EDITORIAL

What really hampers investment

According to a news report, tax authorities, in Islamabad, have attributed an estimated revenue loss of Rs5.6 billion to the national exchequer owing to increasing incidence of smuggling and abundance of spurious lubricants and cigarettes in the market. The report under reference also has it that the per annum losses caused to the two industries on these counts run to around Rs4 billion and Rs1.6 billion, per annum, respectively, to the cigarette industry and the oil and lubricant industry. It will thus be noted that a huge chunk of government revenue continues to be evaded and also that the failure on the part of the government to check the evasion in an effective manner leaves no less adverse an impact on the entire manufacturing sector. After all, such heavy losses can only serve as a deterrent to fresh investment for expansion purposes. Moreover, with such lucrative manufacturing units left to endure losses, as indicated in the concerned news report, can also discourage the potential investors. However, while many and varied are the causes being attributed to shyness of investment capital, there has been little indication of reluctance of prospective investors on these counts figuring anywhere in official perceptions. Nevertheless, in so far as smuggling is concerned, it appears to have acquired ghastly proportions during recent decades, thereby, providing such a big boost to the parallel economy as to nearly throwing the regular economy into the background. What is all the more regrettable, in this regard, is the grim fact that the extent of its menacing spread remains a mere conjecture.
As for the attempts at curbing tax evasion, these have remained largely focused on income tax, from the approach of widening the tax base as also raising the level of taxes. The latter part of the thrust can, of course, be traced to the failure in efforts to netting new taxpayers to the desired extent. Reference, in this regard, may be made, among other things, to the brave exercise in documentation of the economy, to the accompaniment of wide-ranging structural reforms.
In the wake of the October 1999 change, the major objective of Gen. Musharraf's government was spelled out as revival of the economy that was said to have hit the rock bottom. Many and varied had been defined as the causes of this predicament, including gross mismanagement of the economy at the hands of the successive political governments. In this regard, pointed references were made to the collapse of the economic system, leading to mounting debt burden. This was claimed to have resulted from the sway of widespread corruption that had continued to narrowing of the economy's resource base. Naturally, as such, it called for the urgency of arresting further deterioration through promotion of tax culture. For this purpose there was launched massive campaign to increase tax collection in a systematic manner. And this really made sense, at least, in so far as curbing evasion of taxes, in the first place. Needless to point out, this was sought to be achieved through a multi-directional effort, which also included widespread trading in smuggled goods via the menacing spread of infamous Bara Markets. This is besides the massive effort for widening the tax base, among other initiatives, through the countrywide tax survey. To these may also be added the introduction of the General Sales Tax as an unfailing means of boosting the nation's revenues. There can be no denying the positive results of these thrusts. There has certainly been an impressive increase in collection of taxes during the past several years. However, a great deal will appear to have remained left to be desired, in so far as creation of the tax culture is concerned. This should become evident from the plight of the cigarette and oil and lubricants industry, as revealed in the report under reference. For one thing, it brings to the fore the extent of the damage caused to them through unchecked smuggling and too heavy invasion of taxation. Now that considerable emphasis is being laid on attraction of investment from inside and outside the country, the dual menace of smuggling and evasion of taxes from other vicious thrusts, need be effectively eliminated to inspire confidence of the potential investors.