VOX POPULI FOR ECONOMIC MANAGEMENT
TRICKLE DOWN EFFECTS POSSIBLE IF TRANSFERRED WITH ZERO LOSS
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
May 12 - 18, 2008
While macro economic policies did augur well in the services sector of Pakistan to have resulted into creation of new employment opportunities nationwide in the past eight years, the economic managers misconstrued the simple practical fact that the path to advance progress of macro economic corrections that are adopted to adorn in cash value the entire balance of payment must be unobstructed so that common person at the end becomes beneficiary to the effect.
In realistic terms financial and telecommunication sectors recorded phenomenal growth rates in bygone years, but manufacturing and agriculture, which is a dual core for Pakistan's labour-intensive market, unquestionably subsided in the list of trade development agenda thereby effectual payouts were profusely overshadowed.
The proponents of previous government trade policies argued that foreign investments in service sector and trade structural reforms at macro level were to equate country's trade at par with the international's and would start to bear on fruits for masses if continued sequentially for a certain period of time. In fact the inconsistency in policies has been hampering the smooth movement of economic activities for years. However giving in dependence on national resources and relying excessively on foreign" could seldom change the economic outlook. Pakistan's economic policy is fraught with the same approach. It seems that every time trade faces cash problem, foreign assistance is hastily sought without extrapolating internal revenue sources that itself can generate substantial revenue to bring economic prosperity. The practice of overlapping faults in internal revenue generation sources with the external finances put indigenous strength out of action.
To meet the public expectation and rein in the galloping inflation, economic managers of the new government need to peruse the pros and cons of current economic policies that, Dr. Shahid Hasan Siddiqui opines, must be redefined at a square. The chief rival of last government's economic policies as always, he is of the view that entire macro and micro policy framework should be restructured to bring equilibrium in the BOT and BOP accounts. He said political unresolved issues at the centre have to primarily be addressed. The deadlock over judiciary issue have created dilemma within the business circle. Uncertain about the future government setup and perturbed by the worsening law and order condition investors sway back and forth while devising their plans.
Since 8 years, CAGR of agriculture sector has not been impressive otherwise load of international oil price hike could have been compensated. Contrary to the fact that Pakistan is an agriculture country, import of bales to meet the local demands snowballs trade deficit. Per acre yield of country's farmlands is too lowest to completely fulfil local production demands.
Yasin Sadik, Spokesperson APTMA said in absence of technical knowledge and bio technology the productivity of agrarian sector can not be improved. Along with the electricity crisis that renders great operational loss, high interest rate, and government's unequal treatment, overall cost of production of textile mills keeps surging. While fertilizer sector gets subsidy on gas, other sectors have to bear the brunt of compensatory levies, he said.
Dr. Shahid said there is an urgent need to review the current trade and industrial policies. FDI should be directed towards manufacturing instead of service sector. Food inflation can be controlled by giving targeted subsidy on food to public, he stressed, adding budget and fiscal deficits that have been widened to alarming points can only be plugged by uncapping domestic revenue sources.
Research Economist, FPCCI, Mohammad Imran Ashraf said government non development expenditures must be curtailed in order to cover up fiscal deficit and PSDP rightly be placed.
Without burdening the common person, Dr. Shahid underlined the need to increase the Tax-GDP ratio up to 15%, which stands at 10% at present. Imposition of taxes on capital gains in the stock market and on property transactions can give government access to significant revenue. Is it not an irony that major wealth producing avenues have been enjoying tax-free status, he questioned. He also said GST should be brought down to 5% in order to relieve masses of unbridled price rise. In first half of 2007-08, CBR collected Rs. 89.3 billion general sales tax domestic other than import.
Similarly, high bank spread that discourages deposits in banks keeps barring rise of domestic savings from 15% that has to touch at least 25%. Favourable returns on deposits can attract savings in banks that in turn will meet the government capital shortfall.
Tax evasion has become a norm of our society. While salaried class pays taxes, large and medium tax units that could make sizeable revenue to the tune of budget surplus mostly fudge figures in tax filings. Subsequently, government unable to achieve the revenue target passes its failure to public as a whole in the form of cut in the public development expenditures. Say, ignorance of few magnifies the sufferings of all.
Sajidullah Siddiqui, Additional Commissioner, Regional Tax Office, Karachi attributes tax evasion with the people's apprehension about the government reciprocal acts in return of taxes paid. He said tax payers often enquire about the veracity of government's intention in spending on them what they contribute as taxes. Besides, he says present tax rate is high. Despite its predisposition towards investors, he says, income tax law of the country is ensued with few inherent flaws. Tax model should be changed, he said. Capital gain tax exemption must be withdrawn.
Financial sector of Pakistan in recent years on the way of trade liberalization has perceptibly flourished monopoly (cartelization) and monopsony (selected set of consumers). Banking reforms are fine but required few corrections, said Farrukh Ansari, Director Saudi Pak Commercial Bank. He said high bank profits were undermining the growth of banking sector. Allowing commercial banks to cater small and medium sized sector, and even that is so with preferential incentives, have jeopardised the operational efficacy of NBFCs, which incur high cost of funding in comparison to commercial banks. There must be a level playing field to break in monopolistic market. Also the CEO of Saudi Leasing, he is not in favour of KIBOR determining interest rates. KIBOR is not a reflection of real market and it adds on all in all the cost of funding.
Indeed, economic policies require corrections according to the trade dynamics, but trickle down effects can be sprinkled on only if done with zero-loss.