From Shamim Ahmed Rizvi, Islamabad
Dec 20 - 26, 1999

The much-awaited economic reforms package which was unfolded by Gen. Pervez Musharraf in his televised address to the nation late on Wednesday night, though short of people's expectations mainly in terms of relief to the common man, provides a sound foundation for a documented economy and revival of business confidence. The main thrust of the policy will be an across the board introduction of general sales tax, income tax on agriculture, revitalisation of agriculture sector, reprioritisation of public sector spending including a cut in defence expenditure, debt reduction and greater self reliance.

The low paid government employees however, felt disappointed with the ad hoc relief of only Rs. 100 per month to employees from grade 1 to 16 from January 1, 2000. High hopes were created by the newspaper reports—never denied by the official circles — that the reform package of the Chief Executive will contain a substantial raise in the emoluments of Government employees. The evening papers in Islamabad with banners headlines reported on Wednesday that a general raise ranging between ten to twenty per cent would be allowed to all employees with a minimum increase of Rs. 500 to Rs. 2000 per month to different categories of employees. An increase of Rs. 100 a month is no more than a joke. Similarly there was no mention about the cut in the interest rates hinted at himself by the Finance Minister at various forums nor it contains any proposal regarding land reforms or abolition of feudal system announced by the Chief Executive himself. Gen. Musharraf expressing satisfaction on recovery of Rs. 9 billion out of defaulted bank loans of Rs. 211 billions came as a surprise to the listeners of the Chief Executive's speech. The reform package proposes no drastic measure to unearth the informal economy which had exceeded Rs. 1350 billion according to a research stud of a semi government agency, nor there is any mention of growing smuggling or any resolve to eliminate it. On question of untaxed money the Chief Executive observed on truthful disclosure of all tax evaded assets, a payment of only 10 per cent as tax will allow people to bring these assets on their books. This amnesty will be available until March 31, 2000. This will be last chance as the Government has decided that no black money whitener scheme will be allowed in future. However I want to assure you that the immunities, protection and exemptions on existing investment deposits, foreign currency accounts will be fully honoured".

The Chief Executive must have been informed that 90 per cent of the black money is invested in the schemes the protection of which he has assured. Secondly the offer to whiten the black money at 10 per cent is rather too generous. As a matter of fact it amounts to indirectly encouraging accumulation of illegal wealth. The announcement of this package must have brought a sigh of relief to the tax-evaders and owners of illegal wealth who were hitherto frightened that the Military Government night come out with some tough and harsh measures against them. Somebody should have told the chief executive that India launched a black money whitener scheme in 1997 on payment of 33 per cent to the state and whitened over Rs. 40,000 crores bringing to public exchequer about Rs. 14000 crores. There are no investments schemes in India like foreign exchange bearer certificates, foreign currency accounts etc. which we think necessary to build business confidence in Pakistan to protect the illegal money. Fully knowing that these schemes were started by the corrupt political regimes to cover their ill-gotten wealth. How Gen. Musharraf can pledge to honour such protection to money amassed through corruption and corrupt practices is most surprising for the common man? Again there is no mention of any action against the "gentlemen" who do not respond positively to General's appeal and request to get their wealth whitened by paying only 10 per cent by March 31, 2000.

Similarly land reforms and elimination of absentee land-lordism or feudalism cannot be achieved only by distribution of state lands to the landless peasants. On the question of Agriculture Income tax the measures proposed in the package are not strong enough. The Chief Executive said, "The government will ensure that agriculture incomes are taxed on the same lines as incomes from any other source. The provincial governments will design appropriate mechanisms, which will be introduced in June 2000". The provincial governments are not equipped to collect this tax as has been our experience in the past..... Secondly for ensuring uniformity this task should not have been given to the provincial governments. If the government is serious to collect this tax it should be made a federal subject. Then again why it should be levied from June 2000, why not July 99? It would have been better of the government, instead of increasing the prices of petroleum products to meet the deficit in the current budget, had introduced tax on agriculture income w.e.f. July 1, 99.

In these respects the reform package announced by the Chief Executive has certainly fallen short of people's expectations.

The Chief Executive announced plan, however, includes poverty alleviation programme, establishment of a microcredit bank and tax reforms. He announced the withdrawal of ten per cent withholding tax on income from National Saving Schemes, increase of old age pension to workers from 425 to 630 rupees per month, death grant increase from fifty thousand to seventy five thousand, marriage grant of twenty thousand rupees to the daughters of deceased workers and an ad hoc relief of one hundred rupees to employees from grade 1 to 16 from first of next month to compensate for recently increase in fuel prices.

Giving salient features of the economic revival programme, the Chief Executive said their primary focus will be development of a self reliant economy where loans will be utilised for productive purposes alone. He said the government has succeeded in concluding debt rescheduling agreements with several countries and commercial creditor for over 2.3 billion dollars and described it a great success.

The country's rescheduling of sovereign bonds was a great success as it received more than ninety per cent acceptance. So far the government has re-negotiated agreements with nine IPPs resulting in substantial savings of 749 million dollars and he has asked the concerned authorities to expedite tariff negotiation with the remaining IPPs and finalise within thirty days all pending investigations and submit report to him.

The Chief Executive said it is intention of his government to use earnings from the debt relief for poverty reduction programme. The government will reactivate the privatization programme on the principles of taking strategic assets out of the ambit of the programme, formulation of a law to determine the manner and methods of privatization and its proceeds will be used exclusively for debt retirement, he added.

He impressed upon expatriate Pakistan to send their remittances through official channels and said the State Bank has been asked to take necessary steps so that these remittances are made without any delay. He announced the formation of a high level committee to suggest measures for the establishment of an efficient debt management system and reduce debt servicing burden.

General Musharraf said in the coming years, the government will focus on four key areas for revival of economy. These include revitalising the agriculture sector, promoting small and medium scale industries, encouraging oil and gas exploration development, and developing information technology in software.

The government, he said, will take several initiatives to unleash the vast agriculture potential of the country by increasing wheat and oil seed production. Agriculture Development Bank will, he added, be revitalised, and credit for agriculture will augmented while agricultural prices would be related to market mechanism. Special attention, he said, will be paid to the specific needs of arid regions to tap their potential for the agricultural productivity. Export of milk and meat products will be encouraged and fisheries will be promoted in exclusive economic scenes of Sindh and Balochistan coastlines he added.

The Chief Executive announced to allot permanently large tracts of evacuee agriculture land in Tharparker to cultivators and state land will be allotted to landless. The Army monitoring system will ensure that the land so distributed remains in the possession of the allottee, he said adding that special credit package will be made to small farmers to help develop their land.

Chief Executive ensured the business community that policies of his government will be consistent and transparent. Highest priority will be given to small and medium industry, government will facilitate more credit and advisory support, industrial finance will be revived through a restructuring of the banking and financial sector and by lowering the cost of funds. He announced the establishment of a corporate and industrial restructuring corporation to help revive sick industrial units and liquidation of those, which cannot be revived.

The Tariff Commission, he said, will be made autonomous and misuse of SROs will be totally eliminated. Announcing the government programme for energy sector, where the country is spending 2.5 billion dollars every year on their import, he said the process of exploration and development of the oil and gas fields will be accelerated, and increase of foreign investment in this sector will be encouraged. Petroleum sector will be deregulated and margins of oil marking companies will be rationalised. The price of LPG will be deregulated and use of CNG encouraged.

Stressing the need for development of information technology and software, he announced That tele-communications will be placed under the Ministry of Science and Technology and another new division known as I&T will be created in the same ministry to stimulate growth in this critical sector. A large pool of the professionals will be developed and charter for based industries will be liberally granted. The use of internet will be expanded and PTC tariff structure for data will be reduced. The Chief Executive announced an allocation of fifteen to twenty billion rupees annually to budgetary adjustment for small public works in poorest and low-income regions and rural areas.

The Chief Executive said the government has full resolve to lay foundation of a completely documented economy. The tax reforms programme is based on the principle of minimising the number of both federal and provincial taxes, lowering the tax rates and broadening the base as well as simplification of the procedure.

The Chief Executive announced that GST will be applied at all stages and hoped that all citizens will work together to ensure its implementation.

He said a tax ombudsman will be appointed to look into the complaints against tax authority while revenue benches will be established in the high courts and Supreme Court to deal with tax disputes in consultation with respective Chief Justices.