inequitable deployment of resources and crippling debt burdens to social divisions drawn on ethnic and sectarian lines, South Asia's systems of governance are increasingly becoming unresponsive and irrelevant to the needs of the vast majority of the region's population.

In the context of entrenched corruption, the report cites an example from Pakistan where according to some estimates, bad loans given as political patronage without proper collateral amount to approximately Rs 200 billion. The report says that "most of these loans are not stuck up with sick industries but are in the hands of influential people, with considerable assets that can be seized and auctioned, provided there is a proper accountability."

The report says that South Asian region is the world's poorest and the most illiterate, the most malnourished, the least sensitive to the needs of women, and at the same time, the one region where military spending as a proportion of GNP has actually risen since 1987.

It says that across South Asia, political democracy has not taken roots with nearly 50 nation-wide elections since the end of the British Raj, but the distance between the rulers and the people remains vast. According to Khadija Haq, "South Asia's governance crisis persists due to low levels of education, an enduring bias against women and minorities, and the weakness of institutions that help forge consensus among people and their rulers."

The report says that South Asia is replete with examples of poor governance that erode the capacity of communities and individuals, especially the poor, women and children, to meet their basic needs. Failure to execute timely policy and institutional reforms, for the benefit of the disadvantaged majority, increases the risk of violent revolt today. A new vision and architecture of humane governance, built upon the principles of ownership, decency and accountability, have become imperative for over one billion citizens of South Asia.

Mrs. Khadija Haq said, "South Asia's Fiscal matrix is an amalgam of sharp inequities and inefficiencies, both in its patterns of resource mobilization and allocation."

Canadian Ambassador in Pakistan, Berry De Kerchove, specially mentioned his meeting with Dr. Haq and appreciated the tremendous job the centre has done by compiling a comprehensive report depicting major issues harming human development in South Asia.

The Human Development in South Asia report 1999 has taken up the issue of corruption in the region which marred the development. Corruption is costing South Asia billions of dollars each year, with the cost falling disproportionately on the region's poor people.

"Not only does corruption impede economic growth, it reduces foreign and domestic investment, decreases resource availability, accelerates human poverty, threatens the legitimacy of the state and devastates human development," the report said.

Corruption in South Asia often distorts government decisions and priorities and the corrupt money goes abroad and is not recycled within the region to encourage production and investment. And above all no one is punished for corruption in real terms as the ruling elite on South Asia is often too powerful to face an honest process of accountability. The report suggests that in order to root out widespread corruption, a broad-based political movement and moral regeneration of society are needed.

The report also suggests reform proposals aimed at eliminating corruption. It calls for an anti-corruption revolution, with the creation of exclusive anti corruption courts, requirements by public officials to declare assets, provision of immunity to informers, debate on all major contracts in the Parliament and transparent procurement laws. The other steps like the passage of bills demanding a public right to information, the use of independent private sector auditors and the appointment of independent watchdogs can form the basis of a concerted strategy to combat corruption, the report added.

The report highlights the media's importance in fostering good governance by providing greater access to information about government actions that are necessary for accountability and active participation. "Yet many controls on the media by the government of South Asia are still in place, including exorbitant licensing fees and import duties on news print, the ability to impose emergency regulations or withhold government advertisement," said the report.

The report said millions of people have been excluded, for being poor, from a different faith, or of the wrong gender, and their exclusion perpetuates deep-rooted social cleavages in society, stifling the region's economic progress and adding to the significant human distress.

Each day as many as one lakh children in South Asia sell their bodies to earn enough to survive. The preference for sons in some of the most extreme forms of violence and abuse against the girl child and women are also the common factors. In India, there are 10,000 cases of female infanticides every year. In Pakistan, India and Bangladesh, girls are between 30 to 50 per cent more likely to die, between their first and fifth birthdays than boys.

It said ethnic and religious minorities are often faced with limited opportunities for economic and political empowerment. The exclusion of large number of South Asians from their societies has manifested itself in increasing levels of crime, violence and conflicts in the region. According to HDC report, more than 3,000 people have been killed in politically motivated violence in Karachi since 1995. During 1954 and 1994, there were approximately 15,000 communal riots in India which resulted in 13,301 casualties. Around 55,000 people have died so far in the civil war in Sri Lanka.

The report also speaks about the role of civil society organizations including NGOs, saying these agents can embolden democratic practices of civic responsibility by informing and mobilising citizens.

The reports mentions, a criteria for the good governance process which includes; a) institutional performance (political governance); b) accessibility by the governed to participate in governance (civic governance) and c) factors required for sustainable economic development (economic governance).

The report says South Asia is facing acute economic crisis affecting industrial and agricultural performance. The tax collection remains meager, as illustrated by a low tax to GDP ratio of 10.4 per cent. The tax base is narrow with only around one per cent of the population paying income taxes. The poor are relatively paying more taxes than the affluent class under indirect taxes mechanism.

The report suggested a complete re-orientation of state priorities in the economic and social sectors in order to address core human development concerns. It stated that South Asia has emerged as one of the most poorly governed regions in the world, from an inefficient and inequitable deployment of resources and crippling debt burdens to social division drawn on ethnic and sectarian lines.