MonitorsPublished on Jan 28, 2011
As the Pakistani People's Party (PPP) Government struggles to get the Reformed General Sales Tax (RGST) passed into legislation, an international team of IMF experts are scheduled to meet with political parties this week to be the mediators for a much-needed consensus.
Multi-front battle on sales reforms
< class="heading1">Analysis

As the Pakistani People's Party (PPP) Government struggles to get the Reformed General Sales Tax (RGST) passed into legislation, an international team of IMF experts are scheduled to meet with political parties this week to be the mediators for a much-needed consensus. With the Middle East and Central Asia Department Assistant Director Adnan Mazarei leading the delegation, the group of experts will meet with not only President Asif Ali Zardari and Prime Minister Syed Yousuf Raza Gilani, but also with the leaders of Opposition PML-N, MQM, ANP, and PML-Q.

Aside from the notion that an international team of economists has to nudge forth the political process, the fact that they have to be the liaison between the warring political parties who threaten to break up the Government, is indicative of the state of affairs in Pakistan. The RGST campaign, which is mainly being endorsed by the PPP, has been engaged in a contentious, multi-front battle not only with various political parties but also with an ideological inertia against systemic change.

On the political front, the tax reforms face opposition of various political parties, which have created a major strain to the current coalition Government. One of the major parties, the PML-N has finally caved in and agreed to put the RGST as a priority on their agenda. Having previously disagreed with the reform in public, the PML-N is now saving face by agreeing to the importance of the RGST in rehabilitating Pakistan's economy, given that as an Opposition party certain conditions are met for its constituency - mainly the tax-opposing Punjabi traders.

The MQM, perhaps one of the most vocal opponents of tax-reform, in their melodramatic furore, have previously stated that "we will not support RGST, even if we are killed". They continue to be staunchly against the RGST and instead have proposed that in place of taxing the supposed urban-poor, the agricultural sector, representing the feudal wealth of landlords, should be brought under the tax network. However, the PPP is not too pleased with this prospect as the agricultural demographic is the basis for its own constituency. Thus, in the middle of this tag game on 'whom to tax', the RGST agenda has come to be characterized as a deeply politicized issue with crucial political entities not being able to agree on the nature and base of the taxation.

However, aside from the political battle that is ensuing with the RGST, one also needs to deconstruct the economic implications of transforming the tax agenda into legislation. The IMF has greatly emphasized the need to adopt the RGST and during talks last year it held that the last two tranches of the $11.3 billion Standby Agreement were conditional on the imposition of the RGST, cutting power subsidies and reaching the target fiscal deficit. It is no secret that IMF plays a huge role in Pakistan's economy and that meeting its conditions are integral to receiving foreign aid.

Business communities and certain political parties have vehemently opposed the RGST with the belief that the current taxation system is heavily corrupt and that more money would only be channelled to the wrong places. The RGST does not tax politicians; this is greatly problematic given that a recent study suggests that the average worth of a Pakistani member of parliament is $900,000, with its richest member crossing nearly $37 million. The concern about corruption is legitimate. Pakistan lacks a taxation infrastructure that is not only transparent but has checks and balances to ensure accountability. It is estimated that 10 million people should be paying taxes in Pakistan, but the actual figure is only 2.5 million - that is less than two per cent of the population.

Another major problem it needs to tackle is its large informal sector, which comprises nearly 45 per cent of the economy. These are unaccounted, untaxed and non-registered household businesses. The implementation of RGST, which is essentially the value-added tax (VAT), will be a major task given the informal nature of business and the lack of a regulated centralized system.

In the eyes of the common man, the RGST is just a hindrance. The greatest resistance to its implementation amongst citizens is the basic idea that added taxation will cause a high-level of initial inflation. And since inflation is the most tangible problem for the common man, it has not gained a popular support. However, there needs to be a realisation that the RGST is not about popular support, nor is it about political parties safeguarding their constituencies from the tax. It is about necessity. And Pakistan is facing a time where it is in dire need of a systemic tax reform.

Failing to adopt the RGST will result in a $14 billion (Pak Rs 1.2 trillion) deficit, further depleting its tax revenue pool, further increasing its reliance on foreign loans, and possibly resulting in national bankruptcy. As the issue battles out on different grounds, the arrival of the IMF experts is seen by the RGST supporters as a positive step in forwarding the case and perhaps winning on the political front. There is no doubt that the RGST faces considerable challenges yet it is one of the catalysts to making systemic changes that can secure the Pakistani economy.

Ms. Anjana Varma is Research Intern at Observer Research Foundation

< class="heading1">Country Reports


< class="heading12boldGeorgia">Foreign firm open to audit in Reqo Diq project

The Tethyan Copper Company (TCC), which has been involved in the exploration of gold and copper deposits in Balochistan, has welcomed the prospect of international auditors assessing the cost projections for the project. TCC acting CEO Gerhard can Borries gave a presentation on the Reqo Diq project before a Special Bench of the Supreme Court comprising Chief Justice Iftikhar Mohammad Chaudhry, and Justices Mohammad Sair Ali, e Ghulam Rabbani and Khalilur Rehman Ramday.

The Reqo Diq project came under major scrutiny as the Balochistan Government has been criticised to ensure that the region's natural wealth was not signed off to foreign entities in an exploitative agreement.
< class="text11verdana">Source: Dawn, Daily Times, January 26, 2011

< class="heading12boldGeorgia">Fiscal deficit may exceed 8 percent

Finance Minister Dr. Abdul Hafeez Shaikh confirmed that the country's fiscal deficit could cross eight percent of the GDP ($16 billion) if the current political and economic trends continued. He noted, "Barring exports, remittances and some better expectations from wheat output, all economic indicators, including those from agriculture, industry, and even services are behind target."

According to Shaikh, there has been an increase in all sorts of expenditure, including those relating to security which was 30 percent higher than the target, and interest payments of more than $ 8.7 billion. To make matters worse, revenue proceeds and other forms of income have seen a decline.

Prof Khursheed Ahmad of Jamaat-i-Islaami informed the Government's economic team that the current policies were to blame forthe poor economic conditions and stressed the need for a coherent, coordinated and prudent economic policy.
< class="text11verdana">Source: Dawn, January 26, 2011

< class="heading12boldGeorgia">Al Qaeda leader says facing pressure from drones

According to the Search for International Terrorist Entities (SITE) Intelligence group, an audio-recording of Ustadh Ahmad Farooq, al Qaeda's Pakistan media chief, has emerged in which he has stated that the terror network was losing land and fighters to the US drone strike campaign.

This rare admission of weakness comes at a time when the US has escalated the missile strikes against militants in Pakistan's tribal belt. US President Barack Obama stated that al Qaeda faced more pressure in Pakistan than any other point since 9/11.
< class="text11verdana">Source: Dawn, January 27, 2011

Sri Lanka
< class="heading12boldGeorgia">Indian team for talks on fishermen's issue

A high-power Indian delegation, including for the first time an official Government representative from southern Tamil Nadu, was headed for Colombo, to discuss the problems facing Tamil Nadu fishermen when confronted by the Sri Lanka Navy (SLN).

The visit became necessary after the death of two Tamil Nadu fishermen, allegedly at the hands of the SLN in as many weeks. The second incident was followed by an attack on the Maha Bodhi Society in the Tamil Nadu capital of Chennai and four persons, three of them Buddhist monks from Sri Lanka.

While in Colombo, the Indian delegation, headed by Foreign Secretary Nirupama Rao will meet President Mahinda Rajapaksa, External Affairs Minister G L Peiris and Defence Secretary Gotabaya Rajapaksa, among others. The two sides will discuss the need for early revival of the Joint Working Group on fishing, set up in 2006 but not activated.

Sri Lanka has been maintaining that its Navy was not involved in these or earlier attacks on Indian fishermen.
< class="text11verdana">Source: Daily Mirror & The Island, Colombo

< class="heading12boldGeorgia">Fonseka case: 'Court martial is court'

The Court of Appeal pronounced that the Supreme Court had ruled that the 'court martial' was a court within the meaning of Article 89(d) of the Constitution and the Army Act as well. A five-judge Supreme Court Bench comprising Chief Justice Asoka de Silva, Justices Shirani A.Bandaranayake, N.G.Amaratunga, Saleem Marsoof and K.Sripvan passed the unaninmous decision in their determination of the reference made by the Court of Appeal on the question whether the term 'court' included'court martial' within the meaning of the Constitution and the Army Act.

Following the Supreme Court determination, a Bench of the Court of Appeal, comprising Justices R.L.Ranjith Silva, A.W.A.Salam and Upaly Abeyrathne, fixed for limited purpose hearing on February 11 on the question of maintainability of the writ petition of former Army Commander, Sarath Fonseka, seeking a direction for him to be able to continue as a meber of Parliament, after he had been sentenced to 30-month prison term by a court martial that had held him guilty in a corruption case.

The losing candidate in the presidential polls, Fonseka was cashiered after the court martial verdict. His sentencing to a prison term led to Parliament Speaker Chamal Rajapaksa declaring his seat vacant. Fonseka, while fighting this verdict and that in another court-martial, before the higher judiciary had also challenged the judicial character of the court martial, for him to be deprived of his legislative seat following imprisonment.
< class="text11verdana">Source: Daily Mirror Online, January 25, 2011

< class="heading12boldGeorgia">Indian help to convert air base into civilian airport

Indian High Commissioner Ashok K. Kanthahas said that New Delhi would provide financial assistance to convert the Palaly military air base into a civilian airport. Launching the Jaffna International Trade Fair 2011, in the war-ravaged North, he said that India was keen on strengthening people-to-people contacts with Sri Lanka and the development of the Palaly air base would be a step in that direction.

Kantha said that India was in the process of rehabilitating the Rameswaram pier in southern Tamil Nadu, to facilitate the resumption of the ferry service to Talaimannar, which was suspended at the height of the ethnic war, in the Eighties. "Reconstruction will take about three to four months. Earlier this month, I signed an agreement for the resumption of the ferry service between Colombo and Tuticorin, which is scheduled to commence in March this year," he said. "This would help ordinary people travel between the two countries, resulting in bilateral relations being strengthened further."

India will also be providing financial assistance to develop the Kankesnathurai harbour, and the work was expected to commence in March, Kantha said.
< class="text11verdana">Source: The Island, Colombo, January 22, 2011

< class="heading12boldGeorgia">Arrests solve thefts in the North?

The arrest of nine persons of Kurunagale in Jaffna may have helped to solve some of the unresolved cases of theft in the Northern Province, the police said. The arrests become significant in the light of political suspicions and popular perceptions about the identity of the culprits in the increased incidents of the kind in the Province, when it was still limping back to normalcy in the aftermath of the ethnic war.

The police that had launched intensive patrolling in the aftermath of these incidents arrested two persons, who were found to have been involved in a petrol-bunk robbery. On the information provided by them, the police nabbed the rest, and recovered from them over 100 sovereigns of gold jewellery and other stolen articles. The police said that the gang might have in its possession stolen gold adding up to 500 sovereign.
< class="text11verdana">Source: Uthayan (Tamil), Jaffna, January 26, 2011

< class="heading12boldGeorgia">Militancy has Pakistani links

The investigative agencies have unearthed links of Lashkar-e-Taiba (LeT), the Pakistan-based terror group, in the incidents of militancy that blossomed during the time of Bangladesh Nationalist Party (BNP)-led coalition Government (2001-2006). The LeT has been accused of supplying arms and ammunitions to Harkatul Jihad (HuJi), the militant group which carried out acts of terror during the period of the BNP Government of then Prime Minister Begum Khaleda Zia. The HuJi utilised LeT-supplied explosives in at least seven or eight acts of terror. The LeT-supplied grenades were also used to attack then Opposition Awami League leaders, including party chief Sheikh Hasina, at present Prime Minister.

According to the investigative agencies, the LeT used Bangladesh as a transit for smuggling arms and ammunitions to India, and the HuJi was the local facilitator. However, on many occasions, the HuJI was unsuccessful in smuggling these evil consignments to India owing to the alertness of the India's Border Security Force (BSF). The grenades used to attack Awami League leaders were actually destined for India but these were hurled at the Awami League leaders as the HuJi had to abandon the plan as the Indian security forces became aware of this unholy consignment.

Surprisingly, the Government of the time was aware of this evil nexus but showed reluctance to take any action against such groups. In fact, the investigative agencies have since claimed that the then State Minister for Home Lutfozzaman Babar had helped Moulana Tajuddin, a major HuJi operative and kingpin of this evil nexus, to escape to Pakistan.

These revelations precipitate the need for continuation of the anti-militancy drive undertaken by the Awami League Government now. The elimination of militancy is not only necessary for ensuring safety of its people but also for stability of the region. In this regard, the international community should also put forward all possible support to this Government. The Government must also speed up the investigations and book the accused.
< class="text11verdana">Source: The Daily Star, January 27, 2011

< class="heading12boldGeorgia">Improving ties with Sri Lanka

Ties with Sri Lanka got a major boost with the first-ever Foreign Secretary level consultations between the two countries. During the meeting, both the countries agreed to enhance cooperation in the field of trade and investment, tourism, connectivity and shipping and work together in the regional and multilateral forum.

Bangladesh offered to export pharmaceutical, jute and jute goods, ceramics and tea-packing. The two countries also discussed the possibilities of removing non-tariff barriers and introduce mutually-acceptable laboratory test of export products. Sri Lanka sought access to higher education in Bangladesh.

The relationship with Sri Lanka has made significant improvement in recent times. Direct air links has been established between the two countries which will contribute in improving trade and connections among the people. To mark the warmth of this relationship, Sri Lankan President Mahinda Rajapaksa is set to visit Bangladesh later this year.
< class="text11verdana">Source: The Bangladesh Today, January 27, 2011

< class="heading12boldGeorgia">First constitutional case

In the first-ever constitutional case in the history of a democratic Bhutan, all eyes are on the Supreme Court, for resolving the matter between the Government and the Opposition party. Although the High Court has already pronounced its verdict in favour of the opposition, the Government challenged the ruling in the Supreme Court. "It seemed," said the Opposition that the "Government wants the Supreme Court to over-rule the verdict of the High Court in its favour."

The case involves the decision over the exclusive right of the Government to revise taxes in the country without the approval of the legislature. If the verdict is over-ruled, the authority over approving tax changes would be forever taken away from the hands of the legislature. The Opposition has cautioned that the people would take to the streets if the Government had the authority to revise taxes without Parliament approving it. However, the Attorney-General said that the Opposition was misinterpreting the truth and was deliberately trying to create a conflict between the Judiciary and the Legislature.

This, the Attorney-General said, was a violation of the separation of powers as the Judiciary was intervening in a matter (sales tax, customs and excise duties) that was already being discussed in the legislature. He said that the Government could be dissolved because of not being able to implement its programmes if they cannot raise revenue through taxes.
< class="text11verdana">Source: Kuensel Online, January 28, 2011

< class="heading12boldGeorgia">Overseas information on black money not now

The country may have to wait till at least until 2012 for information from Switzerland on the possible black money trail to Swiss banks, as a treaty for the same might come into force only by the end of 2011. The treaty needs to be ratified by various authorities in the two countries and also the Swiss Parliament.

The Indian Government is facing intense pressure from the Opposition parties, and the Supreme Court, on the issue of black money, allegedly stashed away by some citizens in Swiss banks and other tax havens.The Supreme Court has asked the Centre to track the sources of black money in foreign banks and not to treat the issue just as a tax-evasion problem.

Liechtenstein has declined help in New Delhi's quest for suspected black money trail to the small but rich European country bordering Switzerland, citing absence of a bilateral treaty for such information-exchange.
< class="text11verdana">Source: The Hindu, January 24, 2011, Economic Times, January 28, 2011

< class="heading12boldGeorgia">Nation celebrates 62nd Republic day

The nation's military might, cultural diversity, technological achievements and ecological challenges were on display on New Delhi's Rajpath as the country celebrated its 62nd Republic Day. President Pratibha Patil unfurled the national tri-colour in the presence of Indonesian counterpart Susilo Bambang Yudhoyono, who was the chief guest this year, as per the tradition that has been in place for long.

After the National Anthem, accompanied by a 21-gun salute, President Patil conferred India's highest gallantry award, Ashok Chakra, posthumously on Maj Laishram Jyotin Singh of the Army Medical Corps for his courageous acts during a suicide-attack on the Indian mission in Kabul.

This was followed by the colourful annual parade, showcasing the technological advances made by the armed forces included the T-90 battle tank, 'Bheeshma', the Brahmos Launcher System; the Tejas light combat aircraft's trainer version, the Dhruv fly-past of advanced light helicopters; and Pinaka, a multi-barrel rocket-launcher. Naval underwater weapons like the Tal, a lightweight torpedo, Varunastra, a heavyweight torpedo, and Maareech, a decoy system which seduces incoming torpedos, were also on display. The cultural segment had 23 tableaux from 13 States and 10 Union Ministries and departments.
< class="text11verdana">Source: The Hindu, January 27, 2011, Indian Express, January 27, 2011

< class="heading12boldGeorgia">Padma Vibhushan awardees

Planning Commission Deputy Chairman Montek Singh Ahluwalia, former National Security Adviser, Brajesh Mishra, Wipro chief Azim Premji, Telugu film celebrity A. Nageswara Rao, art historian Kapila Vatsyayan, India's first woman news photographer Homai Vyarawalla and former Attorney-General K. Parasaran, were among this year's 13 awardees of the 'Padma Vibhushan', the nation's second highest civilian honour.

The Padma Vibhushan, which is India's second highest civilian honour, was also conferred posthumously on Gandhian and freedom fighter Lakshmi Chand Jain. A total of 128 men and women were conferred the nation's civilian honours, commonly known as the 'Padma' awards, this year.
< class="text11verdana">Source: The Hindu, January 26, 2011, Economic Times, January 26, 2011

< class="heading12boldGeorgia">BJP leaders detained at Jammu airport, sent to Punjab

Taking a tough stand against the Bharatiya Janata Party's 'Tiranga Yatra', the Jammu and Kashmir Government "forcibly" sent party leaders Sushma Swaraj, Arun Jaitley and Ananth Kumar to Punjab. Earlier, they were stopped from entering Jammu after they landed at the airport.

The stand-off ended with the arrest of the BJP's top leaders along with 500 workers, who tried to move towards Jammu and Kashmir, on their way to Srinagar to hoist the tri-colour in the city's Lal Chowk on the Republic Day.
< class="text11verdana">Source: The Hindu, January 25, 2011, The Hindu, January 25, 2011

< class="heading12boldGeorgia">Oil spill off Mumbai coast

A leak from an ONGC pipeline caused a mile-long oil spill off the Mumbai coast. The spill, 80 km off the coast, was brought under control. It was expected to be dispersed within 48 hours, the State-owned Oil and Natural Gas Corporation said.

The pipeline transports crude oil from the Mumbai High offshore fields. Production at the ONGC's Mumbai High field, the nation's biggest oilfield, and Bassein oilfield, was stopped immediately and the pipeline shut down.
< class="text11verdana">Source: The Hindu, January 22, 2011

< class="heading12boldGeorgia">Discussion over expat issue

The Maldives' National Security Advisor is hoping to brief President Mohamed Nasheed soon on various aspects of the Immigration Controller's letter, raising concerns over the rising number of expatriates in the country."The letter is being considered by the National Security Advisor," President Mohamed Nasheed's Press Secretary Mohamed Zuhair told the Asian Tribune.

Immigration Controller Ilyas Hussain in a letter sent to National Security Advisor Ameen Faisal detailed the dangers of rising expats in the country. He said that many "expatriate workers, despite entering the Maldives on legitimate work visa and with official documents, do not work in the designated posts."Worsening the matter, "groups of illegal expatriate workers have been formed in various parts of the Maldives," his letter says adding that it could give rise to illegal activities and spreading religious extremism.

An estimated minimum of 30,000 illegal expat workers are in the Maldives, at present. From January to October last year 18,000 new expatriates have arrived in the country. However, the Maldives National Defence Force has already issued a statement saying there were "no extraordinary reasons" to escalate security with regard to the increase of expat workers.
< class="text11verdana">Source: Asian Tribune website, January 28, 2011

< class="heading12boldGeorgia">UK experts to manage India-funded hospital

The Malé Health Services Corporation (MHSC) is expanding its senior management team with three health professionals from the UK, who have been recruited to support the health transformation agenda of the MHSC, accelerate quality improvements, and rigorously hone cost efficiency.The volunteers were recruited with the assistance of UK-based NGO Friends of Maldives and the Maldivian High Commission in London who together,have selectively been placing health volunteers around the Maldives through the International Volunteer Programme (IVP).

Top management appointments include the India-funded Indira Gandhi Memorial Hospital in the capital city of Male. However, there is criticism that foreigners, despite being designated as volunteers, will be paid a high compensation package, thus leaving a larger hole in the Maldivian packets, without making adequate contribution to the health care system in the country.
< class="text11verdana">Source: Minivan News, January 26, 2011

< class="heading12boldGeorgia">PLA handing over

The Government-backed Special Committee took charge of the 19,000-strong Maoist para-military structure at a ceremony at Shaktikhor, which was attended by many foreign dignitaries. However, the ceremony of handing over the flag of the People's Liberation Army (PLA) to the Government had to be cancelled following the Maoists' objection which sprang up at the eleventh hour. It was earlier decided that the Maoist chief Pushpa Kamal Dahal alias Prachanda will formally hand over the PLA flag to caretaker Prime Minister Madhav Nepal during the ceremony.

But this particular event was dropped immediately after Prachanda objected to it and threatened to cancel the entire function if the event was not shelved. Prime Minister Nepal readily conceded Prachanda's demand even without consulting other Special Committee members, given the sensitivity of the issue and its potential to spoil the whole function.

It is believed that someone from the international community alerted the Maoist leadership about the symbolism of handing over of the PLA flag. It is customary in war situations that the defeated army hands over its flag to the victorious counterpart. "To us, signing a statement announcing the hand-over of the PLA to the Special Committee was important than turning in the flag. So we opted to sign the statement," said Barsaman Pun of UCPN-M, who asked not to blow up the issue.
< class="text11verdana">Source: My Republica, January 24, 2011

< class="heading12boldGeorgia">New rules for electing Prime Minister

The Constituent Assembly, which doubles as Parliament, has approved a change in the rules for electing a new Prime Minister in an effort to break a deadlock that has left the country in the hands of a caretaker government for almost seven months.

Under the new rules, no lawmaker will be allowed to abstain from voting in the prime ministerial election and attendance will be mandatory. Parliament Speaker will be able to disqualify candidates after three failed rounds of voting. Lawmaker Ekraj Bhandari, the coordinator of the parliamentary committee that came up with the changes, said they would make the election process easier but that agreement between the parties remained paramount.
< class="text11verdana">Source: AFP, January 26, 2011

< class="heading12boldGeorgia">India for electronic surveillance across border

India's Sashastra Seema Bal (SSB) has decided to electronically cover the entire Indo-Nepal border in Uttar Pradesh. There are 11 transit points through which Indians and Nepalese cross the border daily but cameras cover only a few points in Bahraich and Siddharthnagar districts. Once installed at every point, any unusual activity could be recorded, and instantly the security forces nearest to the location would be alerted.

Reports say the border would still be porous for anti-social elements to cross at night but at least daytime entry could be checked if foreigners used entry points nearer to the checkposts. According to Anil Agarwal, Inspector-General, SSB (Lucknow Frontier), since China is setting up study centres in Nepal, close to the border with India, more Chinese would be entering India with the support of Maoists, pretending to be tourists from Nepal.

In a recent incident, three Chinese, including a woman, were arrested in Bahraich. They claimed to be tourists but without any visa. Reports said work on electronic surveillance started about a year ago but recent developments have forced the authorities to expedite the matter. The Sashastra Seema Bal as well as the border district police is also seeking appointment of personnel with working knowledge of Chinese language, as the security personnel had difficulty in understanding what the three caught in Bahraich were saying.
< class="text11verdana">Source: Indian Express, January 27, 2011

< class="brown12verdana"> Contributors:

Bangladesh: Joyeeta Bhattacharjee;
India: Satish Misra;
Nepal & Bhutan: Anjali Sharma;
Pakistan: Anjana Verma;
Maldives & Sri Lanka: N SathiyaMoorthy;

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.