Is keeping assets abroad criminal?

This April a bill was submitted in the National Assembly which is yet another attempt to make the citizens of Pakistan "loyal" to it. The bill seeks to amend the Article 63 of the Constitution – an article that sets the criteria for the members of parliament and provincial assemblies. The bill requires that any person who holds dual nationality and owns bank accounts and assets in countries other than Pakistan will not be able to be a member of the parliament and provincial assemblies as well as public service, both civil and military. It ensued from the womb of Muslim League (Q). Leaving aside the doubts whether it is part of a political ploy or a trick of political blackmailing, the bill needs to be examined on its merits.

This article does not aim to dwell on the issue of dual nationality. The same restriction already existed in the Constitution, though the bill means to extend it to the public office holders also. As far as politicians' (and public officials') ownership of and keeping their wealth in foreign countries is concerned, the media and patriot lobby has since long been there manufacturing the public opinion against it. In fact, such matters came to fore mostly during the military dictatorships when politicians were especially made a target of political victimization. The argument put forward said the loyalty of the leaders to their country who own assets in foreign lands is precarious. Nonetheless, this class of doubtful loyalty with Pakistan has lately come to include generals, judges, and other high-profile officials. The bill does not make a target only of the politicians which had been the common practice in cases of such legislation in the past. 

It is as simple as that – if an ordinary citizen, or a public office holder, or an elected representative owns assets in any other country where he abides by the laws of that country and pays taxes duly, and back home also, then keeping accounts and assets there is his legal and constitutional right. In that case, he cannot be barred from being a member of any elected body and joining public office. Innumerable Pakistanis are already present in foreign countries' elected bodies and public institutions and own assets in both countries of their nationality. For that matter, in Pakistan probably very few citizens of other countries would be found in our elected bodies and public institutions! Doesn't this bill invite other countries to go for a legislation of the same ilk? 

Furthermore, if an elected representative or a public office holder uses his wealth in this or that country in an unbecoming manner and for illegal purposes, such laws already exist which deal with this wrong-doing. As the bill assumes that after its enactment politicians will be discouraged from indulging in corruption, or will not be able to escape political vengeance or legal action rightly or wrongly initiated against them, the same is just a figment. The fact is that many countries have bilateral or multilateral agreements on the extradition of alleged criminals. Also, in addition to the governments of other countries and their powerful elite classes, the relatives, friends and acquaintances of 'victimized' politicians and public office holders will be more than welcoming to them in having them as their 'pricey' guests. The reason for this investment is obvious: the prospects of going up of the value of such "assets," both in political and financial terms, will be hundredfold! 

In its essence, the bill questions the loyalty of elected representatives and public office holders to their country, and as proof of that loyalty instead of demanding from them, it by imposing legal constitutional restriction on them tries to force them from having and keeping their accounts and assets in foreign countries. Is holding accounts, owning property, doing business, and keeping assets abroad a crime? There is no such bar in the Constitution of the country. Then, why should there be such a bar on the elected representatives and public office holders? Does that specific status of theirs deprive them of their natural and fundamental constitutional rights? Will, by putting such a bar on them, they be more loyal to the country? Will, by putting this restriction, their patriotism be increased manifold? 

The factors which strengthen love and loyalty to one's country have nothing to do with such legal and constitutional restrictions. Instead of focusing on those factors, the bill diverts attention from them. In sum, in a time of extreme insecurity, forgoing the need of securing the protection of life, and security of rights and rightly earned wealth and property of its citizens, wherever in this world they own it, the bill seeks to put a narrow-minded and altogether unintelligible restriction on the citizens of Pakistan – the present and would-be elected representatives and public office holders. 

Without any fear of exaggeration, it may be surmised that the bill seems to be ringing the bells of/for another Martial Law! 

Note: This article was completed in August 2011.

Why taxes are not a political issue in Pakistan?

Note: I sent this piece of writing to all the newspapers one by one; none bothered to see it or use it, that I am justified to conclude!

Why taxes are not a political issue in Pakistan?

All the politics is about collecting and spending taxes; but unfortunately that reality does not translate into political issues in Pakistan.

What it translates into is power-politics pure and simple! See the arrogant issueless politics of Pakistan Tehreek-e-Insaf; see the pseudo-development politics of Pakistan Muslim League (N); see the outdated Roti-Kapra-Makaan politics of Pakistan Peoples Party (P); see the identity-less politics of Awami National Party; and also see the self-centered religious politics of Jamat-e-Islami, Jamiat-e-Ulema-e-Islam (F). At the end of the day, all of their politics is about seeking power and state-benefits; or it is politicking on pseudo-issues ranging from anti-Americanism and pro-Palestine rallies to this or that religious or sectarian wrangling.

The political parties of Pakistan never ever take up any issue which directly concerns the ordinary citizens; such as the cruel state-machinery; deplorable conditions of social services; police brutalities; unavailability of prompt justice; protection of life and property, and most importantly taxes. For the last 68 years, these parties are constantly trying to protect “democracy,” which in fact is in danger by the very politics of the same political parties. And this “democracy” has delivered nothing to the people, but the crumbs.

Likewise, no political party minds the imposition of a new tax or an increase in an already existing tax; since they would be following the same practice while in the government. Probably for the same reason, no political party makes an issue of the taxes imposed, taxes increased or unjustified taxation. They may be objecting and debating it, now and then, in the national or provincial assemblies and resorting to a cosmetic walk-out or a boycott; however, they would never make it a political issue and educate their voters. Are they not the representatives of the people, who are required to take care of their interests? Or they are not the true representatives of the people!

For instance, take the case of Withholding Tax (0.3 % and 0.6 %) levied in this year’s budget. It got through the parliament smoothly; the opposition, a very active for that matter, having taken no notice of it. Only the middle-level traders, who are an organized community, and whom this tax affects directly, have come out against it. The other sections of society, which are not organized, such as pensioners, widows, ordinary savers, National Savings’ customers, it seems have no voice. It is in this context that question arises on the legitimacy of the role of the representatives sitting in the parliament. One must ask: Whose interests they are supposed to protect? And, whose interests they are protecting?

Crueler than this Withholding Tax, there is another arbitrary and unjust tax imposed years back on cash withdrawals from banks. Without any justification and starkly against the principles of taxation, it too penalizes those who use banking channels. Ironically, this tax also defies its purpose, i.e. promoting of banking channels and thus formal economy.

Isn’t is surprising and at the same time instructive that no parliamentarian and no politician or no political party took up the case of Withholding Tax on cash withdrawals and spoke against it let alone making it a political issue! Also, no court bothered to take “suo motto” notice of it. The same is happening as far as the Withholding Tax on all the banking instruments is concerned. No political party is ready to make it a political issue. They announced their support for the traders and sympathized with their cause; but that’s part of their power-politics!

As is the case, all the taxes ultimately trickle down to the end-consumers. Is it the reason no political party make them a political issue in which case they are not the true representatives of the people. But for the same reason, all the political parties must make the taxes a political issue in which case they may come to truly represent the people. Are the political parties of Pakistan are ready to play role of the true representatives of the people? Or they are there to vouch for their own special Ashraafi interests? Then the people must not vote them in power!

PML-N’s Bhatta or withholding tax

It seems the present dispensation of PML-N believes in no principles of taxation. It’s just there to extort whatever amount of taxes the Federal Board of Revenue may extort from the citizens in the form of bribes and in the name of taxes: of course, for itself as well as for the government.

However, the principles of taxation, the PML-N may be supposed to believe in, manifest themselves in the measures it announces in the budget and then obtains their approval from the parliament. That much is least controversial; what is controversial is the way the new taxes are conceived and implemented. As a rule, it’s the income or the consumption which is universally taxed. Also, the just taxation is not spending-driven, which certainly is the case as far as the PML-N government’s economic policies are concerned.

No doubt, there are countless examples available wherein arbitrary taxation was made recourse to; such as the medieval hearth tax, sort of a property tax. But, in the past they were no representative governments; that’s why they could afford arbitrary taxation policies. The question is whether PML-N, a democratically elected government, can afford such arbitrary taxation like the present withholding tax of 0.3 % on all the banking instruments, which will automatically increase to 0.6 % after September 30! Or it’s making a farce of the principle of “No taxation without the representation!”

It needs to be noted here that how come that only the traders have the courage  to espouse the cause of protesting against this arbitrary tax; doesn’t this withholding tax affect other low- and middle-income strata of society! For instance, the salaried persons, or pensioners, widowers, ordinary savers, whose earnings do not make a taxable income. All such citizens are being victimized only because on any day when they deposit or withdraw or transfer an amount of more than Rs.50, 000, they lose 0.3 % of their precious money! These citizens are not part of the protests against this Bhatta tax. They must be! Also, according to various reports the imposition of withholding tax has caused a massive reduction in the bank-deposits.

How blindly the banks operate in Pakistan the Finance Minister, Ishaque Dar has already admitted; he told that banks illegally and unjustly deducted the 0.3 % tax on all the banking instruments regardless of the fact that which ones belonged to the Filers and which to the Non-Filers. Apart from this mismanagement, the 0.3 % withholding tax is arbitrary, unjustified and has no grounds in the principles of taxation. It’s a Bhatta, at best; like the earlier one on the cash withdrawals.

Instead of putting the burden of failure on the shoulders of the FBR which according to a report of the Tax Reforms Commission is collecting only 5 % of the total income tax, the 95 % coming through withholding agents or voluntary payments. Thus the government has actually penalized those who use the banking channels.

Let any tax-expert tell what the nature of this withholding tax is! Is it on income, or is it on consumption? Or the PML-N has found another unique source of easy tax-collection, i.e. bank transactions? Better the PML-N government withdraws this Bhatta and focuses its energies on reforming the administration of tax-collection in the FBR. It is in the long-term interest of the state of Pakistan also.

It’s for the FBR to collect taxes including other taxes from the citizens who earn a taxable income. It’s not through the banks that a government collects such taxes which it fails in collecting via its tax-collector, i.e. FBR. PML-N, do not fail your government! Collect the taxes legally and principally!

Note: An edited version of this article was published in Dawn of August 10, 2015.
Here is the link: http://www.dawn.com/news/1199497/deviation-from-tax-principles

Hopeless in Pakistan

The cities and suburbs of Pakistan are bursting with millions of teeming citizens, old and young, men and women and children alike. They earn their livelihood by small selling of goods or services which unimaginably involves hard labor with meager income. Or they are employed by private entrepreneurs who have to incessantly struggle against the vagaries of state’s regulators and tax officials. They form the larger chunk of a population of 18 million plus. It is they who cast vote to send a political party in the parliament, but cherish no hope this will ameliorate their life conditions they know from their past experience. This is one side of the picture.

The other side reveals itself in the headlines of the daily newspapers and news channels. One newspaper’s headline reads as: army chief pays morale boosting visit to ISI HQ (Inter-Services Intelligence Headqarters). Another headline says: defense ministry seeks cancellation of Geo’s license. It’s in the wake of a murderous attack on a prominent journalist and Geo News’ popular talk show host, Hamid Mir. He has survived despite six bullets injured him seriously and is under treatment in a hospital. His brother, Amir Mir, a known journalist, allegedly put the blame on the ISI and its head Lieutenant General Zaheer-ul-Islam saying Mir told him he feared they would kill him. One breaking headline news tells ‘Pakistan successfully test fires Hatf-III, a short range ballistic missile.’ Another newspaper highlights Chief of Army Staff, General Raheel Sharif’s visit to the ISI HQ and his statement that ISI is a “strategic institution” and its role is crucial in national security. The murmurs of a martial law are once again making rounds.

This side of the picture presents a state mired in its own internal fights with various institutions at each other’s throats. The same Pakistan Muslim League (Nawaz) which supported the cause of the restoration of the deposed judges is trying to rein in the Supreme Court by trimming the powers of the judicial commission which has an edge in the appointment of judges of the apex and high courts. Then there is Pakistan Army and the ISI which claim to be the uncontested savior of Pakistan. Though, India is no more number one enemy, and has been replaced by Taliban; however, it seems the security institutions are more occupied with the anti-Pakistan elements which in their perception abundantly populate media and civil society, two bastion of public opinion. It may be mentioned that not lately an Urdu feature film, Waar (War) was shot and released with the collaboration of the ISPR, public relations wing of the Army. Also, there is talk of an exclusive television channel for the use of Army to counter the Indian propaganda.

In this picture where do the politicians stand, whom the citizens bring into power? Pertinently this picture lacks the lines and shades of governance, and is blank so far as public provision of justice and basic social services is concerned. Hungry of energy, not only the entrepreneurship is desperate, ordinary life is disturbed. Electricity availability has somewhat improved under this government as compared to the previous one; but the core issues such as circular debt, a stifled market and state’s monopoly over the distribution of electricity are not going to be addressed soon. The scarce natural gas proves to be an apple of discord for which textile, fertilizer and other lobbies vie fiercely.

The present forecasted growth rate is lurking in the range of 3 to 4 %; but IMF puts it at 3.1 %. The average rate of inflation is hovering between 8.5 and 9.5 %. And the budget deficit for the current fiscal year is in the range of 6 to 7 %. As for the infrastructural priorities, the present government is hitting the wrong notes, and its urban sensibility is questionable; the cities are getting huge amounts of money being spent on un-needed projects, such as flyovers in Lahore. The roads in cities and their peripheries and especially in rural areas are in quite bad shape, or there is none at all. Potable water is a dream for most of the people. Healthcare is almost non-existent or do not match the number of patients it targets.

Another area of the picture represents the dismal state of the public transport, which has over the years deteriorated steeply. Not only can be seen crowds of commuters waiting at the bus-stops and buses tightly packed, there are as many traffic jams which consume sufficient number of hours of their life daily. To this must be added the statistics of road accidents killing countless citizens for which ultimate responsibility rests with the government, since rules and laws regulating driving license and traffic on the roads, though written in the books, are never implemented. According to Rescue 1122 service, just within one day 572 accidents were reported from 36 districts of Punjab last year. In this regard, the death statistics is too horrible to see: this April 20, in Sukkur district a collision between a bus carrying about 60 passengers and a trailer took 42 lives, and out of 27 dead 14 were children and 13 women, with 17 others injured.

Additionally, there is terror of the Taliban and other violent groups which on their own contribute to the disfiguration of the state of Pakistan. The government’s recent talks with the Thereek-e-Taliban brought a relief to the ordinary citizens; the frequency of the suicide blasts and indiscriminate killings saw a substantial reduction. But the issue stands unresolved and there is a long war ahead to fight the brunt of which is for the ordinary citizens to bear.

Constitutionally a civilian political government is in driving seat which came to power last year after the first elected civilian set-up completed its five-year stint. However, it appears that the state of Pakistan is not being run by the civil rulers; other encroachers of their constitutional powers, such as security institutions and agencies, are obstructing the way they may want to govern and it is with them that the citizens pin hopes. But the state of Pakistan is entangled in its own fights and this cancer is eating up the resources which may otherwise be utilized to provide the ordinary citizens with protection of life and property, justice and basic social services. That’s the story of the last 67 years. The story is going to be retold if the politicians do not take heart to challenge the actors be they state, i.e. security establishment, or non-state, i.e. Taliban and other violent groups. And if the ruling politicians let the security establishment do what it like, and do not subdue it to play its constitutional duty, they will once again betray the millions of teeming citizens who are living a hopeless life in Pakistan.

Note: This article was completed on April 26, and was originally posted in June, 2014.

Renaissance for Reforms - Introducing a new book

Here is the Introduction by the authors:

The recipe for growth is well-known. Most economists would agree that lower taxes and less regulation can encourage entrepreneurship and job creation. Yet, many governments are unwilling to introduce such reforms. An important reason is concern over a voter backlash. Jean-Claude Juncker, a likely candidate for the EU-presidency after two decades as Luxemburg’s Prime Minister, famously lamented “We all know what to do, we just don’t know how to get re-elected after we’ve done it.” Based on an analysis of 109 governments in developed countries, we would suggest that Juncker’s view is mistakenly gloomy. Although market-oriented reforms may initially meet fierce resistance, governments that introduce them are more often than not rewarded by voters.

In our new book “Renaissance for Reforms” we look at the pace and direction of reforms in 29 OECD governments between the mid-1990s and the end of 2012. We base our analysis on the Heritage and Wall Street Journal Index of Economic Freedom, which annually ranks nations according to parameters such as freedom from corruption, freedom for investments and respect for property rights.  We ask two simple questions: How did the level of economic freedom in these countries actually change according to the Index of Economic Freedom? And were the governments that reformed more often re-elected or not?  

After controlling for the levels of unemployment during the year of election and the year of possible re-election, we examine if these factors are related. In contrast to Juncker’s views, we find that the government that increased economic freedom most were also most likely to become re-elected. Perhaps even more surprising is that this trend is driven by governments on the left. 

Center-right governments that were re-elected increased economic freedom only marginally more on average compared to center-right parties that lost re-election. Governing parties on the left, which lost their bid for re-election, constitute the least reform-oriented group. Left governments that won however increased economic freedom at a 60 percent higher pace than the average center-right governments. 

For example, during Tony Blair’s first term from 1997 to 2001 the economic freedom score in the UK increased by 1.2 points. True to Tony Blair’s reputation as a champion of New Labour’s moderate policies, the economic freedom score of the country increased by 1.6 points during his second term. Based on this track-record, Labour managed to win a third election, during which Blair handed over power to his more left-leaning rival Gordon Brown. As the leadership changed, so did the direction of reform. Between 2005 and 2010 the United Kingdom’s economic freedom fell by 2.7 points. The next election was won by the conservatives. 

A commonly held view is that parties on the right introduce market reforms in order to boost growth, whilst those on the left mainly reduce economic freedom and aim to spread the wealth through welfare systems. In fact, countries that have successfully increased their levels of competitiveness have seen both sides of politics pulling in the same direction. Bob Hawke, former leader of the Australian Labor Party led his party to four consecutive victories in 1983, 1984, 1987 and 1990 based on wide ranking economic liberalizations. Paul Keating, the reformist treasurer under Hawke, took over party leadership and won a fifth victory in 1993, in an election initially thought to be unwinnable for Labor. Since then both conservative and left governments in Australia have continued on the path of market reform. The end result is more than two decades of consecutive growth. 

Similarly, Canada was in very bad shape when Paul Martin, minister of finance in the newly elected left-liberal government, took office in 1993. The government made the difficult choice of market reforms, focusing on reduced spending through action such as abolishing transport subsidies for farmers as well as market liberalizations and lower taxation. Many interest groups objected to the changes. And yet, the Canadian Liberal party won a second term in 1997. The party campaigned on the promise to continue to cut the federal deficit, thereby creating a budget surplus which would allow tax cuts as well as repayment of Canada’s national debt. After another term of reformist policies, the liberals managed to win the elections again in 2000. In 2003 Paul Martin took over the reins and won yet another re-election. Conservative governments have since built upon the same policies, transforming Canada into North America’s new free market role model. 

Why is it that governments on the left in particular can be rewarded by introducing market reforms? One explanation might be that this attracts centrist or even right-wing voters to the left. Another is that leftist government can couple market reforms with social features. A research survey by the OECD observes that when markets are opened up, competition often leads to higher employment. This tends to increase income equality, since those who would otherwise not work, or work only part-time, will raise their income. The same reforms can also help those with high productivity to raise their income compared to others, which instead will lead to higher income inequality. Hence, market liberalizations can lead to lower or higher equality, depending on which of these two factors come to dominate. There are good reasons to combine market oriented reforms with policies that strengthen the less well-off in society, such as strengthening publicly funded school programs. 

Today many governments are wary of reforms. Change is seen as unwanted in the short term, and politically difficult to implement. This can explain why some governments in particularly Southern Europe are stuck on a path to failure. A common view is that “Juncker’s curse” will doom governments that are bold enough to change the status quo by cutting government handouts or liberalizing the economy. Our analysis of recent history shows that this impression is mistaken. Change is anything but easy to introduce, but can prove popular in the long term by boosting growth and employment.  Of course, policies must always be adjusted to the particular needs of each individual country.  

Pakistan has historically relied much on trade and enterprise for its prosperity. Currently however ranks as the 126^th freest nation on the Index of Economic Freedom. The countries score is both below that of the world average and the regional average. In some areas, such as fiscal policy and government spending, Pakistan already has good conditions for a well-functioning market economy. Also business and monetary policies score high. The hinders to development are mainly found in corruption and lack of protection for private property. By strengthening market economic institutions greater wealth and job opportunities can be created for the broad public, whilst funds are generated for social programs. Such institutional changes will take time and political will to introduce. But once in place, they can influence long term competitiveness and prosperity. 

Nima Sanandaji, PhD at the Royal Institute of Technology and policy analyst.

Stefan Fölster, Professor of economics at the Royal Institute of Technology, and director of the Reform Institute.

The authors have written the new book ”Renaissance for Reforms” which is co-published by Timbro and the Institute of Economic Affairs.

Note: This was originally posted in March 2014.