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shallowwater · #9 Wednesday, April 29, 2009

1. Taxing new sectors.

OUT of the government's decision to bring four new sectors under the tax net, one only has to look at the first to realise that the announcement should be taken with a pinch of salt. Though taxing the other three i.e services, real estate and stock market all present their own unique problems, it is the imposition of an agricultural tax that is going to be the least likely. The amount of political will that particular tax requires is greater than what the most stable of governments - and this government is anything but - can muster.
The lustre of the additional one trillion rupees that the adviser on finance Shaukat Tarin claims will yield would distract us from the difficulty in bringing these across. Let us look at the services sector first. Lawyers, doctors, engineers, architects and other knowledge workers across the country ply their particular trades without their being any tax on their services. The problem with a tax would be, first, that of enforcement, which needs no explanation. But it is not a simple matter of collecting this tax better; for if indeed, the income tax officials do a good job on this front, these practitioners will transfer these additional sums to their clients. That doesn't sound like too bad a proposition when it comes to architects, but a rise in doctors' fees or even that of lawyers', wouldn't bode well for the poor public. However, the fact that these professionals cheat heavily on their income taxes also presents an opportunity. These professionals could be granted refunds against their service tax upon the presentation of transaction receipts. This way, at least the quantum that goes away in income tax fraud could be saved. As far as real estate tax is concerned, it is a no-brainer. If it does indeed bring about an increase in the costs of constructing a house, so be it. The home-owners already face a steady increase in this cost due to the increases in raw material prices; if they yield a little more for the exchequer, it won't be as bad as higher doctor's fees. In operational terms, taxing the stock market would be the easiest of the four: this sector, unlike the others, has a pretty centralised platform that acts as the market. It is therefore easy to impose a capital gains and value tax. The only problem that the detractors can point out is that since our financial capital markets are not too well developed, the taxes would serve as a disincentive against investing here. True, but on the plus side, this tax would help in getting the speculators out of the market and keep only medium to longterm investors. If an agricultural tax is actually imposed, there is a way to ensure it doesn't translate into higher prices: impose the tax only on larger landowners. Agricultural markets, being nearest to text book "perfect competition", will not result in high prices. The real test, as always, is the political will.

2. Presidential refusal.

PRESIDENT Asif Zardari refused to address a joint press conference with visiting British Prime Minister Gordon Brown, instead leaving him to do so with Prime Minister Yousaf Raza Gilani. While Mr Gilani is the appropriate person with whom Mr Gordon Brown should address a joint press conference, precedent had the President present on such occasions, and his absence has been given much significance. The main problem between the UK and Pakistan, apart from the War on Terror, is the Pakistani students acquitted of terrorism, yet still to be deported, even though their student visas are all valid. Their fate should not affect diplomacy between the two countries, but should be settled as soon as possible. The UK authorities should charge them, and they should be tried on those charges, and only then should the question arise of any deportation or whether they should serve out their sentences in the UK. If the case against them is not established, then they would be acquitted, and in that case, there should be no question of their being deported as long as they were fulfilling the conditions of their visas. British fair play demands no less, and the War on Terror is no excuse. Pakistan is taking so much trouble in this case because none of the charges has any proof, and it is being used as an excuse for deportation on unproven charges. It is something where the British are needlessly prolonging the situation, even though its repercussions have reached the President of Pakistan.
The British and Pakistani relationship, however, is not restricted to the fate of the students. Britain is also providing aid for anti-terrorist training for the Pakistani forces, and is also playing a key enabling role in Pakistan's attempts at improving trade relations with the European Union. For that, Pakistan is grateful, though it also notes that this too is linked to Pakistani cooperation in the War on Terror, in which the British role is that of an American camp follower.

3. Saner voices.

WHILE the US administration officials keep giving out mixed signals towards Pakistan to egg it on to fight the terrorist menace - the temptation of economic and military assistance on the one hand and the pressure in the form of drone strikes on the other - one occasionally also finds somewhat saner voices coming out of the US. Senator Kit Bond, a Republican on the Senate Intelligence Committee, has told the Fox News that Washington has to convince New Delhi to move its forces away from the LoC in Kashmir to spare Islamabad the worry about its interference and enable it to deploy troops on the western border where militancy is rife. However, he stopped short of reminding President Obama of his campaign promise to take active interest in the resolution of the Kashmir dispute. As any Subcontinent watcher would know, unless this rankling sore is healed, the feelings of distrust and tension would continue to bedevil Pak-India relations. The Pakistan government should step up its efforts and properly brief influential Americans, particularly persons like Senator Bond, about the absolute necessity of settling Kashmir before expecting Pakistan to wholeheartedly devote its energies to address the terrorist scourge.
Senator Carl Levin (Democrat), Chairman of the Senate Armed Services Committee, stressed that Pakistan should be provided both economic and security assistance by the US. "We can support them (but) we can't dictate" them. He was for providing intelligence side by side with particularly economic aid. The Pakistanis have been complaining about Washington supplying equipment and intelligence that are inadequate to the task. It is time this gap was filled.