By
Mussadaq Mohammad Khan, Former Chairman, API
1. Abstract
The article deals with the informal economy of the country. It points out informal economy areas where the government should intervene and collect revenue by converting the activity into formal economy. This step ultimately will increase the tax to GDP ratio which is on the lower side.
2. Introduction
i) The purpose of writing this article is to highlight the main issues, effecting the income of farmers. It draws a framework in qualitative terms to bring the informal sector, into a formal regime, to generate revenue.
ii) To begin with wheat crop; it covers about 9 million hectares area and produces 24 million tonnes wheat. The stocks available with Pakistan Agricultural Storage & Supplies Corporation (PASSCO), the provincial governments and the private sector comes to over 5 million tonnes. Since Pakistan has a porous borders; it is mostly smuggled to Afghanistan, Indian held Kashmir. It also goes to the Rajistan (India) because of very high prices. It may be taken into consideration, that the milled wheat also travels upto Central Asian Republics through North of Afghanistan. Resultantly, this informal sector through exchange of goods, such as spices, beef and other minor crop produce enters Pakistan. The main reason is price determination for which the stock holders in the private sector benefit. Since they act in a zero rated regime, the public agencies over the past, could not deal with this across border inflows and outflows of goods and services. Ostensibly, it is due to lack of facilitation provided to the informal sector, into the tax base, with very nominal export taxes. The remedy can be to allow exports and provide them with some fiscal incentive at the time of dispatch of goods. The same applies to rice and cotton, ready made garments and knitwear. Sugarcane however is confined to sugar products and cane sugar and that too comes under informal regime. As far as tobacco in concerned the Afghan market looks for low priced brands, and in turn dispatch branded European, American and Japanees brands. In Kabul, I have witnessed local stores of our utility store.
3. Informal Trade from Sindh and Northern Areas
From Karachi side informal trade takes place through sea routs to Dubai and Arab States and through cross border informal trade with India. Launches usually are used to transport vegetables like potato, onion etc. to Dubai. The land trade with India is usually of dry dates which are used in religious rights of Hindus. Pakistan receives cows
and buffaloes in return. Similarly on Northern side of Pakistan a narrow border with Russia exists on high mountains where wheat trade takes place and in return USSR people send Marco Polo sheep.
4. Wheat Informal Trade
Wheat informal trade is a regular feature of Pak Afghan Boarder. Afghanistan is generally food deficit country. Afghans consume Pakistani wheat weather they are living in their own country or staying in Pakistan as migrant. Although Pakistan has very stringent security measures at boarder. In the presence, Military, Para-military, Rangers, Scouts, Border Security Force wheat smuggling is a usual phenomena because vehicles provide illegal gratification to the concerned staff serving over there and the vehicle passes every hurdle to reach the planned destination.
5. Informal Domestic Economy
Cottage industry having a few on job workers are located in the out skirts of big and small cities. They are not registered and they do not pay any tax or revenue to the government. These small industries generally include shoe making, gur making, garment stitching and embroidery, clay utensils, card board making etc. Their workers are generally low paid and they don’t fallow government regulations and provide old age benefits and medical facilities to their staff etc.
6. Afghan Transit Trade
Afghanistan is land locked country. It has no sea port. Government of Pakistan has facilitated their imports through Karachi port. Imported consignments reach Kabul via road link from Karachi to Afghan boarder. Imported items are consumables ranging from edibles, garments, electronic items, crockery, toys and many more. If we have a close look to the Afghan population. It is war hit population and war hit economy. It is very difficult for a large portion of population to live beyond basic necessities of life. For a population who can not make either its livelihood properly. How can it think of luxuries and comforts of life on regular basis? The fact of the matter is that certain strong businessmen comprising of both Afghans and Pakistani’s are involved in these luxurious imports. The imports are made through the facility of Afghan Transit Trade. The imported items seldom remain in country of import they just cross the boarder. These items are frequently available in Bara markets of Pakistan. Most important is Hyatabad market in Peshawar. So frequent is the trade that Bara markets are now spread all over the big cities of Pakistan. Government should have second thought and reconsider the Afghan transit trade agreement. The items under the agreement should be closely restricted so that the agreement should not hit our trade and our economy should not be deprived of the revenue through this mal-practice.
7. Informal Trade in Balochistan
i) Balochistan shares it boarders with Afghanistan and Iran. From the Afghan boarder trade of Sunder Khani Grapes, Qandahre Pomegranate and other dry fruits is made through Chaman area. Wheat and wheat straw are the major source of smuggling to Afghanistan. Usually there is dearth of wheat straw in Balochistan as it is frequently smuggled from there to the interior of the neighbouring country. Smuggling of fertilizer has also been reported.
ii) Iran has imposed heavy duty on import of rice. To get rid of the heavy import duty exporters of rice from Pakistan easily adopt informal channels to export rice to Iran. Carpets, garments, edibles and petrol are usually smuggled from Iran. Quetta market is flooded with these items.
8. Gur Making and its Trade in KPK
KPK is an important sugarcane producing province having sugar industry which absorbs its supplies. But gur making in the province is on the rise which deprives industry from its raw material. Gur making is a profitable business as gur sells higher than price of sugar. Gur is smuggled frequently to Afghanistan and on ward neighbouring states. Where it is used for making alcohol and other edible uses. This trade deprives government from its revenue.
9. Required Intervention/Conclusion
i) Once Dr. Mehbob-ul-Haq Ex-Finance Minister of Pakistan estimated that the size of informal economy is at least of the size of GDP. Since then informal economy has expanded to alarming proportions. The tax collection in the country is not upto the mark which is evident from the fact that the tax to GDP ratio is only 50 percent than that of tax to GDP ratio in India.
ii) The tax collecting arm of the government should have a clear cut strategy to cope with informal economy.
iii) The Government without delay must focus on this aspect for bringing the informal sector into the formal sector, with a minimum front loading.
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