Why Pakistan is failing

By Zahid Hussain
Published in Dawn on August 02, 2023

WHAT the former FBR chief revealed in a TV interview last week only reinforces the perception of a failing oligarchic state. It provides an insight into the vested interests that control the country’s power structure. Irrespective of their political affiliation they unite when it comes to safeguarding their corporate interests.

One such example, as narrated by Shabbar Zaidi, is how some 40 MNAs from the PTI, PPP and PML-N, led by the then foreign minister Shah Mahmood Qureshi, visited his office when the FBR issued a tax notice to a politically influential landowner in Multan, and asked him to withdraw the case. Did he have any choice in the face of such blatant political interference? Obviously not.

It has certainly not been the only such case where the authorities have succumbed under pressure from powerful lobbies seeking exemption from the tax net.

Shabbar Zaidi claims that he faced a similar situation when he tried to bring the tobacco industry in KP into the tax net. He was advised to back off as many of the tobacco barons were members of parliament belonging to the then ruling party, so that some of the richest people could be let out of the tax net because of political compulsions, thus shifting the financial burden onto the populace

A small power elite has dominated Pakistan’s political scene under both civilian and military rule.

These disclosures by the former FBR chief shows the power of a rent-seeking ruling elite. It shows that the country’s entire power structure is built to serve the corporate interests of powerful ruling classes, both civil and military.

It was revealing how the then army chief intervened to block adjustment of property valuation in Defence Housing Authority by the FBR as it affected the property business in the vicinity controlled by military authorities. It was apparently meant to protect the security establishment’s expanding corporate interests. Trading in property allotted to military officers has become a lucrative business. Perks come with the power that the establishment wields. There is certainly no check on its power.

It should, then, really not come as a surprise that while burdening the masses with more taxes, as part of the IMF’s programme, the finance minister has refrained from broadening the tax net to real estate, retail business and big landlords. It is basically corporate interests that determine our financial policy priorities. The weakening of state institutions has prevented the country from embarking on the path of economic progress and ending financial dependen­ce on multilateral agencies and external donors.

The failure to broaden the tax base is a manifestation of the continued stranglehold of a small narrow elite which has left the state with few resources for the development of economic infrastructure. It also makes the country more dependent on foreign aid. Tax revenue as a percentage of GDP has stagnated at 10 per cent over the last decade and has been declining. It is shocking that the taxes paid by National Assembly lawmakers fail to match their lifestyle. The FBR has failed to take action despite this fact.

According to data compiled by the FBR, the salaried classes pay 200 per cent more taxes than the combined taxes paid by the country’s exporters and highly undertaxed retailers. While more taxes have been piled on the salaried classes in the last budget, thousands of retailers have conveniently been left out of the tax net because of political reasons. How strong the business lobbies are, was witnessed last year when a tweet from Maryam Nawaz forced the then finance minister Miftah Ismail to withdraw even a nominal tax on the retailers. It was unprecedented that a budgetary provision passed by parliament was arbitrarily withdrawn on a tweet from a leader of the main ruling party.

The control of a narrow oligarchic elite over our political system has impeded the implementation of structural reforms that are critical to sustainable economic development and are required for strengthening economic and other institutions. In nearly 76 years of independence, democratically elected governments have been mere punctuation marks in a long reign of military and autocratic political rule.

Unfortunately, there has been no fundamental change in Pakistan’s political power structure during that period. A small power elite has dominated Pakistan’s political scene under both civilian and military rule. For too long, the country has traded on the back of its strategic resources and geopolitical importance, making its rulers totally dependent on international financial aid. It is not only about reliance on external aid but also about an economy based on internal rents limiting our productive capacity.

A damning IMF report released last month pointing out “exceptionally high” risks and multifaceted challenges to our economy should have been a wakeup call for our rulers, but that was not to be. Nothing could be more ironic than the government celebrating the financial bailout by multilateral lending agencies and helped by friendly countries. It is not surprising that we have been in perpetual Fund programmes as we don’t want to increase our own resources and stand up on our own feet.

Just a few months are left for the elections, but economic and financial reforms are not on any party’s agenda. Our electoral politics largely revolves around gaining control of state patronage. Therefore, it seems hard for our ruling elite to break away from their narrow interests and move towards a sustainable and self-reliant course. A continuing blame game and political instability have further underlined the severe challenges that the already ailing economy faces.

Pakistan appears to be fast sliding into the category of a failing state, with no serious attempt being made to arrest the drift and revive the country on the pathway to a modern democratic and economically developed state. With state power continuing to be dominated by the security establishment and a small power elite, there is little hope of the country achieving political and economic stability. The danger is that Pakistan may plunge deeper into instability after the elections, given the reckless power game that is going on.

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