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Two major impediments disabling the Pakistan economy from reaching the take-off stage are the power and tax sectors with the two diagnosed with appallingly poor governance. The irony is that the diagnosis was made decades ago and yet administration after administration, has been unable to take informed decisions that have been clearly outlined in several studies undertaken by non-partisan specialists and which are gathering dust in the relevant ministries.

The power sector represents a complex picture with the rise in circular debt (it is estimated at 1.3 trillion rupees today) associated with poor receivables of sub-sectors, attributed to theft as well as massive transmission and distribution losses. The PPP-led coalition government as well as the Nawaz Sharif administration took decisions to deal with these issues, including (i) revenue-based load shedding that envisaged load shedding exemption in areas where losses were less than 10 percent, however, as losses rose so would the time of load shedding; however there was a large swath of territory where electricity bills were not paid and the distribution company was not at liberty to turn off power and in the more settled areas, there were reports of powerful pressure groups beating up the electricity company's employees who had tried to disconnect supply due to non-payment of bills; the Khan-led administration recently indicated an interest in reviving a loan from the Asian Development Bank to set up smart meters, however, the Power Division had opposed the loan saying it was technically unfeasible with a senior official stating that smart metering would not end electricity theft and it was preferable to install pre-paid meters; (ii) the previous administration supported heavy investment in generation without a concomitant updating of the obsolete transmission and distribution system with the result that at present, generation outpaces the capacity to deliver to consumers; the incumbent government would have to spend considerable amount to strengthen the transmission capacity; and (ii) reliance on borrowing with the cost passed onto the consumers. The present government has already increased electricity rates significantly, a policy that is in conformity with those followed by the previous administrations, and this politically extremely unpopular decision accounts for rising inflation while disabling the exporters' capacity to compete in the international marketplace.

Revenue generation has been marred by two major negative factors during previous administrations. One, setting unrealistic budgetary targets at the start of a fiscal year that has compelled the Federal Board of Revenue to take measures with negative implications on productivity as well as on exports with mounting refunds that have squeezed the liquidity of exporters forcing them to borrow which in turn raises their costs of production further. Second, relying on ease of collection rather than on reforming the inequitable, unfair and anomalous tax structure; thus to raise revenue successive administrations have relied on raising taxes on the already taxed; and the recent rise in direct tax collections is attributable to levying of withholding tax on every transaction within the economy in the same manner as is done with sales tax with no nexus or relevance to income offered for tax. It is relevant to note that all administrations, including the incumbent, have claimed that they would bring the tax return non-filers into the tax net through audit. The Zardari-led government as well as the PML-N administration issued thousands of notices but to no avail because those who were identified by Nadra were legally allowed not to file their returns.

To conclude, the Khan-led administration's prescriptions for reform are not that different from those supported by the Zardari-led and PML-N administrations in the power and tax sectors. The incumbent government has already raised electricity tariffs, like its predecessors, and the tax measures in PTI's supplementary budget are also reminiscent of previous governments' measures especially its reliance on generating 92 billion rupees from use of technology (through issuing notices, which have already been sent), and raising regulatory duties on imports that are particularly susceptible to smuggling across our huge porous borders. To maintain that PTI would succeed where others failed perhaps needs a revisit as the problems facing the previous administrations in implementing the reforms were considerable and remain relevant to this day. One would hope that the government acknowledges these socio-economic, political and technical problems and then formulates a well thought-out strategy to deal with them.

Copyright Business Recorder, 2018


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