Pakistan's Best Tax Collector Fired by PPP Government

Abdullah Yusuf, the most effective tax collector in Pakistan's history, has been fired, without explanation, by the PPP government while he was traveling overseas in his official capacity. When the surprise news came, he was in the Russian Federation to discuss customs issues and planned to go to Geneva, Switzerland next, according to Business Recorder newspaper.

Mr. Yusuf's key accomplishments include doubling of the revenue collection to achieve an aggressive target of over Rs 1.04 trillion in 2007-08; implementation of broad-based reforms within the tax system; universal self-assessment regimes; paperless customs clearances and e-filing systems and customer responsiveness with the business trade and bodies for creating a friendly business environment. Before Mr. Yusuf's reforms, the tax collection bureaucracy in Pakistan was notoriously corrupt and inefficient and he faced a lot of internal resistance. Mr. Yusuf is a chartered accountant and financial management consultant with extensive experience in public and private sectors.

Mr. Yusuf was appointed by Prime Minister Shaukat Aziz to the position of the Federal Board of Revenue (FBR) Chairman as part of his broad agenda for reform in governance. Mr. Yusuf is also known to be close to President Musharraf. While there has been no explanation offered for Mr. Yusuf's termination, it appears to be politically motivated. This action is particularly troubling, given the revenue growth target for the next five years set at an ambitious 25% per year. Such lofty targets require a highly competent and aggressive FBR leader with a proven track record, like Mr. Yusuf. Pakistan's highest national interest requires that key appointments not be politicized.

It seems that the critics of President Musharraf have been obsessed with a YouTube video clip showing Mr. Yusuf dancing and President Musharraf and former Prime Minister Shaukat Aziz smiling. The focus has been on judging the performance of Mr. Yusuf on the dance floor and his relationship with Mr. Musharraf rather than his undeniable accomplishments as the chief tax collector of Pakistan. Indeed, this is sad day for Pakistan.

Earlier this year, I found myself on the receiving end of lots of email traffic after Mr. Yusuf's video appeared on YouTube. I'd like to share with you one particular message that I found closest to reflecting my own feelings about it. Here it is:

We seem to be a nation of hypocrites. I say this because we seem to judge people quickly from their outward appearance. Surely a human being is much deeper than the outward appearance. There is a hadith that our Prophet prohibited people from condemning any one as kafir, as he said that this was a secret between that person and God. There is a deeper lesson in this.We as a nation are quick to pronounce judgment on the moral fiber of all and sundry in quick time; but do we judge ourselves? Jesus had said, when a prostitute was brought before him for judgment, "let he who has not sinned cast the first stone". Do we ever think along those lines? This is what makes ours a nation of hypocrites. The CBR Chairman, and I did not know him personally; was mentioned to me by many friend and acquaintances of mine who had the experience of dealing with CBR, and I got a unanimous positive appraisal that during the tenure of this chairman, CBR's performance had improved quantum fold in attitude and performance. I also felt this in the form of a major tax-payer of Pakistan; and certainly the level of harassment that one went through the tax department was greatly reduced. Should we be judging this chairman for his good performance at his job, or condemning him for what he does on his own leisure time. To the citizens of Pakistan his performance at his job is most important for the well being of this nation. Dancing, I think, is a natural out-pouring of happiness, and man has been dancing through the ages. So what is wrong here!! I think what is wrong here is using these videos to malign him and judge him unreasonably. May Allah guide us all in the right direction.

Here's the "controversial" videoclip:

Comments

Riaz Haq said…
Here are excerpts from a recent Business Recorder story about the challenges of revenue collection in Pakistan:

All this calls for increasing the tax-to-GDP ratio, which has remained stuck at approximately 9.5 percent. Secondly, the broadening of the tax base, through bringing under the tax net non-compliant sectors and individuals, can eventually ensure fair distribution of the tax burden among various sectors of the economy.

The services sector, including the wholesale and retail trade, as well as agriculture are the potential candidates for broadening the tax base. Our tax base has essentially remained narrow, because of a wide range of exemptions and concessions, as well as large-scale tax evasion, which needs to be controlled. The systemic distortions need to be identified and removed. One of the causes of tax evasion is that our tax rates have been pitched at much higher levels, which has generated a vicious circle of tax-base erosion and higher tax rates.

For instance, in economies like Singapore, Malaysia and Indonesia, the direct tax-to-GDP ratio ranges between six and seven percent, as against the contribution of direct taxes in Pakistan, which has remained stuck at around only three percent, in relative terms, over the past many years.

While the countrywide crackdown against the 100 top tax defaulters of sales and income tax can result in the recovery of sizeable revenue, the government needs also to redouble its efforts to bring under the tax net such non-compliant sectors as agriculture which, it is said, can yield annual revenue in excess of Rs 500 billion.

Secondly, there is an equally urgent need to plug revenue pilferage in the FBR, which is said to range between Rs 350 and Rs 500 billion per annum. If a majority of the exemptions, concessions and defaulted amounts are recovered and faithfully utilised for progress of the economy, there will be no need for us to seek expensive bailouts from international lending institutions. FBR's decision, at last, to go after top defaulters is a move in the right direction.
Riaz Haq said…
Here are some excerpts from an Asia Times report about tax cheating by the rich and powerful feudal politicians in Pakistan:

A case in point is Sardar Farooq Legari, whose estates extend from the Punjab to the Pakhtunkhwa. In 1994-95, he reported "zero income" while he was still the sitting president of Pakistan. Imran Khan, leader of the Pakistan Tehrik-e-Insaf (Pakistan's Justice Movement) shamed the entire landed class by revealing that a practicing lawyer, Khalid Ishaq, paid more in taxes in 1992-93 than all 273 members of the National Assembly combined - 85% of whom were large landholders.

This shaming, however, did not work on lawmakers who kept evading taxes. In 1994-95, celebrated journalist-writer M Ziauddin conducted a thorough investigation into the taxable farm income and tax-paying behavior of wealthy farmers. He found that all landlords in the country pitched in just chump change of 2 million rupees in taxes in 1996 against their annual income of 600 billion rupees. On this scale, Ziauddin concluded that the landowning classes had been evading taxes of 100 billion rupees a year.

This is a blatant case of tax theft, which has spawned its own vicious knock-offs, one of which is "black money" (that is, totally untaxed wealth). In 1996, an economist estimated that black money in Pakistan grew as large as to form 40% of GDP. If left alone, tax evasion in the above-ground economy or underground economy increases the budget deficit and forces governments to shift the tax burden to consumers or to increase money supply.

In either case, it is a whammy for the poor. In the 2008-09 budget, Pakistan has set itself on the course of widening the tax net. In terms of the tax-GDP ratio, the current budget features a relatively high ratio at 14%. The tax base also is on the rise. In 1994, it consisted of an overwhelming majority of the working middle class of 800,000 tax payers, who have now grown to more than 2 million.

The government, thus, can over the next 10 years raise $50 billion - $5 billion a year - to rein in poverty. At the current exchange rate, $5 billion comes to 345 billion rupees. Economist Shahid Hasan Siddiqi believes that Pakistan is undertaxed by 400 billion rupees a year. Its tax revenue should be 1.6 trillion rupees as against the projected 1.25 trillion rupees for 2008-09.
Riaz Haq said…
Here's a Telegraph story of Pak tx collector fired by judges for "simply too successful in forcing people to pay more taxes":

In a country where almost no-one pays income tax, including more than two thirds of MPs, it only took seven months for Ali Arshad Hakeem to become a hated man.

As Pakistan's newly minted chief taxman, he built a database designed to monitor the spending habits of millions of people, and work out how much tax they owed.

At the click of a mouse, he could call up details of the elite's holiday habits, electricity bills and bank accounts, complete with photos addresses and vehicle details.

This quiet, technocratic revolution came to a juddering halt last month, when Mr Hakeem was suspended by judges over allegations that his appointment breached government rules that demand each job be filled from a shortlist of three.

In Pakistan's murky world of political appointments and patronage systems, few believe that was the real reason. Instead, his supporters say he was simply too successful in forcing people to pay more taxes. In other words, he was too good at doing his job.

A recent report by Pakistan's Centre for Investigative Reporting revealed that President Asif Ali Zardari and Rehman Malik, interior minister until mid-March when the government stepped down ahead of next week's elections, were among those politicians who paid nothing.

It made gloomy reading for anyone wondering whether there was any will inside Pakistan to reform. "The problem starts at the top," the report stated. "Those who make revenue policies, run the government and collect taxes, have not been able to set good examples for others."

Two of Mr Hakeem's key appointments have since transferred, moving them away from jobs where he said they would have helped bring more than £1.3 billion into government coffers.

"It's gone. And I'm not going to do it again," Mr Hakeem, 49, told The Sunday Telegraph - his relaxed demeanour and easy smile belying the bitterness he feels.

Much of his work has been undone in the short time since he was forced out, he said, and he had no appetite to take on the courts or challenge his suspension. His wife and children had already suffered enough stress.

"I hate it. I worked 20 hours a day. I've taken so much hatred for this, everyone is my enemy and out to get me - and then they sack me. Angry is not even the word," he said.

The decision to oust him will worry international donors who have kept pressure on Pakistan to shake up its anaemic tax system. They fear that without economic growth and an expanding revenue, the country's growing population could tip what is a fragile state into a failed state.

Pakistan is officially classed as a middle income country. It has the resources to build more than 100 nuclear warheads yet depends on handouts to keep its power stations, schools and hospitals running.


http://www.telegraph.co.uk/news/worldnews/asia/pakistan/10037380/Pakistan-elections-how-the-tax-man-was-forced-out-for-being-too-good-at-his-job.html

Popular posts from this blog

China Sees Opportunity Where Others See Risk

Smartphones For Digital & Financial Inclusion in Pakistan

Economic Comparison Between Bangladesh & Pakistan