Tag Archive: Business


Secretary of State Hillary Clinton has put across her message without mincing words, “the Pakistani elite also need to pay up so that the world follows suit”, more or less like that. The issue of paying taxes by the salaried middle-class alone and the unjust taxation system has assumed so much significance and attracted so much attention that some pundits have started foretelling a public revolt, if not a revolution. And if Hillary can see it coming then it is coming, for sure. This elite-based taxation system will have to go away to make space for a just and equitable system in which all pay taxes according to their capacity.

So much has been written on this subject which is dry in nature and which creates bad taste at the end of reading an article on it. However, Saqib Omer Saeed, in his article appearing in the Express Tribune has approached this subject in an interesting manner. In view, the tax is a product which the government has failed to sell. Here are excerpts from the article:

Due to negative media portrayal, people look upon taxation as a monster. I can’t agree with classical economists, nor with the conventional discipline of tax science. To me, taxation is merely a product of the government. I know the objection can be raised that if tax is a product, we can avoid buying it. I think we need to ignore this aspect, however, and try to make one point: everybody has to buy this product. It is a product that works for the well-being of society and helps governments work towards social and infrastructural development. That means by ‘selling’ tax, the government can generate revenue that allows it to fund projects for the public good. As I previously stated, tax is a product; therefore it follows that we, the clients, are the kings.

They need to be careful not to make the “product” (i.e: tax) too expensive. It is actually revenue that is taxed, not businesses or individuals. The government needs to make sure that they take care of their clients’ revenues, for their own good. It is not advisable for them to develop tax in a way that would harm businesses, or make people poor. The focus should be on increasing prosperity, for their own long-term benefit. In order to a good relationship with their “clients” (i.e: citizens), the government needs to help people earn. This means that they have to market effectively by increasing people’s wealth, so that they are able to afford taxes. No government can be efficient if they simply collect tax, rather than investing in it. Investment in taxes means that it is necessary to multiply the number of clients-those with income and earning. The best would be to invest in establishing businesses that can increase tax revenue in the long run.

It is always advisable to diversify the tax portfolio, rather than putting pressure on selling tax to just one strata of the economy. Diversification of taxes would be a great step in reducing the economy’s unrest. In countries like Pakistan, agriculture or capital gains are wholly exempt from taxation and only the salaried classes are taxed. This can lead to a point when people would rather ignore taxes than pay them. Those who are responsible for collecting taxes need to behave like salesmen. They need to discuss the means for increasing people’s revenue, so that they are able to pay more taxes. It is advisable for the government to survey tax-buyers to find out means for improving people’s cash flow. To create a tax culture, it is best to convince people that taxes are not there to harm them, but help create a more prosperous society in the long run.

New client development is another thing that would help promote taxes. The government has to plan a fixed percentage of tax revenue that will be invested in promoting entrepreneurs and small businesses. When businesses grow, it would automatically increase tax revenue as well. As a business, the government has to care for its own costs. They have to use intelligent means for tax collection and need to be cost efficient. During phases where the government is investing in taxation procedures, it must keep its running costs low.

In countries like Pakistan, taxes are becoming a symbol of terror. This is mainly because of the performance record of the government and their reputation for corruption. It would be best if people could pay taxes knowing that the money will be used for their own benefit. Generally, the government is thankful if if people pay the taxes that are imposed on them. Taxation should be a process whereby the taxpayer thanks the government for using his money to improve society. A little change of perspective is always required to cultivate an acceptance of something that is considered bad but may actually be very beneficial. If the reality can’t be changed for the time being, then changing perceptions may help create that change.

I think it is time for tax authorities and governments to rework the concept of taxes in Pakistan. They need to build credibility and educate people about how taxes are the way to a bright future, rather than a monstrous thing to be avoided. This would require a massive endeavor from the government. I know my post of will receive a lot of criticism, but if companies can sell cigarettes that are harmful to consumers, why can’t the government sell tax, which is highly beneficial (if used sincerely). It is a time to design a framework for developing taxes, rather than imposing them by force. The best way is to take the middle path. This will come from brainstorming: our country is unique and therefore needs unique solutions.

 

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Those who were happy that the democracy has made Pakistan an investment heaven should be ready for another rude shock. The latest blow has been dealt by no less than World Economic Forum which says that Pakistan has now reached 123rd position amongst 133 countries as compared to 101st position in the last year in the competitive index. The Global Competitiveness Report 2010-11 released by the World Economic Forum has disclosed that 15 problematic factors for doing business in Pakistan.   These factors in the order of severity are corruption, government’s instability, inflation, access to financing, tax rates, tax regulations and foreign currency regulations. The report has kept in view each and every step and Pakistan’s ranking in each area.

In the ranking of institutions the country has been ranked at 112. 2nd pillar: in the area of infrastructure Pakistan has been placed at 110. 3rd pillar: Due to the vulnerable macroeconomic environment the country has been ranked at 133, 4th pillar: health and primary education 123, Efficiency enhancers 95th, 5th pillar: higher education and training 123rd, 6th pillar: goods market efficiency 91st, 7th pillar: labor market efficiency 131, 8th pillar: financial market development 73, 9th pillar: technological readiness 109, 10th pillar: market size 31.Innovation and sophistication factors 76th, 11th pillar: business sophistication 79, 12th pillar: innovation 75. From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country.

1st pillar: in the area institutions, property rights 107, intellectual property protection 86, diversion of public funds 92, public trust of politicians 91, irregular payments and bribes117, judicial independence 74, favoritism in decisions of government officials 87, wastefulness of government spending 58, burden of government regulation 72, efficiency of legal framework in settling disputes 103, efficiency of legal framework in challenging regulations 96, transparency of government policymaking 115, business costs of terrorism 138, business costs of crime and violence126, organised crime127, reliability of police services 119, ethical behavior of firms 100, strength of auditing and reporting standards 97, efficacy of corporate boards 115, protection of minority shareholders’ interests 94, strength of investor protection 27.

2nd pillar infrastructure: Quality of overall infrastructure 100, quality of roads 72, quality of railroad infrastructure 55, quality of port infrastructure 73, quality of air transport infrastructure 81, available airline seat kilometers 48, quality of electricity supply 128, fixed telephone lines115, mobile telephone subscriptions107. 3rd pillar macroeconomic environment: Government budget balance 90, national savings rate 89, inflation 137, interest rate spread 94, government debt 82, country credit rating 125.

4th pillar health and primary education: Business impact of malaria 111, malaria incidence 109, business impact of tuberculosis 114, tuberculosis incidence 113, business impact of HIV/AIDS 102, HIV prevalence 22, infant mortality 123, life expectancy 105, quality of primary education 103, primary education enrollment rate132.

5th pillar higher education and training: secondary education enrollment rate 125, tertiary education enrollment rate 121, quality of the educational system 87, quality of math and science education 90, quality of management schools 80, internet access in schools 84, local availability of research and training services 97, extent of staff training115,

6th pillar goods market efficiency: Intensity of local competition 87, extent of market dominance 65, effectiveness of anti-monopoly policy 73, extent and effect of taxation 46, total tax rate 37, number of procedures required to start a business 99, time required to start a business 71, agricultural policy costs 106, prevalence of trade barriers 106, trade tariffs 133, prevalence of foreign ownership 109, business impact of rules on FDI 73, burden of customs procedures 98, degree of customer orientation 97, buyer sophistication 62.

7th pillar Labor market efficiency: Cooperation in labor-employer relations104, flexibility of wage determination 104, rigidity of employment 110, hiring and firing practices 51, redundancy costs 111, pay and productivity 93, reliance on professional management 87, brain drain 68, female participation in labor  force 137.

8th pillar financial market development: Availability of financial services 101, affordability of financial services 85, financing through local equity market 43, ease of access to loans 40, venture capital availability 51, restriction on capital flows 83, soundness of banks 88, regulation of securities exchanges 76, legal rights index 60. 9th pillar technological readiness: Availability of latest technologies 88, firm-level technology absorption 88, FDI and technology transfer 100, internet users 100, broadband Internet subscriptions 103, internet bandwidth 111. 10th pillar market size: Domestic market size index 26, foreign market size index 61.

11th pillar business sophistication: Local supplier quantity 87, local supplier quality 95, state of cluster development 46, nature of competitive advantage 84, value chain breadth 69, control of international distribution 89, production process sophistication 76, extent of marketing 90, willingness to delegate authority 85. 12th pillar innovation: Capacity for innovation 58, quality of scientific research institutions 79, company spending on R&D 67, university-industry collaboration in R&D 81, Gov’t procurement of advanced tech products 84, availability of scientists and engineers 80, utility patents per million population 88.

There is always a silver lining in every dark cloud. It so happens that the dark cloud is for someone and the silver lining is for someone else. It is a strange world where miseries of someone mean opportunity to others. Crisis of a nation means potential for big business for greedy business people. A blog post on these pages discussed how blood-sucking international donors were trying to turn Pakistan’s catastrophic floods into a business opportunity. Pakistan’s arch-rival, who has been trying to bleed Pakistan economically, has finally seen some sliver lining in the dark clouds.  Businessweek has reported that basmati-rice shipments from India may surge by about 22 percent after record floods in neighboring Pakistan destroyed crops, cutting supplies, according to India’s biggest rice exporter.

The country’s overseas sales may advance by about 500,000 metric tons in the year from Oct. 1 from this year’s projected total of 2.3 million tons, KRBL Ltd. Chairman Anil Mittal said from New Delhi today. A ban on shipments from India imposed in 2008 on varieties other than Basmati may be lifted, he said. The deadliest floods in Pakistan’s history destroyed crops and damaged infrastructure, and that nation’s rice exporters’ group has forecast exports may plunge as much as 35 percent. India’s ban on non-Basmati-rice exports may be ended next month amid a shortage of storage space, Mittal said in an interview.

“We expect rice prices to rise for the next two years in the export markets where India competes with Pakistan,” Nikita Khilani and Arijit Das, analysts at Kolkata-based VCK Share & Stock Broking Services Ltd., said in a note today. “India will capture at least 20 percent of Pakistan’s export market” this year, they said. “KRBL will be among the chief beneficiaries of this scenario.” KRBL stock, which has more than doubled in the past year, surged as much as 20 percent to 36.45 rupees today in Mumbai, advancing for a sixth straight day. That’s the highest price since at least 2005. The stock may reach 40 rupees, VCK said. Mittal declined to comment on the shares’ jump. Kohinoor Foods Ltd., KRBL’s rival, rose 15 percent to 62.5 rupees, the most since December 2007, while LT Foods Ltd. jumped 20 percent to 77.7 rupees, a one-year high.

KRBL’s Basmati shipments may gain in value by 20 percent in the year ending March 31 from 9.1 billion rupees ($194 million) in the last fiscal year, Mittal said. After late sowing, the new crop is expected to arrive in the market in mid-October, with Indian sellers getting export orders in November, he said.

“We expect prices to remain strong,” Mittal said, without providing forecasts for the fragrant, long-grain variety. “Over the last three years, new markets in Iraq and Iran have been developed for Indian Basmati.” India, the second-biggest producer of rice, implemented the trade ban in April 2008 to increase domestic supplies as global rice prices surged to an all-time high. The restrictions remain in place after a drought in 2009 pared production by 10 percent in the year ended June 30. The government may allow shipments of non-Basmati rice from October as the country may harvest 98 million to 100 million tons of all rice grades in the year to June, Mittal said. “If export is not allowed, there will be the problem of storage.”