If goods do not cross borders, soldiers will.
-Frederic Bastiat
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CONTENTS:
0 A Case for Free Trade
By Muhammad Badar Alam, Ather Naqvi, Shahzad Irfan Ahmed, and Adnan
Mahmood
0 Letters to FreePakistan
0 Letters from the Press
0 FreePakistan News Briefs
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DISCOVER YOUR POLITICAL LEANINGS! World's Smallest Political Quiz
Take the Quiz now and find out where you fit on the political map!
http://www.theadvocates.org/quiz.html
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PHILOSOPHY OF LIBERTY
What is Philosophy of Liberty? A screensaver by Lux Lucre and Ken Schoolland explains it.
Download and install it. http://www.free-market.net/rd/321907219.html ; http://www.jonathangullible.com
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ALTERNATE SOLUTIONS INSTITUTE PUBLISHES ITS FIRST BOOK OF TRANSLATION
Alternate Solutions Institute, Lahore, Pakistan, has published its first book of translation, Ken Schoolland's "The Adventures of Jonathan Gullible: A Free Market Odyssey," in Urdu which is understood not only in Pakistan but throughout South Asia. Ken's modern fable has so far been published in 29 languages of the world Urdu being the 30th. This book explains the principles of market economy in a simple manner and helps promote the concepts of open market and property rights. The book has been translated into Urdu by Khalil Ahmad. A. S. Institute is indebted to Irshad Ameen for his tireless efforts in getting the book out of the press.
It is hoped that the book will give a new direction to the discussion of welfare state in Pakistan.
If you want to purchase the book, contact at asinstitute@hotmail.com ; khalilkf@hotmail.com
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HOW TO END ALL WARS FOREVER
Aslam Effendi, an old and unsung Libertarian of Pakistan, has written three books on free market philosophy: HOW TO END ALL WARS FOREVER, HARD FACTS OF HISTORY, and, ECONOMICS FOR THE CONFUSED. When no publisher agreed to invest in the project, he spent out of his own pocket to get HOW TO END ALL WARS FOREVER printed. But, for want of a distributor, this book which has been praised as a classic remained dumped and could not find its way to the market. For details, read ‘Aslam Effendi: A Free Marketeer in Pakistan’
or visit http://asinstitute.org/articles.php. Alternate Solutions Institute, Lahore, Pakistan, has purchase all the copies of the book from Aslam Effendi to make it available to the right persons and to compensate the author as well.
If you want to purchase the book, contact at asinstitute@hotmail.com ; khalilkf@hotmail.com
A. S. Institute intends to publish all of his books; if you are interested in this project, please contact at the above-given email addresses.
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A CASE FOR FREE TRADE
By Muhammad Badar Alam, Ather Naqvi, Shahzad Irfan Ahmed, and Adnan
Mahmood
[Last Sunday, one of the two top national English dailies, The News, ran a Special Report on Free Trade. Here is the story.]
EDITORIAL:
The protectionists always end up on the losing side. Like the parents who must one day give in to the rebels they nurse and protect. Like the moral leaders who can only grind their teeth as the young breed goes on a binge. Like the teacher who must ultimately be challenged by the pupil. In the case of the state the defeat is never fully conceded, since it professes to change with time.
The state, as usual, is changing, and the change, as usual, is not appreciated by everyone. Some are totally against the idea of a free market which exposes the local industry to all kinds of invasions. Some are not against the idea itself, but counsel caution and a selective approach to what needs to be opened up and what not. But by the look of it, those who demand a total turnaround from a situation where the state acted as a protection shield for (some or all) of the industries are running away with the show.
The old timers may argue that the free market supporters have absolutely no idea what they are forcing everyone into, and are hence propagating change for the sake of change. They crib and huff and whimper and reminisce - signs of a soldier who is about to lose a battle against a more powerful opponent. In the given situation, it is more a question of when we open up and how.
The News on Sunday Special Report this week has been done against this background. We have asked people a simple question: Do they think that a certain industry needs to be protected, and until when? The four sectors we have selected have a strong bearing on people's lives, and an effort has been made to make it as representative as was possible in the limited time at our disposal.
One aspect that has always confronted us in the course of surveys is a general lack of public trust in the theories and counter-theories that are dished out. As the popular saying goes, there are only two kinds of experts; those in the government and those wanting to be in the government. Unless the atmosphere is cleared of this total mistrust, a true debate cannot take place. For instance, it is all very well for an economist who is today associated with the government to say that such and such industry is a burden on the country's economy and needs to be done away with. But his assertion that he is saying this out of love for the consumers may find few buyers among a people who can swear by a nexus between the free marketeers at home and abroad. Alternately, he may be able to find a more receptive audience for his views if he is able to identify new industries - new work opportunities - to replace those he wants closed down.
FOOD: PRICE AND PREJUDICE
Pakistanis are beginning to ask the question: Does it matter where their food comes from?
By Muhammad Badar Alam
It's a bread and butter question in the literal sense. What do people consider while buying their food - price and quality or the place of origin? The answer - as a random survey by The News on Sunday shows - depends upon what you eat and how much. If your food is as basic as a plateful of lintel and two chapattis (loaves), price is where your concern is; if you can afford a daily menu consisting of three full meals then you may have the luxury to be fussy about the quality; and if you live on a diet of intellect and ideas then you are quite likely to ask where your food is coming from.
This classification holds equally good for the debate over free trade versus nurturing and protecting local industry in food items like flour, sugar and cooking oil. A housewife in Lahore's lower middle class locality, Krishan Nagar (not an imported name), hardly understands what protection and liberalisation stand for. "I never want to know who produces things that I buy," she tells TNS. "My problem is simpler than this: I should pay lowest possible prices for things I need to buy for preparing my daily meals."
Muhammad Siddique, a 40-something tailor working near Davis Road in Lahore, turns out to be as suave as a free trade champion. "If we can import all other goods from China because they are cheap, I don't understand why we should allow local industrialists to charge high prices on items which nobody can avoid using," is how he responds when he is asked to give his comments. "If prices fall due to cheaper imports, millions will benefit as we are already witnessing in markets for goods like shoes and garments," Siddique says as he eats his lunch at a roadside makeshift stall.
Shahid Khursheed, an accountant at a non-profit organisation, gives a theoretical edge to what Siddique observes. "Protecting local industries through subsidies, quotas, high import duties and other barriers against imports benefits a handful of industrialists and their employees. Considering that they produce things which are an essential part of everybody's daily consumption, the people on the opposite end of the spectrum are millions of Pakistanis who end up paying high for products whose quality is always questionable," he observes.
Shahid has an experience of working in Dubai for 18 years and he cites from personal experience as to how the Persian Gulf city has been able to keep a tab on the daily use items, especially food. "Dubai produces nothing locally but by encouraging free trade from all over the world, the authorities there have ensured lowest prices in the region."
Others are less upbeat about the benefits of free trade. "Most of our food industry is somehow or the other related to our agriculture. If we allow free flow of foreign goods in this sector, it will shut down hundreds of industrial units across the country, leaving thousands unemployed and breaking the back of the local agriculture," is the response of a senior reporter working with a Lahore-based English daily. "Agriculture is where almost half of Pakistan's labour force is employed. We need to protect it whatever the costs."
Extending this argument further, Nawab Zada, one of the managers at a nationalised bank, says: "Letting local industries go to dogs will mean huge armies of the unemployed. When nobody will find work, it does not matter whether the food on sale is reasonably priced or not - there simply will be no money to buy it," he argues.
But he also says that Pakistani industry suffers from some problems which need to be fixed immediately. "If the price of local flour or sugar is high in comparison with other countries, the government needs to look into the reasons and address them quickly." He advocates a policy of balancing protection of industry with ensuring the rights of the consumers. "The cost of doing business requires to be brought down so that industrialists are left with no excuse to keep their prices artificially high."
Saeed Qureshi, an Islamabad-based former bureaucrat who has a long experience of dealing with financial affairs, puts the debate in a theoretical context. "There have always been two schools of thought on protection and free trade. One school argues that all new industry should be protected like an infant. The other school says if you kept on protecting the infant for too long, you will never let it grow and stand on its own feet," he explains to TNS on phone. Saeed is a believer in a middle of the road three-step approach: "The protection should consist of tariff barriers alone and not on non-tariff barriers like quotas and subsidies which are liable to misuse; it should be transparent; and it should be modest."
The last step is what economist Salman Shah argues has become a must in the wake of globalisation. "Under the World Trade Organisation, maximum import duties have to be no more than 25 per cent, " he says. But he sees a window of opportunity where others see only threats for local industries. "In a closed market, capital will never reap the dividend that it should. Compare the local market of 140 million people with a global market of around six billion people and you can easily realise what prospects capital can enjoy in a free international market," he tells TNS.
He, however, admits opening the local market will involve some adjustment which is bound to be painful at least in the short term. "If some 50 to 60 sugar mills go bust, it will lay off some 50,000 people, but at the same time it will rid the country of a lopsided price mechanism under which the government heavily subsidises every kilo of the sugar produced, burdening both the consumers and the taxpayers. Only few will have to face the negative impact but millions will benefit."
Bilal Sufi, a leading flour miller, seems to have already taken the cue. "Let the free trade happen and our (wheat) flour industry has both the quantitative and qualitative ability to beat most of its neighbours hands down," he says.
People in favour of free trade: 25 per cent
People in favour of protecting the local industry: 10 per cent
People in favour of free trade with safeguards: 15 per cent
People in favour of protection with safe guards: 10 per cent
People still undecided: 40 per cent
ELECTRONICS: FOREIGN IMMEDIATELY
While producers and importers debate the virtues and vices of free trade in electronic items, smugglers appear smiling all the way to their banks
By Ather Naqvi
Local assemblers of electronic goods support the idea of subsidising the import of components and levying a ban on import of finished electronic items, while consumers favour free trade of electronic goods. The debate goes on.
People who insist that allowing a free trade in electronic goods is the way forward claim the consumer benefits should be the foremost consideration. People supporting the alternate view say the local electronic industry should be encouraged to take root in the country so that it generates employment and the country becomes self sufficient in electronic items and then export these items in the long run.
Qasim Zia, President Pakistan People's Party (PPP) Punjab, favours a free market economy. "Importing the components of electronic goods and assembling the product here does not make much sense when a smuggled alternative is available at a much cheaper rate. It will be better if there is a 100 per cent deletion programme where all the parts are made in Pakistan. This is the only situation that will suite both the manufacturers and the consumers. The government should first stop smuggling of electronic goods and then take measures to end ad hocism," is his argument.
An importer of electronic components adds: "Smuggling is affecting the local assemblers, but that does not mean that we should stop protecting them."
"We should actually take steps to stop smuggling in electronic items. We should keep the future in mind and protect our local electronics industry," says Tajammul Mahmood Baloch, an importer of electronic components at the Hall Road, Lahore.
Smuggled goods have the tendency to eliminate all other options available in the market. "A smuggled colour TV set is available at a lower price than a locally assembled one. This is because no duty is paid on a smuggled item while a locally assembled item is relatively expensive as 5 per cent import duty is paid on the import of its components," says Aqeel Ahmad, a dealer in electronic goods at Hall Road in Lahore, in the same breath making a case for free trade. "By allowing free trade we will be helping the consumer, which I think should be the government's first priority."
Others agree. "The plan of trying to emerge as an electronic industry giant is not realistic at least for the time being, as China and other South East Asian countries are producing these goods in bulk," says Saqib Ali, an importer and dealer of electronic goods "I think one should keep the consumer in mind and allow free movement of electronic goods and stop supporting the local industry by giving them various subsidies."
The assemblers in Pakistan react strongly to such views. "Why not support the local industry? If the country has to progress like other countries did in the electronic industry we should stand on our own feet. Take the example of China. In my view we have to pass through the same process as they did," says Anis Iqbal Dar, advisor to Pakistan Electrical and Electronics Merchants Association (PEEMA).
Assembling components into a product is the main activity in electronic products such as TV sets and VCD players produced in Pakistan. Home appliances like refrigerators and deep freezers present an altogether different picture where more than 90 per cent of the components are manufactured locally. "If 5 and 10 per cent import and commercial duty respectively is removed on the import of components for home appliances, the prices of locally assembled TV sets and VCD players can come down considerably. Supporting the local industry will also create employment opportunities and attract investment," opines Muhammad Amir Butt, manager imports, Waves. "Even in India the local industries are supported by the government with subsidies and low duties. We established a split AC manufacturing plant in the year 2000, but had to close it down because China was producing split ACs in bulk and was dumping them in Pakistan. We simply could not compete with them," he informs TNS.
Zaheer Zaidi, a mobile phone retailer at Hafeez Centre, disagrees. "Items like mobile sets are imported from Singapore, Hong Kong and Dubai in finished form. These items are neither manufactured nor assembled locally, except for accessories like chargers and pouches. Why should the government intervene in these industries? The consumer can buy a mobile set for as low a price as Rs. 4000. I don't think the local industry, even if evolved, can compete with importers in this regard. Free import is the right choice," he says.
While importers, dealers, assemblers and retailers of these products continue with their debate, the consumer seems not to be bothered and happy with the availability of cheaper goods, whether smuggled into the country or assembled locally. "A 14 inch locally assembled colour television set costs almost Rs. 12000, but a smuggled one of the same denomination is available for as little as Rs. 9000. I think it makes no sense for me or anyone else to spend more money on a locally assembled television set," believes Maheen Akhtar, a consumer at a television retail shop. "Opening up the market will be better for the consumer as the local manufacturers will have to compete and control the price mechanism," she adds.
Waris Ali, in charge of imports Samsung Electronics disagrees. "There is a 5 per cent duty on the import of TV set components, a 15 per cent sales tax and a 6 per cent income tax. Despite these duties we have to compete with the prices of smuggled goods, which I think we are doing quite successfully," he says.
Film actor Shan has a simple logic. "One should have the right to have an access to affordable products. As far as electronic goods are concerned, we cannot solely rely on the local industry which is inefficient and is almost non-existent." To him the role of the electronic goods in the film industry cannot be underestimated. "Latest electronic items are used in film-making these days and if these are available at affordable prices, the film industry will do better in many ways."
Ayaz Bukhari, a teenaged consumer of electronic goods, is in accord with this view. Price is his concern. "I don't care if it is locally produced or smuggled. I only see the price of a product and its quality. If I can get a foreign made VCD player for Rs. 2200, I will never pay Rs. 5000 for a locally assembled one," he tells TNS.
"Smuggled electronic goods are cheaper as compared to locally produced ones. It is economical today to add items like television sets and VCD players to a daughter's dowry. I would prefer a smuggled item over a locally produced one any day only because it is cheaper," says Tehmina Iftikhar, a consumer.
Another product which is produced in big numbers elsewhere in the world and is dumped in South Asian countries like Pakistan is computers. "Today there is a 25 per cent duty on second hand monitors, 6 per cent import duty on computer components and a 5 per cent import duty on computer accessories," Tahir Meraj, an importer at the Hafeez Centre, tells TNS. "Computer components are being produced in huge quantities in other countries and the local industry neither has the resources nor the skill to compete with these other countries. I think allowing free market to operate will be a better idea, in these circumstances."
People in favour of free trade: 60 per cent
People in favour of protecting the local industry: 25 per cent
People still undecided: 15 per cent
CONSTRUCTION: CONSTRUCTIVE CRITICISM
The free market debate about the local construction industry revolves around three words: cartels, costs, capacity
By Shahzada Irfan Ahmed
Construction industry is undoubtedly the main engine of growth for Pakistan's industrial sector as it supports not less than 40 allied industries and creates jobs for millions. It can relish in the fact that there is a huge gap between demand and supply of housing units in the country, filling which will keep the industry busy for some decades to come. Besides, the fact that Pakistan is a developing country aiming at building infrastructure ensures investments worth billions of rupees in the sector.
Keeping this fact in view, the government seems to have pinned all its hopes of country's economic revival on this sector and patronizes it to a great extent, even in a world that supports free trade regime.
TNS conducted a random survey of 20 people from different sections of the society to find out public support or opposition to the government patronization of domestic construction industry. The answers to the questions, as expected, were as diverse as were the backgrounds of the respondents.
Shahzad Ahmed, Secretary, All Pakistan Cement Manufacturers Association thinks that in the presence of an over-capacity cement manufacturing industry, it is unfair to allow cheap foreign products to pour into the country. He says Pakistan's cement industry is working to 90 per cent of its capacity after a long time and should not be disturbed at all. "If we allow duty-free import of cement, it would lead to closure of several units and render thousands of people jobless," he says.
Yawar Ali, a cement dealer in Lahore contests this point. He says putting the highest permissible import tariff of 25 per cent has been imposed on cement just to let the local industrialists mint millions. "Even after paying this duty, Indian cement is cheaper by Rs 5 to Rs 10 as compared to the local material. One can easily imagine how cheap cement can be if its duty free import is allowed."
Israr Ahmed, a businessman based in Lahore, gives a meaningful smile after hearing the question and says that government is a hostage in the hands of the tycoons running cement business. He also blames the government for taking anti-consumer measures, such as imposing high tariff on cement import and says that "had there been duty-free import of cement, the cement manufacturers would not have dared to form a cartel and raised price of cement bag by more Rs 100 per kg in the recent past."
Chaudhry Hameed, a steel merchant at Lahore's Badami Bagh market, holds irrational government policies responsible for the crisis faced occasionally by Pakistan's construction industry, especially the steel industry. He says the very establishment of steel mill with Russian cooperation in Karachi was a political move taken without realising the fact that Pakistan lacked basic raw material required to run it. "The Pakistan Steel Mills was in fact used to create monopoly in supplying raw material to the local steel and re-rolling industry. Besides, it became the first choice of corrupt officials who plundered it for ages. The fact that three of its former chairmen are facing corruption charges is enough to prove this claim," he adds.
Jabbar Butt, spokesman for All Pakistan Contractors' Association tells TNS the construction industry faced its worst crisis recently when raw material prices shot up by about 200 to 300 per cent. It appeared that the whole industry would come to a standstill. "And this all happened due to the fact that the state-controlled steel mill could not ensure regular supply of raw material to the construction industry which was already facing acute shortage of basic raw material. The cost of completing development projects increased to such an extent that contractors quit in the middle of the projects. If this is state patronization, then I would say that no industry would wish for it.
"And can you imagine who came to our rescue - cheaper imports. It was only after the government reduced import tariff that shiploads of raw material touched our docks and saved us from total collapse," he adds.
Malik Ghulam Sarwar, Chairman All Pakistan Small Traders and Cottage Industries, says there is no use of holding a debate on whether to patronize or not to patronize the local construction industry. "It's all about building capacity, about putting our resources to maximum use. Barring a few finished products like branded tiles, sanitary fittings etc. we can boast of having sufficient basic raw materials including iron ore, sand, basalt, stones, marble, silica used in cement, natural wood and so on. But a lack of technical expertise has its adverse impact on our industry. You would be surprised to hear that we export tonnes of world's finest marble in raw form and then re-import a huge chunk of it as we do not have proper technology to cut and polish it according to international standards," he adds.
"But as regards value-added finished products like aluminium, plastic goods, electrification pipes, switches, cables, fixtures and other similar things, there is a desperate need to reduce or remove tariffs on raw material, as it would go a long way in reducing construction costs," Sarwar concludes.
Mudassar Butt, a sanitaryware and ceramics dealer at Brandreth Road, has strong reservations about the very concept of free trade. He says that influx of Chinese products has played havoc with the local industry rendering thousands of industrial units dysfunctional. "Our government must interfere and act. It's a pity that China is dumping its products in Pakistan but our government lacks technical and legal expertise to prove dumping charges in most of the cases. There are strong anti-dumping laws that discourage export of products at prices lower than the ones being charged in the country of origin. But most of our businessmen think that they (the Chinese) are beating us on the basis of lower costs only. If our government succeeds in proving anti-dumping charges against China, as Europeans and Americans have in proving similar charges against Pakistan, I am sure our closed industrial units will start running at maximum potential," he adds.
Ahmed Raza, an ambitious social worker, has the simplest of answers to give. "Without going into detailed talk, I will endorse any plan that can reduce the price of constructing a house for the shelterless poor. I am least concerned with the survival of industrialists or traders flourishing on construction material business. My interest is what is the interest of the poor people of this country," he comments.
People in favour of free trade: 50 per cent
People in favour of protecting the local industry: 30 per cent
People still undecided: 20 per cent
CARS: INTERSECTION
Protecting local industry may be a good slogan for a nation, but the consumers within are not willing to stand by a sector that cannot produce enough.
By Adnan Mahmood
The car manufacturing and assembling industry in Pakistan has been a success story - as far as the industrialists are concerned. Consumers, in comparison, have never found it tougher to purchase locally manufactured cars than they do today.
"I have been waiting for my car for six months now and there are no signs of the car being delivered to me any time soon. I have leased the car. This means that the car dealer has been paid the total amount in advance through the bank, but I have been making my bank credit payments regularly for the last six months without having the car that I am paying for," says Adnan Ali, a doctor at a Lahore hospital.
The number of cars manufactured each year has increased tremendously over the years in Pakistan, but the demand for these cars is even higher now thanks largely to the increasing trends of leasing and bank financing for cars. This means that even with the increased production, car manufacturers are not in a position to meet the demand for cars in the market.
More and more people have now become potential buyers for cars which are now increasingly getting in reach of the common man. The increased liquidity with banks and leasing companies has brought about this change and the interest rates are now falling rapidly with healthy competition and growing increase in banks' client base.
"Consumer trends are changing and people are realising the benefits of better living standards, which is essentially what we in consumer banking offer to the people. They can live in a better house, drive a better car, use a better computer and so on which presents them with the opportunity of actually living a better life and people in Pakistan are taking this opportunity with both hands," says Amna Rabbani, who works for a multinational banking concern in Lahore.
This puts the car manufacturers in the best possible situation. "Car manufacturers receive the total cost of the car from the consumer at the time of booking the car. The delivery takes place seven or eight months later at best and they most certainly make additional money from our money without giving us the car that we have bought from them," says Abdul Sattar, a businessman who trades in property.
So does all this mean that the government should stop protecting the car industry the way it has been doing by shielding it from foreign competition?
"Why should we suffer because of the incompetence of the car manufacturers? If they can't make enough cars or good quality cars, why should we be expected to wait for their products? I for one want the industry people to realise how important my time and money is and I can't waste either on them," says a visibly perturbed Ahsan Umar, an IT consultant who now drives a 1300 CC car that he is not at all pleased with.
The quality of the cars produced locally is a particularly touchy topic for Ahsan's friend Naeem Sultan. "The cars they produce here are not worth the money they charge us that is why they are against the import of cars. They are insecure and rightly so because, no one is going to pay them the amount they ask for for the cars they are selling once better options are available," says Naeem, a lawyer by profession.
Aizaz Bashir, who deals in cars, believes that opening of import of both old and new cars is going to do the country a lot of good. "Other than the money the country is going to make on duties, different industries are also going to benefit from this free trade. For example once an old car is imported there are so many related industries that are going to make money from the ensuing activity. There are going to be transporters who are going to be involved in transporting the car to other parts of the country from Karachi or Gwadar. Then there are going to be people involved in repairing these old cars, people making the parts used in this repair work and so on. I feel this increased activity is going to favour economic development in the country," he says.
Ahmed Jahangir, a research fellow in economics, argues the government's obsession with better macro-level indicators has left the people behind, and a policy in favour of the industrialists is a faulty one to adopt. "Of course I realise the importance of industry and the investor friendly model we must follow. But that does not mean that we should completely forget what is good for the people of the country. We cannot achieve a sustained economic growth if we alienate the people, any such hope of success would be misplaced and a dream. We need to make economic targets that bring about changes in the lives of people, to provide them with options to improve their living conditions," Jahangir tells TNS.
Abrar Raza, an economic researcher focused on investment modules believes this is a naive understanding of the economic problems facing the country today. "We have lived in eras where people have criticised the government for running a poor state with a rich population. The country needs a policy that strengthens investment options, opens up chances for people to make money because when people make money, the country's economics does better and that helps everyone," he says. "Protecting the local industry is vital. Our infrastructure is not developed enough to compete with industries of other countries like China. They have advantages that we simply cannot have given our national and international problems. Every country protects its industry, including the US, China, Japan and Malaysia. By opening our industry we would be falling into a trap the developed countries have laid for us to keep our dependence on them intact. Many people say competition would be good for us and would teach us to be better at whatever we do. I say this is a load of crap - we need to realise our problems and shortcomings and try to overcome them and not to present them for everyone to hit us in our weakest areas."
Car manufacturers claim opening up of imported cars is going to be a death-blow to the industry. "Our industry is making a lot of money for the country and contrary to popular belief we are largely a Pakistani concern with only a small portion of our income going abroad. We employ millions of people all around the country through both direct and indirect means. The vending industry related with car manufacturing is a separate and strong industry now thanks to our contribution. People are using our cars all over the country and are comfortable with our cars and after-sales services. This is a success story - for God sakes let it stay so. Why do we always try and find faults with a sector that is booming. I do not say we are operating in perfection, of course we make mistakes, but please do not shut us down - that would be too harsh a punishment for untimely deliveries," argues a representative of the car manufacturing industry.
Aysha Habib, a young employee at a multinational agrees. "We do not do these companies a favour by protecting them. We just give them an enabling environment to work in. We need to give them the confidence to invest in Pakistan because that will help us and give us the economic impetus that we so badly need," she points out.
Zeeshan Khalid, another car dealer argues against such one-sided incentive. "By allowing the industry to flourish at the expense of the people, we are in affect hurting the buying power of the people that cannot be good for any industry. For once may be the government should approach the issue with the people's perspective rather than that of the industrialists."
Growth and investment are words we all use regularly, but finding out a truly effective method of going forward is hard. Consumer interests and industry incentives do not always have to be in conflict, finding a middle ground is then the true test of the government's ability.
People in favour of free trade: 55 per cent
People in favour of protecting the local industry: 35 per cent
People still undecided: 10 per cent
Letters to FreePakistan
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Letters from the Press
FEDERAL BUDGET
[Dr Zainab Rizvi, Lahore]
Finance Minister Shaukat Aziz while presenting the federal budget 2004-2005 declared in the National Assembly that the GDP had increased by about seven per cent, the budget deficit had decreased and foreign exchange reserves had shown an upward trend.
All the magical figures presented by Mr Shaukat Aziz might be correct, and we do believe that the country under the present regime has progressed economically.
But why have the fruits of this economic bonanza not reached the common man yet? About 80 per cent of the population are living below the poverty line, and with the current rate of inflation, soon most of them would be starving. The possibility cannot be ruled out that economic benefits might have been consumed by the rich upper classes before they could trickle down to the poor and lower middle classes.
The BJP government in India made more economic progress than Pakistan, but the "India Shining" slogan failed and the BJP lost the elections. The reason was that the fruits of the economic progress could not reach the poor of India.
The ruling party in Pakistan may meet the same fate if something concrete is not done to alleviate poverty, thus giving the poor some economic relief. [Dawn]
THE BUDGET AND COMMON CITIZENS
[Maqbool Ahmad Qureshi, Gujranwala]
The people at large are still wondering which aspect of their life has become easier after the announcement of the federal budget 2004-5. Finance Minister Shaukat Aziz made tall claims of improving the national economy and putting it on the path of progress and prosperity and said he had provided relief to the common man.
He announced a reduction of a mere 10 paisa per unit in the electricity bill tariff to domestic consumers but the next day he clarified that the cut would not be available to consumers using up to 300 units per month as they were already getting some subsidy in this regard.
The proposal dashed the hopes of low-income people. The price hike in ghee is another blow to those who can hardly make ends meet. Have the prices of necessities such as pulses, vegetables, meat, beef, chicken, atta, rice, soft drinks, soap, cloth, tea, sugar, medicines, etc., come down or shown a declining such trend? Mere jugglery of words and figures cannot solve the problems of the people of our country.
Pakistan is reportedly importing 1.5 million tons of wheat during the next year. Why this big and abrupt shortfall as the country had become self-sufficient in this commodity a few years ago? This decrease is surprising. [Dawn]
FINANCIAL INDICATORS
[M Jahangir, Islamabad]
Long live Shaukat Aziz Sahib, all financial indicators have gone up except that of the quality of life of the poor and middle class that have gone down. [The News]
HOUSING INDUSTRY
[Latif Qureshi, Lahore]
The only incentives for the housing industry in the federal budget 2004-05 are duty-free import of machinery used in construction (not produced in Pakistan) and abolition of 10 per cent excise duty on paints and varnishes.
This is peanuts compared to the magnitude of the crisis in the housing industry where the cost of construction of A-class houses has risen from Rs500 per sq ft in 2000-01 to Rs800 per sq ft.
What was needed was abolition of 15 per cent sales tax on cement, steel, bricks, timber and sanitary ware which could bring the cost of construction to about Rs600 per sq ft. [Dawn]
ARMED TAXATION POLICY
[Syed Shabi ul Hassan Shah Kazmi]
The accessories of new tax policy are not only horrifying but also may have adverse effects on society. Empowering taxation department with such a power would corrupt them. Beside that involvement of Army in the internal matters of civilians may create hatred for Army amongst general public.
Recovery of Taxes should always be a civic matter rather than making it a criminal matter. The only thing required is to speed up the process of notifying tax payers about their dues and in case they do not pay taxes only than the court of Civil Judge be involved in it. Law enforcing agencies may be involved as a last resort but that too in case of big fishes not paying taxes. [The News]
17.5PC SALES TAX ON IMPORTED GOODS
[Noor Mohammed, Karachi]
Through the federal budget 2004-05, the government has added to the miseries of the people through imposition of an excessive rate of sales tax on import-related services and by raising the rate of sales tax from 15 per cent to 17.5 per cent through an ingenuous devise under the threat of "pay it or face a detailed audit" under a "special procedure for payment of sales tax by commercial importers on value addition".
Section 14 reads: "A commercial importer who pays sales tax on a value additional basis, as prescribed under these rules, for a year shall not be subjected to any audit for that year, and detailed audit shall be conducted of a commercial importer who pays sales tax in any manner other than these rules."
Section 10 reads: "A commercial importer shall pay sales tax on supplies of imported goods at the rate specified in sub-section (1) of section 3 of the Act on a value addition of not less than fourteen per cent through a challan in triplicate, at the same time as making payment of custom duty and sales tax in the bill of entry for such imported goods, calculated as shown in the example." But, under rule 10(1), "challan for payment of sales tax on value addition by a commercial importer" has prescribed columns: (i) assessed import value (value for sales tax purposes), (ii) sales tax paid on bill of entry, (iii) value addition (minimum 14 per cent), (iv) sales tax payable on value addition and deposited in bank."
The threat to accept sales tax at 17.5 per cent is too conspicuous. If one does not pay, one is implicitly threatened with a 'detailed audit' whose parameters are shrouded in a mystery.
What should an importer do? Should he not pay at 17.5 per cent and pass it on to the consumer? On the other hand, if one opts not to pay 17.5 per cent, one faces uncalled-for harassment through a so-called detailed audit or manages to settle with auditors. Would it not open the floodgates of corruption? Corruption is rampant and will be boosted beyond measure through these so-called 'detailed audits'.
When an importer opts to pay 17.5 per cent in custom under Section 10, how much else and why should he pay through a bank and why should he be required to submit a challan under rule 10(1)? [Dawn]
PUNISHING THROUGH SALES TAX
[Noor Mohammed, Karachi]
Sales tax is chargeable at prescribed rates on the value of supplies and services, but the government has deviated from this principle and levied sales tax on extraneous hypothesis.
For example, clearing agents or importers are required to pay sales tax worth Rs2, 500 for filing a cash or an into-bond bill of entry, and Rs500 for every ex-bond bill of entry, irrespective of the quantity or value of goods for which the bill of entry is filed.
A cash/into-bond bill of entry for the value of Rs100,000 involves Rs2,500 as sales tax, i.e. 2.5 per cent of the C&F value is silently passed on to the common man.
The question is, what additional services does customs provide to a clearing agent or an importer for the additional liability of Rs2, 500? The clearing agent is already liable for 15 per cent sales tax on his services charged to importers.
Another aspect indicates that the framers of Section 10 lacked vision and sense of justice. It says: "Provided that in case the value addition of such commercial importer during any period in the preceding year was higher than 14 per cent, he shall pay sales tax on supplies of imported goods on such higher value addition in the manner specified in this sub-rule."
The implications are clear and intriguing. If an importer, in any month in the preceding year, declared value addition of more than 14 per cent, he should declare at least the same for the year, irrespective of the fact that value addition may be actually less or nil.
On the other hand, one who declared less than 14 per cent value addition in the preceding year is qualified for exemption from a 'detailed audit'. In other words, one who declared less is rewarded, whereas one who declared more than 14 per cent is punished, having to declare more for the whole year. This is discriminatory and tantamount to applying two rules for the same class of importers.
Besides, it is against justice. Value addition cannot be static or uniform in each business and even in the same class of business. It is always fluctuating, depending upon a number of factors.
If the government applies this criterion, it is bound to boomerang, for importers who paid more than 14 per cent in a month in the preceding year will now prefer declaring less than 14 per cent value addition and face a 'detailed audit'.
The national exchequer is bound to suffer, and the corruption culture is bound to flourish. It will also lead many to file law suits. The government should consider this aspect before making a final decision. [Dawn]
WITHHOLDING TAX
A. M. Sayied, Karachi
It is gratifying to observe that in the federal budget, withholding tax in many cases has either been totally removed or considerably reduced, thus proving that the circumstances under which it was introduced do not exist anymore. In fact, the finance minister should have announced its abolition. Such as action will justify the oft-repeated claim of the government that the financial position of the country has improved. [Dawn]
IMPORTANT REVIEW
[Editorial The News]
As the imposition of capital value tax (CVT) on the purchase of shares had aroused much debate, a team of the stock market representatives called on the federal finance minister on Sunday which reflected the urgent nature of the issue from the perspective of the investors. It was then decided that the whole issue will be considered by a five-member committee comprising officials of the CBR, Security Exchange Commission of Pakistan and three stock exchanges and resolved to the satisfaction of all the stakeholders. The readiness of the government to review this measure is encouraging and expectations are that the final decision will help boosting the investor confidence.
The CVT has been imposed at the rate of 0.1 percent with obvious revenue component as part of it. Already various alternate suggestions have been floated to resolve the issue. It has been suggested that the withholding tax on stock brokers be increased from five to ten percent. It has also been argued that the rate of tax on the purchase of shares should be reduced from 0.1 percent to 0.01 percent. In that case, the revenue target will become an important issue and it will need to be addressed at the same time. In order to settle the problem, ways and means will need to be found to ensure that the revenue yield is not disturbed.
An opinion that seems to have emerged is that on such contentious issues, it might be advisable to seek the views of the stakeholders before hand or at least have a feel about the possible reaction. However, it is encouraging to find that the government showed readiness to discuss the issue and formed a committee for this purpose. While the basic principle of equity in taxation is that profits should be taxed, it is also true that tax concessions have been used as an incentive to encourage investment and economic activity. The whole issue is critically important and an agreement between the stakeholders should be possible at the earliest.
A tax is levied for various purposes like collecting revenue, broadening the tax base and bringing about greater equity in the system. Its levy or withdrawal has to be seen in the larger perspective of its impact on investment and economy. Now that a meeting of the stakeholders has been convened that will decide about the fate of the CVT, it is fair to expect that a consensus will be reached about it. The decision that is ultimately taken at the committee meeting should put at rest all the debate about this whole issue.
TAX COMMISSIONER'S POWERS
[R.H. Merchant, Karachi]
The sweeping powers given to the commissioner under the Income Tax Ordinance negate the essence of the Universal Self-Assessment Scheme. The government should curtail the powers by allowing the commissioner to open or reopen assessment of any assessee within two years after an original assessment order is issued or is treated as issued.
The power of the commissioner under Section 122 to reframe or amend an assessment order within five years of the original assessment order or within one year after the issuance of the last amended assessment order, whichever is later, without mentioning the number of assessments or reassessments allowed, has given him extraordinary authority and a license to harass the assessee.
The commissioner should be allowed to amend an assessment order for a tax year, treated as issued under Section 120, only twice in case the assessee is selected for an audit under Section 177 and only once if the assessee is not selected for an audit.
Again, the criteria adopted for the selection for an audit for the tax year 2003 was very strange. One of the criteria was the amount of refund claimed in the return. Assessees who had claimed Rs5 million or more as refund (Rs20 million or more in case of LTU - the large taxpayer unit) were subjected to tax audit.
Actually, these refunds are created in the cases of assessees whose ratio of deduction of withholding tax is very high in relation to the income tax liability they incur because of many reasons.
For example, industries where the ratio of value additions and margins is very low in relation to the raw material consumed and receipts are subjected to withholding tax end up paying excess tax. They also suffer because their funds are tied up in the form of advance tax. To slap them with a tax audit is gross injustice.
[Dawn]
AUDIT OF INCOME TAX CASES
[Latif Qureshi, Lahore]
The Central Board of Revenue has recently given guidelines to income tax commissioners to select cases for audit out of returns of income submitted under the Universal Self-Assessment Scheme for tax year 2003, and the commissioners have started issuing letters to assessees informing them that their cases for 2003 have been selected under Section 177 of the IT Ordinance 2001 for audit.
The IT Ordinance was promulgated by the government with much fanfare, and it was declared that all returns filed for the tax year 2003 would be accepted under the Universal Self-Assessment Scheme and only those cases would be selected for audit in which evidence of concealment or understatement of income would be detected.
Isn't this a breach of confidence between the tax collectors and the tax payers? The present position in the cases in which returns of income were filed in time stands accepted under the law contained in Section 120 of the IT Ordinance 2001.
Can't the CBR ask the tax collectors to dig out cases of concealment or understatement of income and then reopen the cases already accepted under the Universal Self-Assessment Scheme? That would be a job worth doing by the tax collectors and for which they are being paid. [Dawn]
ULTIMATE SUPER BILL
[Intisar Ahmad Azkaa, Islamabad]
Now the TV license fee with electricity bill. Then radio license fee will be with electricity bill, and then driving license fee will be with electricity bill. Then VCR license fee and arms license fee will be with electricity bill, and then school-going children fee will be with electricity bill. Fee will be with electricity, and then ‘’this’ fee and ‘that’ fee will be with electricity bill. And if you have anyone of these items with you, go to concerned office — whether it is located anywhere in Pakistan — waste your whole day and give assurance to them that you are not guilty. [The News]
REVENUE COLLECTION PTV STYLE
[Mudassir Sheikha]
If our country were to get a windfall of Rs4 billion today, how would we spend the money? I, for one, would not advocate spending the money on a lagging media outlet, which PTV has clearly become.
Thanks to media deregulation, we now have a slew of local cable channels that cater to the needs of the people. The government is no longer needed in this business unless it has other motives.
Please correct me if I am wrong, but are not these other channels financing their operations through ad revenue? If they are, why is PTV having such a hard time living by the same rules?
I have never been able to digest the concept of a TV licence fee. The collection of this fee has taken a sizable marketing budget and a fairly significant collections operations on the part of PTV. In my opinion, it is nothing less than officially-sanctioned extortion.
It has been a while since I watched PTV, but if the network cannot break even with the amount of ads it used to show, it must be highly inefficient. I remember watching drama serials where more than half of the allotted time was dedicated to ads. The ads put a toll on the consumer. We cannot add the cost of a licence fee on top of this (especially with PTV's volume of ads).
So let us not spoil PTV with this massive windfall. With such an unqualified revenue stream, it will never find an excuse to become efficient. Let us instead divert this money to more pressing needs.
If you live in Karachi, nothing seems more important than effective law enforcement. And that is where I would use this money: police and judicial reforms. [Dawn]
PTV'S JACKPOT
[Rafi Adamjee, Karachi]
PTV seems extremely elated at the prospects of generating billions by imposing its licence fee to be collected through monthly electricity bills. It has also announced through newspaper ads a prize scheme worth Rs30 million. This is bound to encourage gambling practices forbidden by the law and Islam.
A PTV spokesman has mentioned an agreement with Wapda which will claim 20 per cent of the money to be generated. He has also stated that 42 per cent power users in the 0-100 KW bracket will be exempted from the licence fee.
I would like to inform the spokesman that a small quarter with two fans, three bulbs, an electric iron and a water pump use at least 6KW per day. The above exemption will not therefore benefit many people.
The PTV authorities are requested to review this matter, and raise the threshold to at least 200KW. [Dawn]
A HIGHWAY ROBBERY
[Rafi Adamjee, Karachi]
It was disturbing to hear in the federal finance minister's budget speech that the government intended to tag every electricity bill with Rs25 as a TV licence fee. This mode of collection is nothing but highway robbery. The lower-income class, who do not even own TV sets, will be unduly penalized and find it difficult to explain to the authorities to gain exemption.
PTV is a sinking ship as the fees now collected and the advertising revenue cannot sustain it. The TV signal is not clearly received on normal antennas due to disturbance in the airwaves, besides nobody is interested in the trash PTV telecasts. Many people prefer to watch other channels.
It is suggested that PTV should be privatized so that it can function like other private channels, which run smoothly without any assistance from the government. These private channels also enrich the exchequer in the shape of various taxes.
The government is earnestly requested to shelve the new proposal and alternatively abolish TV licence fees altogether as has been done in the case of radio. [Dawn]
FEDERAL PTV BUDGET
[S. H. H. Naqavi, Islamabad]
The proposal in the 2004-2005 Federal budget for charging Rs25 per month along with electricity bill ostensibly to save people from the hassle of standing in long queues for securing TV licence, actually creates many more problems for the people than it is said to solve.
Some of the problems are stated below.
• Since no TV licence is being issued this year it passes the problem to Wapda to decide from whom to change TV monthly fee and similarly a non-TV-holder has to face the problem of convincing Wapda that he does not own a TV set.
• Outdoors antennae cannot give an accurate picture of TV - owners, since TVs can be and are run on indoor antennae.
• Many premises have two or more meters will only a single TV owner in each of them.
• In such cases, the house -owner will have to pay more than due changes. That will be unfair.
PTV, to persuade people to own TVs, has announced huge prizes for TV — owners. What who gets the prize in cases where TV-owning tenants live in a house for which the electricity bill is issued in the name of the landlord? This may create problems for the landlord and the tenant. To a tenancy certificate from the landlord may not be easy if he lives in another town or another country.
I suggest that in view the above problems, the relevant budget proposal be scuffed. Instead, the old system of TV licence is retained. [The News]
PERKS OF TOP OFFICERS
[Tahir Maqbul Zuberi, Karachi]
This refers to the letter "Perks of top 100 officers" by S. Kizalbash (May 25). First, heads of multinationals are not paid out of taxpayers' money. Second, 95 per cent of the top government officers are feudals, landlords and industrialists who can well afford their luxuries without being in service.
In fact, most of them have made money over the years through politics and by being in the corridors of power. The bureaucratic machinery ensures that no one from the middle class reaches the top.
The government should also act sensibly while spending the taxpayers' money. What is the rationale behind constructing a Rs90-million generator for the presidency and parliament house when there is no loadshedding there? Is Islamabad hotter than Karachi or are the parliamentarians from Pluto? Similarly, what is the (productive) use of the national monument to be built in Islamabad at a cost of Rs387.8 million except that it will be visible from all sides and will be inaugurated by the president? It will not solve issues like the Kalabagh Dam and the NFC Award (the monument has been designed to depict provincial harmony).
The common man must realize that unless our rulers come out of their palaces and live like ordinary citizens, they can't lead us anywhere. [Dawn]
POLIO 'SCAM'
[Sara Shah, Lahore]
I want to draw the attention of all the high-ranking government officers, the prime minister and the president to news on national television about a polio vaccination fraud amounting to nearly Rs11 million.
The government must take strict action against those involved in the scam. It must also ensure that expired polio drops are not administered into children. [Dawn]
DEVELOPMENT FUNDS
[Latif Qureshi, Lahore]
During Ziaul Haq's rule, development funds were placed at the disposal of legislators. The tradition continued through the Benazir and Nawaz Sharif governments. That gave birth to corruption and mismanagement.
This year also, funds are being given to legislators for development work in their constituencies. The job of legislators is not to manage development work but to make law and generally watch not only uplift projects but also government work in all spheres. The sooner this practice is discontinued the better. [Dawn]
PUBLIC MONEY GOES DOWN THE DRAIN
[Arshad Karim, Karachi]
Half-page coloured advertisements in newspapers and publicity on television are displayed every day, while our government reminds us of the progress we have made in various fields. Hardly a day passes when one does not come across such reminders. I wonder what impact these advertisements have on the common man.
If there is progress, it should be felt automatically. The beneficiaries of this wasteful publicity in my opinion are only the newspapers, television and advertising agencies. Millions of rupees are going down the drain just for nothing. [The News]
POPULARITY THROUGH ADVERTISEMENTS
[A Rehman, Karachi]
Can we learn a little from the Indian Prime Minister Manmohan Singh who has ordered the ministries and government departments not to use his photographs in media advertising, saying he does not want public money to be used for his image building.
We in Pakistan forget that in advertising a bad product it cannot sell even with a most creative advertisement campaign. In the last few months, full and half page ads are appearing on behalf of various government departments selling president Musharraf and Prime Minister Jamali. These advertisements have neither the creditability nor have they created any impact on the hearts and the minds of the people of Pakistan. In 1958 FM.Ayub Khan celebrated his ‘Decade of Development’ and in the same fashion full and half page advertisements were released by these subservient bureaucrats. The ‘Decade of Development’ in no time ended as the ‘Decade of Decadence’ and with it a few months later FM Ayub Khan was consigned to the dustbin of history.
Compare the mind-set of a democratic Indian Leader with that of a Pakistani ruler. When ever a democratic government comes to power, I hope they will hold to accountability to those who squandered public money. [The News]
