Apropos a recent front page news in an English-language daily, that the Prime Minister was angered over delay in importing of wheat and had reprimanded the relevant authorities- a bunch of relevant questions, considering that flour is a necessity and any shortage adversely and severely effects the very poor, immediately come to mind: who was responsible, why did they delay the imports and what does a reprimand by the highest office actually mean, in substance.
Did anybody lose their job, at the minimum? Probably not!
This brings to mind the series of Articles I wrote for the Business Recorder a few years ago, somewhere between 2012 and 2013, titled “Profit”. In the finale, on the question why does performance of the same professionals differ between employment with private sector and that with public sector?, the answer was – “The fundamental difference between the public sector vis-à-vis the private sector is that once admitted in the former club, it is a life membership; only seniority, or in some cases quota, matters. Stick in there long enough and the sky is the limit. If along the path you stumble, wait out a term and then rejoin the party again; performance is never a criterion…. However, what is different with the “Seth” is, diligent team selection, rewarding good performance and ruthlessly dealing with ineptitude and breach of trust. Recall the number of cases in the public sector since independence, where incumbents were terminated from service for bad performance? Compound this situation with the law of business that, “a person will rise to his level of incompetence” and imagine what is the end product”.
I am not trying to beat my drum here, or perhaps I am, albeit 7 years later, the above conclusion still holds.
If the reprimand is no more than the proverbial slap on the hand, which probably will not even merit a side note in the annual performance review, than there will always be delays in importing wheat!
Let’s move to another news item in the same daily, according to which the Federal Board of Revenue informed the Public Accounts Committee that Rs 1.856 trillion revenue was stuck in litigation- definitely not a trivial amount.
The primary question to ask here, even before asking how long have these revenues been stuck up in litigation, is what has been the success rate of tax litigations over the past two decades.
Well, firstly to estimate, based on historic trends how much of this Rs 1.856 trillion will eventually actually be recovered and secondly to analyze the reasons for short reveries and the associated costs of litigation- financial as well as economic. And the economic cost is extremely high.
As is, the taxman has an inherent conflict with any policy designed to give incentives to businesses for economic growth, simply because any time the Government reduces taxes, the taxman has to struggle harder to meet targets- at least in theory. Accordingly, the tax man makes all efforts to marginalize all incentives while drafting the related legislation. Add to this the cost and hassle of long drawn litigation at various forums all the way up to the superior courts, to contest assessments which in some instances resemble a horror story- and then you realize why domestic enterprise has shied away from investing in projects.
Admittedly, there may be other factors as to why capital investment has declined over the last 10 to 15 years, but from my experience, a fair taxation mechanism tops the list when it comes to ease of doing business. And what exactly is a fair tax mechanism? As an example, if the taxman unnecessarily delays a refund due to a taxpayer, should he not pay interest at the same rate which is charged to the taxpayer in case of delayed deposit of tax?
For the businessman, even when he succeeds in tax litigations, it is exhausting, mentally, physically and financially- so who would want the hassle of doing business?
Now imagine the loss to the economy as a whole; factor in time wasted- including that of the courts, resource wastage, corruption and loss of growth.
On the other hand, for the tax man, even if he loses the case, there are no consequences at all, absolutely nothing; he does not even pay for the cost of the litigation, the State does- in fact in most cases the person in question probably retires before the matter gets concluded. So it makes perfect sense for the taxman to continue with the practice of making fantastic assessments and letting the assessee suffer it out while he, the taxman, goes to the bank laughing, and probably gets promoted for great performance.
But why limit this argument to the taxman. With no consequences for actions, PIA will never regain its former glory, the steel mill will corrode into scrap for private mills, Railways is never going to make profits, there will be more wheat shortages, sugar prices will keep going up, and the list goes on. Most importantly, the Rule of Law will remain a dream.
“A nation has to be profitable, which in essence means that trade and commercial activities should result in an increase in national assets, otherwise these should be discontinued. Quality of life and consumer choice are misnomers, popularized by those who want to exploit; the age old principle of living within means is prescient for a developing nation. And when it comes to managing national assets, find the best and let them do the rest. But if they don’t, be ruthless. Those who take decisions should pay a price when things go wrong.” From the article “Profit-The Finale” published by Business Recorder sometimes back in July 2013.Syed Bakhtiyar Kazmi, "Consequences," Business Recorder. 2020-10-24.
Keywords: Economics , Economic growth , Tax mechanism , Tax litigations , Corruption , PIA