Saturday, July 31, 2010
Monday, July 19, 2010
Brigadier Samson Simon Sharaf
Thursday, July 15, 2010
Sunday, July 4, 2010
We as Pakistanis should be in awe of the fact that
Much before General Stanley McChrystal had resigned, ‘Obama’s Third Surge’ had already petered into nothingness. The operations failed to create intended effects in a highly destabilized, charged and violent region. McChrystal, the highly decorated specialist in covert operations and assassination squads of the secretive Joint Special Operations Command (JSOC) may have been brilliant and brutal tactical hit man, but a strategic failure nonetheless.
His resignation has come as no surprise to analysts following the tug of war between the US Defence and Political Establishment and how the third surge was identically conducted at the heels of the failed second surge. In both failed operations, CENTCOM conspicuously avoided Kandhar but why?
In my article, ‘The Wilting Obama Surge’ in the Nation, I had identified the fault lines within the
It was indeed at the heels of this failure that
This change of heart also caused a furore amongst the ‘Shock and Awe’ rightist who singled out
Writing on Obama’s Third Surge, I had cautioned,
“The new AF-PAK strategy is a compromise with enough blank space for narratives to be filled later. It is these blank narratives that cause concern… What lies undisclosed is high intensity sting and covert intelligence operations conducted by CIA and the dreaded JSOC. The message is unambiguous.
As an analyst, my biggest concern is to identify the blank spaces in the narratives that need to be filled in after the change of command in
Much is also being made of the COIN Strategy cited as success in
Premised on ‘money talks’ all future operations in AF- PAK will witness a surge of monetary kickbacks as a corner stone to other factors related to combat, overt and covert violence, expanded role of drones (settled urban areas) and terrorising tactics in urban areas. A failing Pakistani economy is mandatory to the success of this strategy.
It is with this reason that my last ten articles on these pages have primarily focussed on the intrinsic link between the war in
Though the modality and command may have changed, we Pakistanis must realise that the American long, mid and short term designs and objectives in the region have not. This should also dispel any illusions that some Pakistanis may have on the benefits of the Pakistan-US Equation as a saviour.
We should rather be in awe of the fact that
Under the new command, the next phase of US operations is not likely to commence before September 2010. This also coincides with the time when
As an appropriate measure, the nation must agree to eat grass, least for the survival of its crowned jewels rather for its own national honour and pride.
If this preparation does not take place before the new surge, Pakistanis will have no option left but to look for a new social contract.
I pray it comes peacefully and not through violence.
South Asia in which Pakistan is no exception has a very healthy and proud tradition of philanthropy and charity. The people are not averse to the concept of giving and donating as long as they know it goes to the right hands. In a modelling we carried out along with local tax officials of Gujranwala, the charity paid by small business owners was thrice the taxes paid to the government. Herein emerges a paradox. Pakistan is one of the world’s highest charities paying country per capita income, yet it has one of the lowest taxes to GDP ratios. According to Dr. Birger Nerre of University of Hamburg, the topic of Tax Culture appears precisely at the intersection of the disciplines of economics, sociology and history and this is precisely where the disconnect in Pakistan lies.
Consumer based taxes depend on the ability of the majority at the bottom of the barrel to consume. If they consume, the supply chain automatically delivers more revenue. In order to boost production and its consumption, the most viable alternative is to make others consume through exports. If both domestic economy and exports do not propel consumption, first because of a prohibitive consumer price index and second due to inability, the revenue shrinks.
In circumstances such as these, a bulwark approach in recession is surely a recipe for hyperinflation, poverty and a black hole in economy. Therefore, once an establishment that lacks good governance, accountability, impeccable character and an even handed approach in enforcement enforces more and higher taxes at the consumer end, it is another disaster in making.
Sales Tax is the oldest tax of human civilisation. It basic premise was and remains to collect a levy at every stage of transaction. Ultimately the entire burden passes on to the last buyer. This consumption forces private cash holding into circulation triggering reflation (a healthy inflation) of economy, raising Consumer Price Index (CPI) and expanding the Gross Domestic Product (GDP). In most countries of the world, this paradigm of consumerism as an end-means relationship has not changed. It also allows the effective tax rates to be much higher than the declared rate: an aspect hidden from taxpayers.
However in growing and robust economies like USA, this indirect form of taxation apart from mortgaging is the mainstay of revenue. Being domestically competitive and productive with a consumer society based on the ethos of its founding fathers, it has so far precluded the need to shift to a form of Value Addition. US paradigm remains consumption led growth. USA must produce so that rest of the world consumes.
However in countries that depend less on domestic consumption and more on exports to keep the consumption cycle positive, the Sales Tax has been reformed to a more scientific method of value addition. The purpose is not to levy additional consumption taxes on citizens but rather to determine incomes for direct taxation. France began the experimentation and was followed by EU, Singapore and the rest. The most noticeable commonality in all these countries is the prohibitive CPI in terms of Pakistani exchange rates.
In tight economies plagued by an endemically corrupt political culture and fiscal manipulation, this form of taxation becomes regressive and a precursor to hyperinflation. As the CPI becomes prohibitive, broad steep pockets of poverty appear. This is exactly the havoc being played in Pakistan through borrowed; least understood; and awfully implemented consumer based taxation systems.
The exercise to convert the General Sales Tax to a productive and acceptable social tool began in full earnest in 1999 under General (R)Pervez Musharraf. The Economics Affair Division was extremely zealous to fulfil its obligations to IMF sponsored Structural Adjustment Programme (SAP) and bring a vast sector of the undocumented, informal, comprador and black economy still going strong into the tax net (Pakistan was into its 10th Year of Nuclear Sanctions). VAT was projected as a modern methodology to document the additional transactional taxes at every stage with GST Identification. Theoretically, once the total VAT paid by any single entity in a year is determined, the ascertainment of profits is a simple calculation. So if an entity paid Rs15 in a year, its profits are Rs.85. This is the point where the Income Tax Department was to step in and tally the IT Returns of that entity with the income reflected in GST. Both Tax evaders and cheats were to be netted and income tax broadened.
During lengthy deliberations in CBR, Ministry of Finance and GHQ, we repeatedly emphasised that if the purpose of VAT was indeed broadening the tax base, then even a levy of 1% rather than 15% was sufficient to broaden the tax base through the Income Tax Department and use of computers and sale machines. Any VAT remitted as 1% meant 99% profit. During my repeated interactions with the Ministry of Finance, CBR and traders, I asserted that the purpose of VAT should not be to raise taxes but to broaden the tax net manifold through the Income Tax Department.
Perhaps this is where departmental corporatism set in. Sales Tax Department of late had become the domain of custom officials who had also absorbed some officials of the Excise Department. Moreover, Customs, Sales Tax and Income Tax zones had different geographical boundaries meaning organisational reforms within CBR. It was also a slur for the GST Department to act as a feeder to the Income Tax Department. Even if all this was accomplished, technical expertise was imperative to ensure success.
Just to prove this point, Pakistan Revenue Automation Limited (PRAL) was asked to set up a Model CBR office in Westridge and document information coming through the unimaginative Tax Survey. We set up a simple EXCEL programme to determine the profit levels of GST Returns/Invoices. The simulation gave surprising feedbacks on the tax evasion of known entities. This simulation was run by me during a cabinet meeting held in August 2000 in GHQ, showing the Income Tax rising threefold. There were valuable contributions made by Member Income Tax Mr. Mansoor and Dr. Ashfaq Ahmad the Economic Advisor both working many extra hours with us to streamline an effective methodology. But then something happened. All our efforts came to nothing at all….
Brigadier(R) Samson Simon Sharaf
The decision makers decided to revert to a consumptive Tax of 15-18% raising it to 28% in some cases. PRAL was never allowed to display its expertise. What we finally got was a regressive consumptive levy least amenable to documentation or economic growth. One of the most destructive effects of this levy was that either the small businesses particularly in the manufacturing sector closed or they in quest to avoid multiple taxations surrendered to larger businesses. The age of Cartels had arrived.
As for rest of the world, it still looks for a perfect VAT Model. Had Pakistan been so good at it, tax experts from world over would have swarmed here.
Now the history is being repeated once again. The inputs of our intellectuals are conspicuously lacking. Once again the progeny of the old guard will sit down to reinvent a wheel and once again the people of Pakistan will suffer. Dr. Farrukh Saleem was prophetic when he coined the term in 2000, “Sucking Blood from Stones”.