Cutting News

Despite aggressive monetary policies of the developed economies the central bank of Pakistan resisted pressure from businesses to reduce its policy rates. The policy paid off, creating a domestic platform of macroeconomic stability to ensure sustained growth.
The policymakers rightly recognized that factors that increase productivity in the developed world are different than that of Pakistan. The Western economies are keeping interest rates near zero to stimulate growth. They increase productivity through innovation to compensate the high wages and want consumption levels to increase to maintain growth. They do not face problems like inadequate infrastructure or low labour productivity. Because of their aggressive monetary stance these economies are also creating huge risks for some of the emerging economies where capital flows increase because of higher interest rates. However, they would ultimately be forced to increase interest rates and the reverse flight of capital from emerging to developed economies may devastate many economies.
In Pakistan, we can increase productivity by building infrastructure and roads. There is a need to improve human capital with better primary to tertiary educational institutions. The shortage of vocational institutes should be supplemented by the industries through on-job training. This is, in fact, what the manufacturers are doing. After achieving macroeconomic stability the government should now focus on simplifying business regulations and taxation. Efforts should be intensified to increase access to finance.
Decline in our exports was on the cards even if there has been no global recession. Our competing economies upgraded their technology while textiles, our mainstay in exports, continued using older technologies. The high power and energy cost further aggravated the situation. However, the government during most of the last three years concentrated on macroeconomic stability. In times of huge fiscal deficit it did not provide any monetary incentives to the exporters but stepped up efforts to lower the power generation cost and bring LNG in the system on war-footing. This policy has ultimately paid off. There is no power shortage for the industries and 24/7 gas is available to all manufacturers. Out of the 110 textile mills that were closed down during the past 12 months almost 80 mills are back in full production. Others will revive soon, baring few that would remain permanently closed.
This revival in the textile sector has proved the policymakers right that there is no need to “encourage” the distressed industry through subsidies or monetary benefits. It was essential to remove the irritants that led to their failure. Prudent policy makers know that encouraging the industry through subsidies is the surest way of killing it. The job of policymakers is to provide an enabling environment for the businesses. Providing incentives clearly indicate the government is dictating the manufacturing operations as it has failed to provide an enabling business environment.
The major challenge that the government faces, however, is to satisfy the general public that economic stability should be ensured first before embarking on a high growth path. However in spite of focus on stability, global recession and periodic flash floods in different regions of the country the economic growth has increased from an average of three percent during the PPP tenure to an average of over 4.2 percent in last three years.
Policymakers and the businessmen in Pakistan should also realize that global trade for the first time in decades has grown more slowly than global output. It is because in most of the developed economies and in fast-growing economies non-traded services constitute a greater share of output. Thus the share of services in the GDP is increasing and that of trade declining. This is the reason that the GDP now grows faster than trade. Another point worth noting is that new technologies have not only increased the efficiencies but also the capacities of global manufacturers.  They are sitting on capacities that have slowed down growth in trade. This has intensified more competitive, and as China moves up the value chain, more inputs are being sourced within countries. For all these reasons, the heady days of double-digit growth in Indian trade in goods and services will not return soon.
The exporters want the government to devalue the rupee to boost exports. However, past experience has shown that the exports never increased due to devaluation and have in fact gone up during period of rupee stability. Recent examples are that of the Shaukat Aziz era when the rupee was stable for a long period and exports more than doubled from $8 billion to $19 billion in 10 years. The exports inched up by only 25 percent in next eight years during which time the rupee regularly depreciated. It is stable for the last two years and exports are expected to rebound next year. Undervaluation is implicit subsidy to Pakistani producers.
Meanwhile Pakistani businesses should realize that business models of the 20th century are becoming obsolete as digitization has changed the way trade is conducted. Everyone and every place are connected through digital networks; it’s time for Pakistani companies to rethink what it means to be global.
Digitalization is rapidly impacting every economy and has the ability to make its presence felt across borders. Recent studies have shown that digital flows in the economy have added 10 percent additional growth in the global GDP in last one decade. These combined effects of data flows on the GDP exceeded the impact of global trade in goods. This is an important development as only 15 years back cross-border data flows were negligible. The digitalization in globally traded services has already exceeds 50 percent. Moreover 12 percent of the global trade in goods is now conducted via ecommerce. The global travelling is now managed almost exclusively through digital platforms.
Pakistani entrepreneurs should take cue from the fact that global trade in goods has almost flattened. Globalization in past decades had accelerated the growth in global trade of goods.  Trade in goods that accounted for 13.8 percent of total global trade in 1985 ballooned to 26.6 percent in 2008 when global recession started. After that recession things have not looked as rosy for trade in goods as in previous decades. This, in fact, was also the time when digital technologies started disrupting 20th century business models. Major corporations are not prepared to operate in risky environment of managing risky and long supply chains. Now instead of looking at the labor cost only these corporation place higher emphasis on the speed at which goods could reach the market. To reduce costs they adopt efficient measure to compensate for the higher wages. This is the reason that companies prefer to establish production units in countries from where they could be easily moved at low cost to consumption centers. The advent of 3-D technology is going to further erode international trade as some goods will be printed at their point of consumption.
Pakistani entrepreneurs by now must have been aware that big corporations are in the process of building platforms to manage suppliers. They now prefer to connect to customers, and enable internal communication and data-sharing. The access of the direct customers to these platforms empowers businesses with huge built-in customer bases and provides them with an opportunity to interact with customers directly. These digitalized platforms can be reached around the globe with few clicks to provide the customers with details of the products and the allied services offered with them. The customers again through digital platforms can compare the prices, product features and services offered by alternate suppliers. Well managed companies are aware of this power of the consumer and therefore try to offer the best in quality, services and prices.

Asset recovery from the corrupt seems to be the aim of governments the world over, however those countries that provided safe heavens to the corrupt resist providing any kind of information to the affected nations fearing a flight of illegal capital.
The World Bank under its stolen asset recovery initiative has published an Asset Recovery Handbook as a guide for practitioners pursuing looters of national assets advising them to seek waiver if possible for persons enjoying immunity from persecution.
The handbook reveals developing countries lose an estimated US$20-40 billion each year through bribery, misappropriation of funds, and other corrupt practices. Much of the proceeds of this corruption find “safe haven” in the world’s financial centers. These criminal flows are a drain on social services and economic development programs, contributing to the impoverishment of the world’s poorest countries.
Many developing countries have already sought to recover stolen assets. A number of successful high-profile cases with creative international cooperation have demonstrated that asset recovery is possible. However, it is highly complex, involving coordination and collaboration with domestic agencies and ministries in multiple jurisdictions, as well as the capacity to trace and secure assets and pursue various legal options — whether criminal confiscation, non-conviction based confiscation, civil actions, or other alternatives.
This process can be overwhelming for even the most experienced practitioners. It is exceptionally difficult for those working in the context of failed states, widespread corruption, or limited resources. 
The Stolen Asset Recovery Initiative (StAR) estimates that only $5 billion in stolen assets has been repatriated over the past 15 years. The huge gap between even the lowest estimates of assets stolen and those repatriated demonstrates the importance of forcefully addressing the barriers to asset recovery. International cooperation is essential to asset recovery.
The United Nations Convention against Corruption (UNCAC) provides the global architecture for asset recovery, and the international framework to address some of these barriers. The reality is that the process for asset recovery remains lengthy, the level of activity is extremely low and uneven, and practitioners continue to report challenges and difficulties.
In debate on the parking of untaxed money in tax heavens or off shore companies governments in Pakistan have ignored the menace of tax avoidance by multinationals faced by not only developed economies but also by developing countries like Pakistan.
The developed economies and many developing economies have enacted transfer pricing laws but inter-government cooperation is a needed to close loopholes that enable corporations to manipulate transfer pricing. Some of the largest global corporations have been found to be involved tax evasion. Google for instance agreed to pay the UK government $181 million in taxes that it evaded in ten years. Still taxation experts opine that the UK government had been lenient on Google. However a beginning has been made at international level.
But what escaped the watch dogs in developed economies is actually very small because of better governance and adherence to rules and regulations. Still multinationals have developed ingenious ways to hoodwink these best governed governments. The damage caused through transfer pricing to the weakly governed developing economies is definitely enormous. According to the United Nations developing countries lose $100 billion annually In revenues that are not paid to them by foreign corporations.
Pakistan’s tax revenue makes up only ten to 11 per cent of GDP (gross domestic product), compared with 35 percent in the developed world. However no one can deny that Pakistan depends more on taxes than the richer countries.  The inability to collect taxes hampers the ability of Pakistani governments to deliver essential public services such as health or education. These humanitarian necessities are denied due to paucity of resources. These services are critical ingredients for driving economic growth.
Multinationals operate on code of corporate governance and the laws of their home countries that forbid them from any unethical practices. They do operate legally but have found out loopholes in every system to avoid taxes. They indulge in tax avoidance through transfer mispricing.  They adopt ingenious methods to avoid paying taxes even in developed economies. Their method is simple that baffles tax collectors around the globe. To produce an end product components of which are made in different countries the original manufacturer opens subsidies in each of these countries that pay taxes locally. These companies though owned by same corporation operate as independent companies that trade with each other and maintain independent accounts. For example a US company selling computers in Canada that are assembled in Taiwan and metals for chip procured from some African country it will establish subsidiaries in each country .each of which be taxed separately For accounting purposes, the subsidiaries are independent companies trading with each other. The African subsidiary spends money on mining and in its accounts it states that the minerals have been sold to the Taiwanese subsidiary which in its accounts writes that it has “sold” the finished phones to the sales subsidiary in Canada, which puts down in its accounts the price for which it sold the phones to consumers, and either takes this as profit, or “sells” its revenue up the chain to the parent company.
Since no cash is involved as the goods move from one subsidiary to the other as the movement is recorded as internal transaction the corporation can manipulate the prices for each transaction and determine which subsidiary files profits with tax authorities and which posts loss or nominal profit.
In practice the final profit that is generated through sales of computers is distributed across subsidiaries. But most of that profit is declared in countries where taxes are lowest and losses are declared in the countries where taxes are high. This way the multinational corporations reduce their tax burden. These manipulations deprive high tax-rate countries like Pakistan of both tax revenue and earnings that can be reinvested in businesses locally. Instead these profits go up the chain, at the parent company level
This tax avoidance has nullified the liberal policies adopted by successive governments to court foreign investment through privatization of state owned enterprises. The common man does not see the benefits of such investments as actual taxes are avoided. It is true that all institutions that were privatized pay more taxes then what they paid as state entities to local investors pay more than their foreign counter parts. Moreover, there is no check on transfer pricing by car manufacturers or multinational pharmaceuticals. Technology used companies use to track internal supply chain logistics can be used by governments to track where profits are generated.
It does not mean that all foreign investors indulge in transfer pricing but those that do transfer lot of tax free foreign exchange to their principle office. They feel no check pressure because there is not transfer price law in Pakistan. It is in vogue in neighboring India to check this practice. The chances of Transfer pricing in export projects is export dim because the exporting industry has to compete globally; because they cannot load undue costs on exports.
Transfer pricing deprives the shareholder in host country of fair return on their investment because the product cost is jacked up by importing inputs at higher rates. It however increases the profits of the controlling foreign shareholder. Transfer pricing has become more and more important to companies aiming to comply across national jurisdictions, making the most of their assets and departmental utilities.
It refers to the sum or price used in accounting which is paid for the transfer of intangible assets, goods, use of money, services and comparable transactions from one entity to another. Countries use appropriate laws to control related party transfer pricing since inapt use can alter profits from one jurisdiction to the other. In theory, businesses are meant to be in full command of their transfer pricing issues. This is significant because if they do not position their transfer prices in compliance with the rules of each jurisdiction they interact with, they could risk penalties, high interest and underpaid fees.
A large proportion of countries enforce tax laws that are based on the arm’s length principle as termed within the OECD. The arm’s length theory as adopted by Article 9 of the OECD Model Tax Convention serves the purpose of ensuring that transfer pricing between corporations of multinational businesses are established on a market value basis. t is used specifically in contract law to arrange an equitable agreement that will stand up to legal scrutiny, even though the parties may have shared interests (e.g., employer-employee) or are too closely related to be seen as completely independent (e.g., the parties have familial ties).
These transfer pricing guidelines for multinational enterprises and tax administrations, limit how transfer prices can be set and ensure that each country gets to tax “a just and fair” share. Transfer pricing can be used as a profit allocation method to attribute a multinational corporation's net profit (or loss) before tax to countries where it does business. Transfer pricing results in the setting of prices among divisions within an enterprise.

Despite healthy growth in tax revenues during the first nine months of this fiscal, we lost substantial part of taxpayers’ money to operate loss-making state-owned enterprises, that reduces the government’s ability to carry out development projects.
Vested interests are creating discontent over privatization making the process painfully slow with the values of government owned assets continuously declining and liabilities increasing with every passing day.
The privatization process went rapidly during the first tenure of the PML-N government when in a span of less than three years, major state owned cement plants, most of the ghee mills and all rice mills were privatized. Two major banks and two big tractor plants were handed over to the private sector. During that period the state owned chemical plants, some steel manufacturing units and textile units were also privatized. All these entities were running in loss when in the government sector, bleeding the national resources.
Now all these entities have created more employment, and deposited hundreds of billions in government taxes and levies. In fact, some of the privatized units are paying 20-100 times more taxes than the amount at which they were privatized. MCB Bank, that is half the size of National Bank, is in fact paying more income tax. Pakistan had to periodically import ghee and vegetable oil when the ghee industry was run by the government. The availability of cement remained uncertain during the period when these plants were run by the public sector. The second privatization of some significance was carried out during the Musharraf era, and even that has paid rich dividends to the nation.
At that time the entire nation had no issues regarding privatization, the opposition to this process intensified in the last decade. There is a need to find out the elements that are opposing privatization. The bureaucracy seems to be the top beneficiary in the public sector companies. The bureaucrats in the Ministry of Industry control the public sector companies. Top bureaucrats are deputed in these enterprises at lucrative salaries and perks. These state owned enterprises continue to operate even at heavy losses, but the perks/privileges of the top management continue to increase every year. Moreover, the only stake they have in the purchase of the enterprise is when they have a chance of getting commissions.
The qualities of supplies have to be inferior. The procurement rules are engineered in such a way that only favored suppliers are qualified to quote the rates by registering dummy enterprises of the favoured supplier. They quote lower prices because they supply low grade materials. If an outsider dares to supply the same quality, his supplies are rejected on quality grounds. The entrenched bureaucracy in the SOE creates hurdles in the privatization process by raising a fear among the workers that their jobs would be in danger. They also inform the rulers that their prerogative of accommodating friends, family members and party workers would be compromised if the state enterprises are privatized.
The labour unions are deadly against privatization, because no private sector operator would succumb to their pressure as easily as the bureaucrats with vested interests. The workers under the unions have regularly lost many privileges, but the perks of union leaders continue to increase. They do not perform any duty and collaborate with the bureaucracy in organizing demonstrations against privatization.
Then there is the private sector that has the resources to buy the most valued SOEs, but they want to buy it at dirt cheap rates. To achieve their aim they plant stories in the media alleging a secret deal of the government with a particular private sector group for handing over a particular enterprise at a throwaway rate. This puts pressure on both the government and the entrepreneur to deny the rumor but also makes it embarrassing for the group to participate in that particular privatization leaving the opportunity open for the rival private sector groups.
It is pertinent to note that the enterprises like Pakistan Steel Mills, PIA or public properties like the Roosevelt Hotels are very expensive and only few top groups in Pakistan could buy them. If we systematically tarnish the image of all these groups we would eliminate the local competition for acquiring such SOEs. This would leave the field open for foreign investors only. Unfortunately, there are few foreign investors that are interested in committing their resources in Pakistan. This further narrows downs the competition to a few, which is not in our national interest. The prices that we get would then be very low. We have seen this in the privatization of Habib Bank and United Bank where as a result of elimination of domestic competition, these were sold at a rate which is now the profit that the foreign owners send abroad every year.
 Increase in tax revenue by 18.2 percent in the first nine months of this fiscal is commendable in view of the low average inflation of around 3 percent and stable rupee that also depicts the potential of taxes in the country. This money should be used for useful purposes instead of wasting it on inefficient and corrupt state enterprises.
The increase in tax revenues should be appreciated as Pakistan is plagued with low tax to GDP ratio which clearly indicates vast tax evasion. Tax revenue targets in Pakistan are mostly set without considering the targets achieved or missed in the preceding year. The targets are aimed at putting pressure on the bureaucracy to increase tax collection either by adding new taxpayers in the tax net or by plugging the under-filing by existing taxpayers. It is also an established fact that besides tax evasion, a wide majority of registered taxpayers conceal their actual sales and production thereby paying lower income and sales tax. At import level, the importers clear their goods at very low declared values to avoid multiple import levies.
Normally the tax revenues also register increase if there is higher inflation than previous year and the domestic currency is heavily devalued. Moreover accelerated GDP growth also contributes to higher tax collection. This is termed as a natural growth of taxes. This year, however, the average inflation in the first nine months of this fiscal is lower than the inflation during the corresponding nine months of last fiscal. The rupee has remained stable and the GDP growth is slightly above last year’s level. All these factors do not favour higher tax collection. Still, a growth of 18.2 percent in tax revenue from 1.653 trillion rupees in the first nine months of last fiscal to 1.955 trillion rupees in the same period of this fiscal belies the traditional logic.
Tax collection in Pakistan has a lot to do with the efforts of the tax collectors. The top tax man and the finance minister have to put constant pressure on the tax collectors to achieve realistically unachievable targets. Prudent managers know that the tax collection of previous years is irrelevant and growth in tax collection cannot be based on the actual collection in the previous year. They fix very high tax collection targets. These targets are termed ambitious or unachievable by some economic experts. What they fail to factor in is the fact that the tax evasion in Pakistan is so high that even doubling the tax revenue target is achievable.
The high growth in tax collection during the first nine months of this fiscal is still below the budgetary target but not far off the mark. What is commendable is that a growth of 18.2 percent in tax revenue has been achieved against all odds. This growth in revenues was achieved because the federal finance minister remained in constant liaison with the tax collecting machinery. He might have missed many meetings with the businessmen and other stakeholders, but he never missed his monthly confrontation with the tax machinery.
The addition in tax revenue was not achieved only by squeezing the existent tax payers, but also by nabbing tax evaders and under-fillers. The pressure on tax collectors should be further increased to enhance the tax-to-GDP ratio that hopefully would touch 10 percent of GDP after more than a decade. It is expected that the government would do away with most of the tax exemptions in the next budget that would provide level playing field to those not availing benefits of exemptions.

Demographic advantage that Pakistan enjoys would go waste if workers productivity remained at current level and to raise economic performance the economic planners, companies and sectors should focus on causes of productivity differences.
The urgency to increase productivity has accelerated as aging economies become focused on increasing the productivity of their workers to cope with reduction in their workforce. They would soon be importing workers with highest productivity level. At current output per worker, Pakistan would not be able to find jobs for its workers abroad.
The bottom line is this: while half-century forecasts are hazardous—particularly for the forecaster!—a productivity-based perspective on the future of growth suggests that a demographic slowdown today need not lead to economic stagnation tomorrow.
Productivity growth drives a huge amount of improvement in society whether attained through technology or by workers, it is basically shorthand for increases in our well-being. We can improve our standards of living by doing more with what we have.
The Japanese auto miracle occurred because Japan’s steel industry in the 60’s and 70’s was 45 percent more productive than the US steel industry. Still, overall the United States worker is more productive than workers of other economies. It has now been established that productivity is highest in countries that are exposed to competition rather than operating in protected mode. This is true for the service sector as well.
Skills do enhance productivity but they are only one of the factors. Our government and the private sector can enhance the economic prospects of Pakistan by identifying the measures needed to improve worker productivity. Research by creditable global institutions has revealed that more than 50 percent increase in global GDP has come from increase in workers’ productivity and the rest from increase in the number of workers.
Government planners in Pakistan and the manufacturing sectors should aim to catch up to the productivity level of the global best and should achieve this goal within a timeframe. They should then go beyond the global best through management tools and technology. The aim should be to remain ahead of competition. By catching up with labour productivity of the best, Pakistan could triple its exports in three years and embark on a sustainable growth path. The economy in Pakistan would leap forward at high speed if small scale producers are brought into the tax net. In the current digitalized scenario, the small producers survive by avoiding taxes which helps them to work with obsolete technologies and low labour productivity. The government, on its part, should increase the efficiency and quality of public services through new incentives and managerial practices.
The SME businesses will almost certainly get a productivity boost through mobile applications, cloud computing, and other novel technologies that make it easier for them to innovate. The future belongs to nations that continue to build skills through public or private sector investment.
As the fourth industrial revolution makes its presence felt in economies like Pakistan, there is a worry among workers that the new would throw them in the unemployed pool. The same fear was expressed in the first industrial revolution, when artisans were thrown out of work due to mass production by machines. When products were made by persons with special skills only a selected few could afford them. When mass production started the same products were available to a large segment of society at affordable prices.
In fact, in the early 20th century, vehicles were blocked from the roads, as those earning a living by transporting commuters on horsecarts saw them as threat to their livelihood. The same kind of fear is being felt by workers that could be rendered jobless after introduction of highly automated machines. We are seeing a similar level of production growth that was seen at the start of the first industrial revolution. The fourth industrial revolution is all about data and creating intelligence out of it. Technology empowers people to get work done.
Tech progress is most efficient to improve the human condition. If we demonize technology, we’re making the biggest mistake we could possibly make. Digital technology has brought huge improvement in healthcare. The most complicated operations can be performed with medical specialist sitting in another continent. Technology is increasing productivity mostly in the services sector where general productivity has always been low. In high productivity and efficient manufacturing industries, improving productivity through high cost technology is not commercially viable.
Since high tech innovative technology has started impacting productivity in past five to six years, its actual impact on an economy has not yet been fully realized.  One interesting point to note is that economies with the highest use of robots have the lowest unemployment rates. These countries include Germany, Japan and Korea. This amply proves that after embracing even the most sophisticated technology, new work can be created, improving the lot of the people.
We will have to differentiate between jobs and work. Jobs have always changed or been transformed in all the industrial revolutions. Work will always be there; jobs are changing. Those who are pessimistic today see only jobs disappearing. They do not see the opportunities that will arise for new work.
We need to enable not just students coming out of college or school, but also those workers who are being displaced. It could be a radiologist or it could be a factory worker, because these are the sorts of jobs that will be under threat.
It does not need any rocket science to comprehend the reason for school dropouts. Children drop out because they are needed to work on the farm, for example, to supplement the family income. If one could increase family income, one could get students to go back to school.
We will all need to do our jobs differently. We need to work closely with HR experts and formulate policies in education to make sure our people are skilled.  Routine manual work is going away very quickly and never coming back. Routine knowledge work—payroll clerk and that sort of work—and routine physical work are disappearing. Work is going digital and it is an unstoppable force.
The large, stable, prosperous middle classes  were formed on the back of routine work. When one looks at where the job loss and the real wage pressure have occurred, it is not at the bottom and certainly not the top. It’s right in the middle. The second issue is that educational systems are turning out routine workers. The mismatch is profound. Education is one of the slowest institutions to change in this society. That mismatch in clock speed between technology and education is something we need to work very hard on.
The solution is not for everybody to become a software engineer. We need to develop what is called computational thinking, an understanding of what things mean. We all need this skill.

The value of any company in the world, as well as in Pakistan, can be judged by the annual turnover of its employees. If a substantial percentage of workers leave the company, then there is something wrong in the management. Prudent executives do not manage their workforce; they inspire them to get the best out of them by making them happy; as happier employees make for improved collegiality as well as a more congenial workplace. 
Workers satisfaction is one of the main factors in the success of any organization. Making workers happy is an art which requires prudent approach. The top management has to ensure that all targets are achieved with efficiency and at low cost. The workers should be respected, pampered, appreciated, but not spoiled. There should be no special treatment but fair dealing with all.
Unfortunately, our businessmen and executives take their cue from the feudal culture we live in and many of them believe in bullying workers instead of motivating them. When success comes, they take the entire credit and the accompaning rewards. In case of failure, blame is passed down the line with junior staff being penalized and getting their marching orders. The worker turnover is very high. This, perhaps, is the main cause of lower workers’ productivity in Pakistan. We might have developed some good managers, but not good leaders. Managers just tell the workers what to do, but leaders allow them to do what they are capable of doing within the basic vision of their organization. Business or, for that matter, any leadership is successful if the targeted human resource receives inspiration from them.
Business executives should regard their workers compassionately, looking at the employee as a precious child; only then would they be able to make an impact on their performance. We must understand that parenting is actually all about leadership. Just as we expect parents to nurture and guide precious lives from birth to maturity; business leaders are expected to nurture the talent in people that join their organization, who are prepared to share their capabilities with their employers. A leader by his attitude and deeds inculcates the same trust among employees that they have in their parents. Leaders do not need to pamper their employees, but should apply strict discipline where they go wrong. But the trust of employees should be the same that they have in their parents, whose admonishment they tolerate, knowing well that it was for their own good.
Business leaders should not think of their employees as only accountants, receptionists, engineers or salesman, but someone else’s precious child that needs their stewardship. This individual would be working for the organization for about 40 hours a week and the way that individual is treated will determine the course of his personal life as well as the future of the organization. Timely payment of salaries increases the trust of the employees while irregular payment of workers’ dues creates doubts about the financing standing of the company.
It is the mindset that actually counts. A business leader might be nice to a receptionist as he walks into his office. But if he looks at her as somebody’s precious child it would radically change the way he views her. The vibes coming from the workforce determines the way the organization would go. Successful companies measure their success by the way they touch the lives of their employees. In case of crises, a complete trust in the leadership rallies the employees in the same way as family members rally in a family crisis.
During the recession in 2008-10, many companies reduced their costs by laying off 30-40 percent of their workers. This, in fact, is standard procedure through out the country. But the true leadership showed its humane angle. They expressed concern over the devastating impact on the lives of their workers. They consulted them and explained the intensity of the crisis and then asked how the workers’ families coped in hard times.
The workers readily agreed to share the pain. In some cases, all the employees, including the executives, agreed to cut salaries and perks by 30-40 percent. In others, the employees rotated unpaid leave of one month every quarter, that effectively meant a 33 percent cut. Most companies where the majority of workers were working for over a decade adjusted to the recession by cooperating with their top management. The main reason in this regard was that they trusted the top executives and knew that the day when the turnaround took place, they would be duly rewarded.
Such companies braved recession with the joint efforts of management and workers. These very companies are flourishing now as the businesses slowly recovered and the workers were slowly compensated for the sacrifice they made during the hard times. The fact that the workers made hectic efforts to keep the company going, helped in fast recovery and higher revenues. The companies that removed workers to reduce cost it found hard to operate at full capacities, after the crisis, as rehiring a competent work force was not an easy job. The workers had lost faith in their organization. We should not measure success on the basis of the wealth earned by some, while playing havoc with the lives of their workers. Such success is not long lasting. Success in a real sense is that which touches the lives of people.
Trust exhibited by workers of successful companies in their leaders is essential for a leader’s success. Trust comes through benevolence and competence. An incompetent leader is not capable of guiding a work force. This is the reason that incompetent bosses are not trusted by the workers. Incompetent leaders also tend to be abusive that alienates the workers. The dissatisfaction reduces the willingness of the workers to operate at their full potential. Efficient and people-friendly individuals are trusted as workers believe they care about them, and are likely to put their faith in demonstrably effective bosses, because it reinforces their trust in the company, which, in turn, reassures on the issue of job security.

When the tax collectors facilitate the influential by not confronting them, despite availability of evidence, they expect these elites to look the other way when they indulge in large scale corruption. Low tax revenues are not only due to exemptions granted to special groups, but also due to the reluctance of tax collectors to invoke law that might hurt the interests of highly influential segments of society.
Documenting traders and taxing agriculture would not generate enough revenues to significantly increase the tax-to-GDP ratio. The state would have to take action in protected spheres that only serve the rich and super rich among businessmen, politicians and bureaucrats. Take, for instance, the reluctance of the authorities to demand details of the income of resident Pakistanis from countries with which we have signed double taxation treaties. In order to avoid double taxation, Pakistan has signed double taxation treaties with countries like Dubai, Abu Dhabi, United Kingdom and the United States. Under this treaty, the signatory countries do not tax the income of each others’ nationals if they reside in their home country. It is assumed that these residents file their tax returns in their home country of even the income earned in the other country. This way each country avoids double taxation of citizens.
It is a well known fact that many Pakistani citizens while living in Pakistan earn substantial income from their investments outside the country. Legally, they are bound to declare their income while filing income tax returns and pay the income tax accordingly. Dubai, UK, and United States are the three main countries where resident Pakistanis have invested heavily in real estate, and business ventures. However, very few declare the income thus earned. The tax authorities remain silent and do not probe the possible tax evasion that could easily be verified by requesting the signatory country to provide the details of income a Pakistani citizen earned in that country while residing in Pakistan.
These countries would readily furnish the information, as the documentation in these countries is efficient and they do not collect any tax from that income due to the double taxation treaty with Pakistan. The most plausible reason to avoid asking the required information, probably, is that this would involve politicians from all sides of political divide and also because many big businessmen tend to pay no taxes on their foreign income. A conservative estimate of a respected economist of the country is that this measure alone would add Rs70 billion yearly to the state revenues.
A separate story of loot can be witnessed in the power sector, where the IPPs have been exempted over their life time on the profits they generate. The section Industrial Zones have been exempted from income tax for ten years, but for IPPs it goes up to 27 years. If we take the case of HUBCO, the first IPP of the country, it is earning tax free Rs30 billion annually. In the past 20 years, it has earned around Rs600 billion — almost five times its total investment in the project. Now, since the government has allowed income tax free income it cannot interfere in this earning. According to tax experts, the government can levy corporate asset tax on the entire corporate sector. It can levy an annual corporate asset tax of 2 percent on the entire corporate sector and simultaneously reduce the corporate income tax by 2 percent. This way it will collect Rs70 billion tax from the exempted sectors without increasing the final tax liability of non-exempted sectors of economy.
There are some exemptions that may look small in nature as the net revenue gains would be nominal, but have great symbolic importance. The ruling elite and some high army posts and judges are exempt from income tax. This is against the principle of equity and fairness. When we say that all incomes should be taxed uniformly, then we cannot exempt any individual on the basis of his post. Another glaring example in this regard is that of top bureaucrats. The government a few years back announced that the house rent and maintenance and car entitlement should be monetized. Each high ranking government servant gets a monetary benefit of Rs150,000-200,000 per month. Yet, the car entitlement is still availed by many, in addition to the monetization benefit. Now this huge additional annual income of Rs1.8-2.4 million is taxed at a “special rate” of 5 percent only. This is unacceptable and amounts to cheating the average taxpayers who are taxed heavily, even on the house rent and car allowance they get.
Under-invoicing is another scourge that is not only eating away revenues worth billions of rupees, but also taking millions of job abroad as products imported at a low value save not only import duty but sales tax that is usually even higher than import duty.
It is interesting to note that bulk of the under-invoiced items come in consignments that are imported by telephonic transfer of money without opening a formal letter of credit through banks. This is a valuable avenue for both the importers and the customs staff that has to connive with them to clear the goods. The consignment of the under-invoiced goods is imported at the customs post where the officials of the importer’s liking are posted.  He presents his papers for clearance during the duty hours of his contact. He prepares a computerized invoice and the list of the contents as he likes them to be cleared. He may write down the actual price but reduce the contents. For instance he may declare the actual price of, say, artificial leather, but tinker with quantity in a big way. This can be done easily as the clearing officer is in complete collusion with him.
It is worth noting in this regard that it has been made mandatory that the list of items present in the consignment also be enclosed in the imported container. However, for almost all the TT based consignments, this list is not enclosed for fear of the remotest chance that the consignment might be opened by a person not in contact with the importer. The penalty for absence of a goods list in consignments ranges from Rs5,000-500,000. An analysis of all TT-based imports would reveal that in almost all cases, a fine of Rs5,000-7,000 was imposed — meaning that the list of goods was absent. Why the highest penalty was not imposed on importers that have been cheating for so many years is not a puzzle. The bulk of under-invoicing is done through wrong declarations.
The planners, as a first step, should make it mandatory that all imports should be conducted through letters of credit, so that the trail of goods imported is fully documented. Penalty for a missing import item list in the consignment should be fixed and increased without any discretion of the clearing officer. Now that the technology is available, the CCVT footage of all containers opened and cleared should be available for review by higher officers or at the request of any citizen who must be made to bear the cost of this review.
Under-invoicing is also conducted, even in consignments imported against letters of credit, but in this case the actual price is under-invoiced instead of a wrong declaration. Import Tariff Price evaluation was introduced in Pakistan in the mid-90’s to eliminate under-invoicing, through technology. The rates of all raw materials and metals are available daily on some reliable websites that are archived in the Pakistan Customs’ data base. When consignments of these raw materials are presented for clearance, the officials compare the prices from their data bases on the date when the letter of credit was opened. In case of lower prices they load the duties and sales tax on the price available in their record. However, for finished goods there is no transparent evaluation system where Customs evaluators use their discretion instead of using technology.