Pakistan Planning Commission chalks out strategy for revenue and economic overhaul

[TechLahore]

Dr. Nadeem Ul Haq was at the World Bank for many years and became the head of WB's African operations, based in Cairo. He is a graduate of the London School of Economics and is an all-round brilliant planner and economist. It's very encouraging to see him take charge at the planning commission and begin to mould our revenue and privatization strategies in such a sensible way. Great things will come from this...

By the way, Dr. Nadeem Ul Haq also gave a very interesting talk at TEDx Lahore where he elucidated upon his thoughts re. the definition of development and the kind of alternate developmental concepts we should be thinking about (and that he is promoting from his perch at the Planning Commission)

To minimize reliance on foreign aid: plan to mobilise domestic resources being worked out

RECORDER REPORT

ISLAMABAD (September 30 2010): Deputy Chairman Planning Commission Dr Nadeem Ul Haq on Wednesday said the government is working on a plan to enhance productivity and mobilise domestic resources to minimise reliance on foreign aid. While addressing journalists after the workshop "The New Development Approach for Pakistan," organised jointly by the Planning Commission and UK based Department for International Development (DFID), he said.

"We need to utilise local market with potential of Rs 200 billion like India and China." He added that Pakistan would reduce reliance on US aid by introducing reforms in different sectors to mobilise domestic resources. "Flood tax is short term measure and revenue collection would be enhanced through tax reforms in long-term strategy," he said, adding that government was also going to unbundle Pakistan Electric Power Company (Pepco) under energy reforms to enhance efficiency of power sector.


"Distribution companies will be given autonomy to generate resources and reduce the line losses," he said, adding that National Electric Power Regulatory Authority (Nepra) will be assigned task like that of Oil and Gas Regulatory Authority (Ogra) to notify power tariff under reform programme.

He said there was need to improve governance as public social service delivery in whole development paradigm that needed to be transformed by undertaking crucial reforms. US Co-ordinator for non-military assistance for Pakistan, Robin Raphel said, "There is need to structure whole taxation system by giving incentives to those who are paying due taxes."

"Pakistan is facing severe resource constraints over medium term so it would have to generate domestic resources and to ensure well-spending during the flood reconstruction efforts," she said, adding that the internal resource generation is required to meet reconstruction efforts in the aftermath of severe flood.

Raphel accepted that the US Administration has failed to muster political support of Congress for putting in place the Reconstruction Opportunity Zones (ROZs) despite reiterating commitments several times in last few years. Moazzam Malick, Director Western Asia Division, DFID said Pakistan utilised Rs 245 billion on subsidies that needs to be diverted towards promoting social sector such as education. He said the Needs and Damage Assessment (NDA) was under way but there was need to put in place a credible plan to undertake reconstruction work in flood-hit areas.

Dr Vaqar Ahmed, Deputy Chief Macroeconomics section said the investment level stood in the range of 18 percent of GDP in Pakistan compared to India's 27 percent and China's 40 percent, resulting in Pakistan lagging behind for achieving sustained economic growth.

 

[H2O3C4Nitrogen]

So there will be more tax and the prices of ordinary things will go up... !!!

The IMF had the records of all Pakistani Banks and the accounts , analyzing those records they did pushed the GOP to increase the tax rates ... !!!

 

[TechLahore]

Taxation should be increased in a fair way. For example, there are no property taxes of any consequence in Pakistan. The property taxation rate in the US can be anywhere from 2.5-5% or so, on the annually re-evaluated fair market value of the property. In Pakistan it is not even .01% of the FMV. This is not sensible.

If you can afford a 1 canal house in defence worth 2 crores, can you not pay Rs. 200,000 annually as property tax? Anyone who has a problem with that is being ridiculous...

 

[sparklingway]

Tech : Have you read Dr. Haque's work - especially his work when he was at PIDE ?

 

[ajpirzada]

i am currently working with him on this new development approach (NDA). if it gets implemented, there will be drastic change in how market functions in pakistan. its a shift from government led growth which is hard to sustain to private sector led growth. the main policy is pulling the government out of the markets and reducing its role to only policing.

my work is mainly to do with connectivity (transport and ICT) of pakistan which is one of the several topics in NDA.

 

[TaimiKhan]

Taxation should be increased in a fair way. For example, there are no property taxes of any consequence in Pakistan. The property taxation rate in the US can be anywhere from 2.5-5% or so, on the annually re-evaluated fair market value of the property. In Pakistan it is not even .01% of the FMV. This is not sensible.

If you can afford a 1 canal house in defence worth 2 crores, can you not pay Rs. 200,000 annually as property tax? Anyone who has a problem with that is being ridiculous...

Well that person may have bought that home when the property was cheap, he may have bought it for 5.0Million but since we had a property boom, the prices have gone too high.

I take my example, my dad bought a 10Marla home at 3Million way back in 2001, but now these homes are costing above 10Million, and my dad earns a salary of 40K plus pension, which comes near to 60K p.m income. At the end of the year, he hardly saves upto 100K, so now from where such people will pay a tax of 200K or more as per the value of the home. Same is the case with people who bought 1Kanal homes way back when there was no property boom.

This is an absurd idea and very unpractical till the glitches are removed, so that people who have money should get taxed.

People like NS pays a tax of 5K per year, while many ministers have payed less tax then what i pay, and their incomes are much much more then me, they spend millions of rupees at elections, and in the end they pay taxes of few thousand rupees.

Such are the people who should be brought into the tax net, based on home value is not the criteria of taxing a person.

Similarly, many other sectors of the society who don't pay taxes, or less taxes, should be brought into the net. Agriculture being one, we can earn more then 200Bn by taxing the agriculture business, i would have gone with a low tax rate and encourage the people to pay taxes, as may be low tax rates make them pay up with social awareness campaign and broaden the base of the tax payers.

When i was doing by MS, one of my teachers a grade 21 officer in the FBR told us, that FBR did a survey of the major markets in the country, the ones where rich people go or things are expensive. He said surprisingly, the average per trader / shop keeper tax coming out of Liberty Market Lahore was Rs.5000/- per year. Meaning just 5K of tax is given on average per person doing business in the liberty market and we all know what is liberty market and its one of the posh markets known in Pakistan.

 

[Tuahaa]

Great!

Hopefully everyone has had enough with the situations going on right now, and agree to co-operate.

If not, the tax system needs to be enforced anyway.

 

[aristocrat]

Isnt the biggest problem in pakistan related to tax collection??How will imposing more taxes help??btw do u have 5 year plans or something similar??

 

[Cheetah786]

Well that person may have bought that home when the property was cheap, he may have bought it for 5.0Million but since we had a property boom, the prices have gone too high.

I take my example, my dad bought a 10Marla home at 3Million way back in 2001, but now these homes are costing above 10Million, and my dad earns a salary of 40K plus pension, which comes near to 60K p.m income. At the end of the year, he hardly saves upto 100K, so now from where such people will pay a tax of 200K or more as per the value of the home. Same is the case with people who bought 1Kanal homes way back when there was no property boom.

This is an absurd idea and very unpractical till the glitches are removed, so that people who have money should get taxed.

People like NS pays a tax of 5K per year, while many ministers have payed less tax then what i pay, and their incomes are much much more then me, they spend millions of rupees at elections, and in the end they pay taxes of few thousand rupees.

Such are the people who should be brought into the tax net, based on home value is not the criteria of taxing a person.

Similarly, many other sectors of the society who don't pay taxes, or less taxes, should be brought into the net. Agriculture being one, we can earn more then 200Bn by taxing the agriculture business, i would have gone with a low tax rate and encourage the people to pay taxes, as may be low tax rates make them pay up with social awareness campaign and broaden the base of the tax payers.

When i was doing by MS, one of my teachers a grade 21 officer in the FBR told us, that FBR did a survey of the major markets in the country, the ones where rich people go or things are expensive. He said surprisingly, the average per trader / shop keeper tax coming out of Liberty Market Lahore was Rs.5000/- per year. Meaning just 5K of tax is given on average per person doing business in the liberty market and we all know what is liberty market and its one of the posh markets known in Pakistan.

Taimi if your father cant affords to live in the area he bought the house in should not be the governments or municipalities problem if he cant afford it he can sell and move to the areas where he will be able to afford the property tax in the mean time after selling the property he will have a good return on his property.

Most property in Pakistan is sold on speculation i bought it for this much and i will sell it for this much period fine if you can find a buyer who is willing to pay the price more power to you it should not become Governments problem if the person bought more then they can afford .simply put it if people cant afford to pay the high prices demanded by property dealers and flippers and they have to pay the tax on the property while they sit on it they will simply come back to planet earth and start to bring prices down to where they should have been from the day one.

I am using your post just for example and it's not an attack on you or anybody else and i hope you understand that and if i have offended you my sincere apologies.

 

[TechLahore]

Taimi, unfortunately this is the way property taxes work around the world. However, property taxes are frozen after the owner enters a certain age range so that taxes don't continue to increase when the earning potential of the individual has diminished, or the individual has retired. With that, your dad would have had his property taxes "locked" when he passed age 50 so property appreciation after that time would not matter to him.

Also, as Cheetah said, if property has appreciated so much don't think of your father as a middle income individual. He is actually rich since his property has gone up so much. It's just that the bulk of his money is invested in a passive, non-income generating asset. Sound asset allocation would dictate that he move to a different, up and coming area which is cheaper and take the extra money from the sale of his existing property and use it to augment his income.

 

[somebozo]

If you can afford a 1 canal house in defence worth 2 crores, can you not pay Rs. 200,000 annually as property tax? Anyone who has a problem with that is being ridiculous...

Property tax will drive down the housing market and overseas Pakistan will stop buying land and housing as safe investment..currently the housing market is single large driver of forigen remittance. With no intrest in land and properties either the money will go to bank or be invested somewhere else.

 

[TechLahore]

^^ That argument can pretty much be made for any kind of tax. I am proposing a minute percentage of value as property tax. As I said, in the US and Europe, the rate is 2.5%-5%. In some places, even more. Rs. 200K on 2 crores is 1%. Do you think 1% will cause people to run away??

 

[sparklingway]

Property tax will drive down the housing market and overseas Pakistan will stop buying land and housing as safe investment..currently the housing market is single large driver of forigen remittance. With no intrest in land and properties either the money will go to bank or be invested somewhere else.

Real Estate is, was and will always be a bubble market where without change in productivity, output or any manufacturing prices can rise exponentially due to speculative trading and nothing else. Pakistanis are obsessed with the purchase of land, owing to various social factors. Real estate markets serve no economic growth and need to be curtailed.

^^ That argument can pretty much be made for any kind of tax. I am proposing a minute percentage of value as property tax. As I said, in the US and Europe, the rate is 2.5%-5%. In some places, even more. Rs. 200K on 2 crores is 1%. Do you think 1% will cause people to run away??

The tax in cantonments is like Rs. 500 or something and in Rawalpindi TMA boundaries something like Rs. 300. This of course does not apply to the house you're occupying. A one time tax of Rs. 50,000 is pointless considering people having two houses, pay only 500 or so annually and that too is not regulated and enforced.

 

[TechLahore]

^^ Figuring out how to implement workable property taxes should not be rocket science. It is a system which is in place in pretty much every developed and many developing countries. Property taxes cannot be one-time, or only imposed at the time of property transfer. They should be annual, even if the percentage is kept very low initially (.5 - 1% annually)

The reason I prefer this in Pakistan's context is because property is one of the few things people cannot easily hide. And nor can people hide the FMV of the property. There are many ways to hide your income, show excess expenses, ship money abroad etc. But the property is there to be inspected and valued. I think a tax regime based on property taxes will be more successful in Pakistan than a drive to increase collection on income taxes.

 

[sparklingway]

Do you know about Benami ownership and its legal existence in Pakistan? I, not a property lawyer and with very little interest in property law, can file benami ownership documents on your behalf. It is one hell of a problem. Concealment of ownership is different from benami btw. And to gauge its importance, remember the famous Seth Abid (Sheikh Abid Hussain), the real estate and drug smuggling mogul friend-of-the-establishment ? A study published by PIDE reported his ownership, under benami, to be more than some 2,000 acres of prime real estate across Lahore.

Computerized Land Records have been started but they too would and do suffer due to this concealed and nameless ownership system. And it's not just the rich who profit from this. Average people do this to get by property, income tax and the now defunct wealth tax (thanks to Shauka).