IMF again, what for?
The issue in Pakistan is not that of lack of revenue resources as wrongly portrayed by IMF and World Bank, but documentation of economy-ending the culture of tax evasion and fiscal frauds. The forces representing bazaar [different associations of traders], unscrupulous industrialists, absentee landlords and corrupt civil-military bureaucrats are the impediments. These segments are not ready to pay personal taxes on their colossal wealth and income-in most cases created from undeclared sources.
The prescriptions given by the IMF and/or World Bank will not solve our problems rather further compound them. The rich and mighty segments, identified above, will pass on the burden of sales tax and withholding taxes on the less-privileged and will avoid personal taxation. In 1990s, the IMF and World Bank caused a crushing death blow to our industry when on their advice we introduced exorbitant sales tax rate of 21 per cent-within a short span of 2 years we had hundreds of sick industrial units. Later on, the rate was reduced to 18%, then 15% -again raised to 16% in 2009 and then to 17%- but the fact remains that heavy indirect taxation has pushed 60 million Pakistanis below the poverty line. We have been warning about the devastating effects of high indirect taxation and excessive burden of withholding taxes. Yet the IMF and the government insisted on these even on low income levels and the result is now before us, there is decrease in voluntary tax compliance as evident from increase in withholding tax regime.
The successive governments have been emphasising the importance of increasing tax revenues, mainly on the dictates of the IMF, but flawed and irrational tax policy has destroyed our economy. In Pakistan, the financial system is for the rich or to lend money to the government, thus, small-and medium-size enterprises (SMEs) do not get credit for growth. In such circumstances, demanding the businesses to pay huge taxes in advance through various withholding provisions, ahead of time, before they even know what their income is going to be, is a sure recipe for economic disaster and this is what is going to be prescribed by the IMF, if the new government decides to go for yet another bailout. What is the alternate?