Asia Times: Tax dodgers defy military directive


	May 02, 2000	atimes.com

India/Pakistan

Tax dodgers defy military directive
By Nadeem Iqbal

ISLAMABAD - Smugglers and tax dodgers have been thumbing their noses at the April 30 deadline set by Pakistan's military ruler Gen Pervez Musharraf to declare assets stashed away in an underground or black economy worth $28 billion.

According to the Pakistan Institute of Development Economics, that money represents 51 percent of Pakistan's GDP and could go a long way in wiping out the country's $32 billion foreign debt.

Musharraf has been touring friendly Islamic countries seeking financial assistance for Pakistan's ailing economy after failing to coax more than a few hundred thousand dollars from evaders through an amnesty scheme he announced December 15. Under the scheme Musharraf offered tax evaders settlement of tax liabilities against concealed assets on payment of an attractive 10 percent tax on the value of such assets. But the evaders are not biting and Musharraf, fearing an adverse political fallout on top of pressure from Western countries to restore democracy, has been forced to backtrack from his earlier threats of severe punitive measures. He has also extended the deadline to April 30.

Pakistan has requested from the IMF conversion of an existing $1.5 billion Extended Structural Adjustment Facility/Extended Fund Facility loan into a new three year $2.5 billion Poverty Reduction Growth Facility. But according to official sources the IMF objected to a huge budget deficit which now stands at 4.4 percent of the GDP and also to the downward revision of the revenue target for the current fiscal from $7.2 billion to $6.8 billion. An IMF review mission which visited Islamabad last week has asked the government to bring down the deficit to 3.3 percent and increase the revenue target by $100-200 million, to be achieved within two months. But achieving that target would mean expanding the tax base by adopting even tougher measures to incorporate the underground economy in the formal sector, says economists.

Talking to IPS, former chief economist in the government's planning commission, A R Kemal said schemes to ''whiten black money'' are not new and have invariably failed for their half-heartedness. ''All previous government carried out similar exercises with little success because they did not even have sufficient data on illegal activity that could be brought against the accused in court.'' In Kemal's opinion the present government was making the same mistake and the tax-evaders see the government's drive as nothing more than empty threats.

April 30 also coincided with another deadline set by Musharraf, Pakistan's self-styled chief executive officer, for traders dealing in smuggled goods to come forward and pay duties or face the music. But there has been little sign of anybody coming forward to pay their dues. Instead, according to press reports, the traders have been busy drawing up plans to counter an army-led anti-smuggling operation.

Smuggling of various kinds of contraband inlcuding arms and drugs is a thriving business along the tribal belt along the porous Pakistan-Afghanistan border where Islamabad's writ does not run. Here goods from all over the world have unhindered passage via Iran and the Central Asian republics, and is actually facilitated by the trade transit facility provided to Afghanistan by Pakistan.

Specialized markets for smuggled goods called ''bara markets'' have had a sort of legitimacy since the 1950s when Pakistan's first military dictator Gen Ayub Khan saw in them a way to put money in the hands of poverty-stricken tribes. But what Khan did not foresee was that the smuggling would grow big enough to deprive the country of billions of dollars in revenue, turning the region into a hotbed for money-laundering and drug-smuggling.

The area also fuels the spectacular growth of the black economy which according to official estimates grew from $300 million in 1973 to $28 billion in 1996. In fact evidence from various suveys show that the rate of growth of the black economy has been far higher than the rate of growth of the formal economy.

According to officials the loss of tax revenue and the demand on public services by underground activities are major contributing factors to Pakistan's high fiscal deficit. ''Economic liberalization, fiscal discipline, enhanced space for the private sector, tax reforms comprising low rates and wider tax base and transparent decision-making are some solutions to reducing the underground economy,'' said an official.

The official suggested incorporation of a comprehensive package of reforms in the overall structural reforms package as a remedy. ''Isolated punitive actions won't help,'' he added.

(Inter Press Service)

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