‘Parallel economy a threat to welfare plans’

[Neo]

‘Parallel economy a threat to welfare plans’​

ISLAMABAD, June 16: The country’s black economy is estimated to have grown to be half as big as the formal economy, which yields a GDP of $166 billion.

Sources told Dawn on Monday that the problem had reached such proportions as could upset public welfare plans.

The parallel black economy of $83 billion could yield the national exchequer eight billion dollars if taxed even at a rate of 10 per cent.

“These are very conservative estimates. The fact of the matter is that black economy could be much bigger,” said an official dealing with economic affairs.

Pakistan’s economy is largely undocumented, providing space to the informal sector to grow and thrive. “Under-invoicing has gone on for years and at a huge scale,” he said.

Most recently hoarders and black marketeers earned billions in wheat and flour trading, but no record was available to pin them down, the official said.

“This approach is no different from that adopted by former economic managers, headed by Mr Shaukat Aziz, who first launched documentation of the economy in 2000-01, but abandoned it on the same excuse in the name of being business-friendly,” the sources said.

They said that a strategy was being finalised to bring the informal sector into the formal one in order to achieve new resource mobilisation, particularly by encouraging the development of cottage industry.

Officials in the economic ministries have been directed to give an implementation mechanism to substantially raise revenues by providing incentives to the informal sector to merge into the formal sector.

The Federal Bureau of Revenue chairman said that there were different estimates about the size of the black economy.

“But I believe black economy is 30 to 40 per cent of our total economy and this is quite disturbing,” he said.

‘Parallel economy a threat to welfare plans’ -DAWN - Top Stories; June 17, 2008

 

[muse]

Why does a parallel economy exist in Pakistan in the first place? Any solution to the problem must first be filtered through the answer to this question. If the answer is that the players do not want to be documented, lets ask why not, what advantage accrues to them as opposed to cost of not being documented?

 

[araz]

Why should anyone want to pay taxes in Pakistan when in general you see no personal advantage to it?Mind you this is not a matter for the common man to deal with in any case. There are big players involved who are powerful and have vested interests protected by those in the Government. And then where do you start? If you ask the industrialists they lay the finger at the Agriculturalists and their tax free holdings, and so on and so forth. To be hoinest nobody has the political will to get things right and get the rich and the elite to pay taxes so that they can transmit this feeling to the poor. Certainly the Political setup does not have the guts and neither does the Army.
Araz

 

[muse]

So lets see what we know about why a parallel economy exists

1. people do not want to pay taxes if they see no benefit to them.

2. People feel cheated when they see exemptions others enjoy that they do not and thus a "motivated" to express their "feelings" by engaging in criminal behaviour? === hmmm, well possibly.

If larger reciepts will accrue were the tax net more lateral than vertical, ought not taxes be lower and more fair across the board, for all segments of society?

Pakistani businessmen are no different than any other, they must get value for their taxes and those taxes must be at such a level that the temptation to cheat is suppressed by the cost of being found out to be cheating. And finally, why not make it easier and free to trade -- doing bidness in Pakistan, being registered is expensive and cumbersome and without significant benefit, why not address these as opposed to decrying the rich and wanting them to give their wealth to persons not of their choosing.

Pakistanis do not like high taxes or any kind of taxes, but they are willing to pay reasonable taxes for services.

Our socialist/populist politicians and economists may want to consider Pakistanis as peole who know and understand value.

 

[gpit]

Existance of a black market is largely due to: 1) legality of the trade; 2) unreasonable taxation laws.

 

[khanz]

just imagine if this parallel economy became part of the real economy we'd have an economy today comparable to some european nations .

 

[muse]

"Existance of a black market is largely due to: 1) legality of the trade; 2) unreasonable taxation laws."

And given the size of the parallel economy does this mean that Pakistani people are given to engage in "criminal activity" - or does it mean the government must decriminalize, make the paralle economy legal?

What must be done? make criminals out of people or reconsider laws and try to get out of the business of suffocating economy activiy?

 

[muse]

While many in Pakistan wanted the economics of the populist politicians, most do not realize that unless they accept short term pain, they will not get longer term gain:

Privatisation target set at $1.8 billion: Major transactions put on hold
By Ihtasham ul Haque

ISLAMABAD, June 17: The Privatisation Commission has set a $1.8 billion privatisation target for 2008-09, but decided to put on hold “major transactions” during the first quarter because of the prevailing political uncertainty and unfavourable business environment.

Informed sources told Dawn on Tuesday that the new privatisation programme to be put before the PC Board on June 26 for approval did not include transactions of PSO, PPL, OGDCL, SNGPL, SSGC, Kapco, NBP and HBL.

They said the planned GDRs (global depository receipts) of the National Bank of Pakistan and Habib Bank Limited had been put on hold because of negative market sentiments. The share prices of NBP have come down from Rs240 to Rs164 and that of HBL from Rs290 to Rs185.

Since banks’ discount rates have increased and the State Bank is putting more restrictions on banks, the early completion of GDRs of the two banks has become more difficult.

Deutsche Bank, Morgan Stanley and AKD Securities have been appointed financial adviser to disinvest the NBP. The financial adviser for Habib Bank is yet to be appointed.

“Regulatory regimes of oil and gas entities are not strong and they have problems of domination and monopoly,” a source said, adding that the Senate committee on petroleum and natural resources was also opposed to these transactions.

Six other transactions -- Faisalabad Electric Supply Company, Jamshoro Power Company, 10 per cent initial public offering (IPO) of Pakistan Steel Mills Corporation, coal and salt mine companies, Pakistan Machine Tool Factory, Services International Hotel, Printing Corporation of Pakistan and the remaining 62 per cent shares of PTCL -- are also unlikely to be carried out during the first three months of 2008-09.

However, five relatively small entities, including the National Power Construction Company, Heavy Electric Complex, Hazara Phosphate, some units of the Pakistan Tourism Development Corporation and Small and Medium Enterprise (SME) Bank, are expected to be privatised this year.

Other mega transactions such as airports, shipyards and entities of engineering, banking and insurance are also being delayed.Privatisation proceeds worth $400 million have been received and about $600 million is expected to be received by the end of this month.

The sources said the PPP-led coalition government had decided to encourage the Voluntary Separation Scheme (VSS) in various public sector organisations by offering 50 per cent funds so that employees in the privatised units could not sacked for one year.

Proceeds worth $9 billion have been collected from 166 transactions since the start of privatisation process in 1991.


Can you guess who will profit mightly?

 

[Neo]

PM hints at documenting black economy​

ISLAMABAD, June 23: Prime Minister Yousuf Raza Gilani will launch a massive scheme to document black economy by appealing to the nation for voluntarily declaring untaxed assets.

The move, likely to come at the concluding budget session of the National Assembly, is aimed at documenting the black economy and will be part of an investment tax scheme that allows taxpayers to disclose their undeclared businesses, capital and assets by paying just two per cent of their market value.

A well-placed source told Dawn on Monday that the prime minister would urge parliamentarians to persuade voters to make the scheme a success for widening the narrow tax base.

Under the scheme, people who declare their assets would not have any fear of investigation into their tax affairs for the past provided they declare their assets at a nominal tax rate of two per cent and file their income tax returns for that year and three consecutive years.

Only 2.2 million taxpayers in a population of 160 million represents the lowest ratio in the region and tax-to-GDP ratio has remained static at about 11 per cent for the past many years, added the source.

A tax arrears settlement incentive scheme (TASIS) has also been introduced for tax defaulters to broaden the tax net. Tax defaulters will be allowed to pay the principal amount of due tax.

The additional tax, which can be 100pc of the principal amount, would not be charged and penalties levied for non-payment would be withdrawn. An amnesty scheme has been introduced where unregistered manufacturers and retailers have been offered amnesty from paying past liabilities if they voluntarily register between June 11 to July 31.

According to amendments made in the finance bill by National Assembly, sales tax exemption has been granted to hospitals owned by federal or provincial governments, hospitals of statutory teaching universities having 200 or more beds and charitable hospitals having 50 or more beds.

The services of property developers and promoters have been subjected to federal excise duty. The development of plots shall be subject to excise duty at Rs100 per square yard and construction of residential and commercial units shall be subject to excise duty at the rate of Rs50 per square foot of the covered area.

Amendments pertaining to customs include the reduction of import duty on sulphonic acid from 15pc to 10pc. Earlier, fixed tax was imposed on builders and developers. Now this tax has been withdrawn as income tax and the federal excise duty on services of property developers and builders has been levied.

Under income tax, through an amendment the urban area for the purpose of capital value tax has been restricted to rating areas only and the prescribed limits for its calculation have been withdrawn.

PM hints at documenting black economy -DAWN - Top Stories; June 24, 2008

 

[mujahideen]

I hope the government lives up to its promise to make our economy better. But so far I dont see change, its only getting worse.

 

[araz]

I t=hink these people have avery good idea who is partajking in this parallel economy. it is their own brethren and kins man. I have yet to see a ruler in Pakistan(Mr Musharraf Included!!!) who has the BALLS to get these culprits in line and make them pay their taxes. To be honestthis is not how things will work. I think Industrialists should be offered 20% tax on all holding for an accountable,and documented income return. They should be given a ceiling by which their tax would increase and everything they produce on top of it should be theirs to keep provided they declare it. Agriculturlaists should also be offered a similar deal, and if they refuse,SET THE DOGS ON THEM, OR IT OFFICERS, WHICHEVER IS THE LESS AGGRSESSIVE!!!.
Araz