Death pills from IMF & World Bank

Huzaima Bukhari & Dr. Ikramul Haq

 

In recent days, the World Bank and International Monetary Fund (IMF) have suggested a number of changes in our tax statutes that are highly controversial and debatable—these intend to burden the less privileged segments of society whereas the rich will remain unaffected. Implementation of these proposals, without any public debate and assessing their impact on the poorer segments of society, will have ramifications—destroying the cherished goals of self-reliance, social justice and equitable distribution of income and wealth. The prescriptions of IMF and World Bank for our ills are not based on correct diagnosis. Their sole stress is on enhancing regressive taxes that take small portion of the big income of the rich and very large slice of the scanty income of the poor.

 

In none of its studies prepared for Pakistan, the World Bank has bothered to assess the incidence of Value Added Tax (VAT) on various income groups of society. No critical evaluation is made about what impact VAT will have on our ailing economy. The only point highlighted is that VAT—levied across the board—will generate extra revenue of Rs. 400 billion. The so-called experts of IMF and World Bank have no idea about our real tax potential which is not less than Rs. 4000 billion. Instead of suggesting restoration of progressive taxes—wealth tax, capital gain tax, estate duty, gift tax etc—that were once in existence in Pakistan, these institutions are supporting continuance of pro-rich tax policy. By levying fair and equitable taxes and withdrawing exemptions given to the rich, we can easily generate Rs. 4000 to 5000 billion per annum. But our ruling trio—crooked civil-military bureaucracy, shady politicians and greedy businessmen—resists any such move for obvious vested interests. Sadly, though understandably, the IMF and World Bank have also been working to further their cause.           

 

World Bank-funded tax reform process (sic) has failed to yield any positive results. This is evident from the fact that after five years of Tax Administration Tax Reform Project (TARP), the basic ideas (e.g. introduction of VAT and formation of Inland Revenue Service) are still being discussed. It is strange that things that had to be done in 2004 when 5-year TARP was started are at discussion stage in 2009. It confirms that from 2004 to 2009 borrowed funds of millions of dollars have been wasted. This is the sordid story of tax reforms in Pakistan. Now with the establishment of Inland Revenue Service, they think wonders will be achieved. This is just a change of nomenclature—cosmetic change. Unless mindsets of officers change, nothing will change. Process of change requires change of minds and hearts, something which is completing missing in FBR—the officers are incompetent, inefficient and corrupt, both financially and intellectually. No suggestions have been made by IMF or World Bank for curing this malady. Skilled tax administration is not possible with the existing lot sitting in FBR. 

 

In this milieu, the IMF and World Bank are insisting for enforcement of VAT that requires documentation at all levels. VAT is a specific turnover tax levied at each stage in the production and distribution process. Although VAT ultimately bears on the individual consumption of goods and services, liability for VAT is on the supplier of goods or services. VAT utilizes a system of tax credits to place the ultimate and real burden of tax on the final consumer and to relieve the intermediaries of any final tax cost. VAT is calculated by applying the applicable rate at a taxable stage to the appropriate taxable base of goods or services; it is then reduced by the VAT (as indicated on the invoices delivered to the purchaser), which has directly affected the cost of the various elements constituting the price of goods or services.

 

We wrote in these columns in 2000, “in Pakistan there are substantial deviations from pure form of VAT (as in vogue in Europe and some other developed industrial societies), because of exercise of various tax rates, exemptions and concessions for certain goods and services and specific provisions governing importation and exportation. It is therefore not VAT but VAT-type tax in Pakistan”. Now in 2009, the World Bank has just reiterated it in its “research study”—this is height of complacency. In its “research study” (sic), the World Bank did not tackle the most import issue: how VAT will be enforced in Pakistan where more than 50 per cent of economy is undocumented. IMF-World Bank experts say it will take us five years to enhance tax-to-GDP ratio to 15% [presently it is just 9%]. They are oblivious of the size of existing monstrous black economy, which if taxed at current rates, will enhance our tax-to-GDP ratio to 19 percent in just one year! Such taxation will expose the ruling trio that is the real owner and beneficiary of this black economy. Why do IMF and World Bank not suggest asset-seizure legislation to bring entire undocumented economy in tax net? They know it will end their control over our affairs—resource mobilization through these steps will make us self-reliant and end debt enslavement.   

 

The issue in Pakistan is not that of lack of revenue resources as wrongly portrayed by IMF and World Bank, but documentation of economy—ending the culture of tax evasion and fiscal frauds. The forces representing bazaar [different associations of traders], unscrupulous industrialists, absentee landlords and corrupt civil-military bureaucrats are the impediment. These segments are not ready to pay personal taxes on their colossal wealth and income—in most cases created from undeclared sources. They are not worried about VAT knowing that they can pass its burden to consumers. As under sales tax regime, they will not record honestly each and every transaction under VAT. If they will do so, their personal incomes in the process will get documented. Resultantly, they would have to pay income tax from their own “pockets”—incidence of direct taxes cannot be passed on. There has been a perpetual policy of appeasement towards these forces by successive governments—military and civilian alike. The IMF and World Bank want continuation of this policy. They have not suggested any measure to increase the share of direct taxes—presently dismally low at 23% in our total tax collection. In fact, they want that through VAT, the poor keep on paying taxes to fund the luxuries of the rulers.

 

The prescriptions given by the IMF and World Bank will not solve our problems rather further compound them. The rich and mighty segments, identified above, will pass on the burden of VAT on poor people and will still avoid personal taxation—they know how to grease the palms of the corrupt tax officials. In 1990s, IMF and World Bank caused a crushing deathblow to our industry when on their advice we introduced exorbitant sales tax rate of 21 per cent—within a short span of 2 years we had hundreds of sick industrial units. Later on rate was reduced to 18%, then 15% —again raised to 16% in 2009— but the fact remains that heavy indirect taxation has pushed 45 million Pakistanis below the poverty line. IMF and World Bank, fully aware of this fact, are still insisting on VAT. The agenda is obvious: destroy our industry and push more and more people below the poverty line. VAT will be a death pill for us. We can generate extra revenue of Rs. 800 billion by just taxing speculative transactions in shares, real estate and collossal income of absentee landlords. This taxation will also not involve any complicated enforcement issues that is the case with VAT due to constitutional distribution of taxation rights between the Centre and provinces.

————————————–

The writers, tax lawyers, are visiting professors at Lahore University of Management Sciences (LUMS).

8th anniversary of 9/11: Ugly reality of ‘war on terrrorism’

Huzaima Bukhari & Dr. Ikramul Haq

 Eight years after the wanton attack on New York’s twin towers—masterly planned and executed to create a pretext to invade Afghanistan—majority believes that the United States and its allies have pushed the world into a frenzied quagmire. The perpetuation of terrorism since 2001—coupled with mishandling of the entire issue by US and its allies—has been posing serious threat to international peace. In the name of fighting terrorism, so-called proponents of “peace”, “democracy” and champions of human rights are colonizing oil and mineral rich countries, conspiring to topple some “unwanted” governments and lending support to drug trade and mass acceptance of fascism in the name of reforming the world.

 

The US intervention in Afghanistan is as disastrous as were its earlier actions in Cambodia, Angola, Mozambique, Ethiopia, Nicaragua, Grenada, Panama, and elsewhere. The purpose behind all these interventions has been the same: prevention of egalitarian social change, bringing into power retrograde elements, leaving the economy in ruins, and pitilessly laying waste, many innocent lives. Purportedly, the invasion of Afghanistan was due to the reason that the Taliban were providing sanctuary to Al-Qaeda, who claimed responsibility of 9/11 shameless aggression. Nobody raised the question as to why Clinton or Bush administrations did not ever place Afghanistan on the official State Department list of states charged with sponsoring terrorism, despite the acknowledged presence of Osama bin Laden as a guest of the Taliban government.  Obviously, such a “rogue state” designation would have made it impossible for any US oil or construction company to enter an agreement with Kabul for a pipeline to the Central Asian oil and gas fields.

 

Very few people know that really compelling—though less advertised—reason for plunging deeper into Afghanistan was ownership of oil and gas reserves of Central Asia. A decade before 9/11, Time magazine (18 March 1991) reported that US policy elites were contemplating a military presence in Central Asia. The discovery of vast oil and gas reserves in Kazakhstan and Turkmenistan provided the lure, while the dismemberment of the USSR removed the one major barrier against pursuing an aggressive interventionist policy in that part of the world. US oil companies acquired the rights to some 75 percent of these new reserves. A major problem was how to transport the oil and gas from the landlocked region. US officials opposed using the Russian pipeline or the most direct route across Iran to the Persian Gulf. Instead, they and the corporate oil contractors explored a number of alternative pipeline routes, across Azerbaijan and Turkey to the Mediterranean or across China to the Pacific.

 

The route favored by UNOCAL, a US-based oil company, crossed Afghanistan and Pakistan to the Indian Ocean. The intensive negotiations that UNOCAL entered into with the Taliban regime remained unresolved by 1998, as an Argentine company placed a competing bid for the pipeline. Bush’s war against the Taliban rekindled UNOCAL’s hopes for getting a major chunk of business. Zalmay Khalilzad, Condoleezza Rice, Hamid Karzai, all had established link with UNOCAL.

 

It is a matter of record that much before 9/11, the US and its NATO allies decided to invade Afghanistan. The decision to this effect was taken in Berlin during the joint meeting of Council of Ministers held in November 2000.  It exposes the claims of US and coalition partners that 9/11 was the sole reason for invading Afghanistan. The actual cause was apprehension regarding Turkmenistan Gas Pipeline Project in which powerful corporate entities who in reality, rule US and other capitalist countries, had financial interests. It was not the existence of so-called Al-Qaeda in Afghanistan that forced US and its allies to invade Afghanistan but the “financial terrorism” of US and its blind allies was the main cause of action. Till the said time Al Qaeda was a weapon in the hands of US policymakers to put pressure on Islamic States having enormous oil, gas and mineral wealth to toe its line and extend financial benefits uninterruptedly or face the onslaught of “fundamentalists’.

It needs to be remembered that President Bush appointed former aide to the American oil company UNOCAL, Afghan-born Zalmay Khalilzad, as special envoy to Afghanistan nine days after the US-backed interim government of Hamid Karzai took office in Kabul. This appointment underscored the real economic and financial interests at stake in the US military intervention in Central Asia. Khalilzad was intimately involved in the long-running US efforts to obtain direct access to the oil and gas resources of the region, largely unexploited but believed to be the second largest in the world after the Persian Gulf.

As an advisor for UNOCAL, Khalilzad drew up a risk analysis of a proposed gas pipeline from the former Soviet Republic of Turkmenistan across Afghanistan and Pakistan to the Indian Ocean. He participated in talks between the Oil Company and Taliban officials in 1997, which were aimed at implementing a 1995 agreement to build the pipeline across western Afghanistan. UNOCAL was the lead company in the formation of the Centgas consortium, whose purpose was to bring to market natural gas from the Dauletabad Field in southeastern Turkmenistan, one of the world’s largest gas reserves.

The multi-billion project involved a 48-inch diameter pipeline from the Afghanistan-Turkmenistan border, passing near the cities of Herat and Kandahar, crossing into Pakistan near Quetta and linking with existing pipelines at Multan. An additional $600 million extension to India was also under consideration. Khalilzad also lobbied publicly for a more sympathetic US government policy towards the Taliban. Four years ago, in an op-ed article in the Washington Post, he defended the Taliban regime against accusations that it was a sponsor of terrorism, writing, ”The Taliban does not practice the anti-U.S. style of fundamentalism practiced by Iran.”

”We should… be willing to offer recognition and humanitarian assistance and to promote international economic reconstruction,” he declared. ”It is time for the United States to reengage” the Afghan regime. This ”reengagement” would, of course, have been enormously profitable to UNOCAL, which was otherwise unable to bring gas and oil to the market from landlocked Turkmenistan.

Khalilzad only shifted his position on the Taliban after the Clinton administration fired cruise missiles at targets in Afghanistan in August 1998, claiming that terrorists under the direction of Afghan-based Osama bin Laden were responsible for bombing US embassies in Kenya and Tanzania. One day after the attack, UNOCAL put Centgas on hold. Two months later it abandoned all plans for a trans-Afghan pipeline. The oil interests began to look towards a post-Taliban Afghanistan, and so did their representatives in the US national security establishment.

Born in Mazar-e Sharif in 1951, Khalilzad hails from the old ruling elite of Afghanistan. His father was an aide to King Zahir Shah, who ruled the country until 1973. Khalilzad was a graduate student at the University of Chicago, an intellectual center for the American right-wing, when the Soviet Union invaded Afghanistan in 1979. Khalilzad became an American citizen, while serving as a key link between US imperialism and the Islamic fundamentalist Mujahideen fighting the Soviet-backed regime in Kabul—the milieu out of which both the Taliban and bin Laden’s Al Qaeda group emerged. He was a special advisor to the State Department during the Reagan administration, lobbying successfully for accelerated US military aid to the Mujahideen, including hand-held Stinger anti-aircraft missiles which played a key role in the war. He later became Undersecretary of Defence in the administration of senior Bush, during the US war against Iraq, and then went to the Rand Corporation, a top US military think tank.

After George W. Bush was installed as president by a 5-4 vote of the US Supreme Court, Khalilzad headed the Bush-Cheney transition team for the Defence Department and advised incoming Defence Secretary Donald Rumsfeld. Significantly, however, he was not named to a sub-cabinet position, which would have required Senate confirmation and might have provoked uncomfortable questions about his role as an oil company advisor in Central Asia and intermediary with the Taliban. Instead, he was named to the National Security Council (NSC), where no confirmation vote was needed.

At the NSC, Zalmay Khalilzad reported to Condoleezza Rice, then national security advisor [later became US Secretary of State] who also served as UNOCAL consultant on Central Asia. After serving in the first Bush administration from 1989 to 1992, Rice was placed on the board of directors of Chevron Corporation and served as its principal expert on Kazakhstan, where Chevron holds the largest concession of any of the international oil companies. The oil industry connections of Bush and Cheney were well known, but little was said in the media about the prominent role being played in Afghan policy by officials who advised the oil industry on Central Asia.

One of the few commentaries in the America media about this aspect of the US military campaign appeared in the San Francisco Chronicle on September 26, 2001. Staff writer Frank Viviano observed: ”The hidden stakes in the war against terrorism can be summed up in a single word: oil. The map of terrorist sanctuaries and targets in the Middle East and Central Asia is also, to an extraordinary degree, a map of the world’s principal energy sources in the 21st century…. It is inevitable that the war against terrorism will be seen by many as a war on behalf of America’s Chevron, Exxon, and Arco; France’s TotalFinaElf; British Petroleum; Royal Dutch Shell and other multinational giants, which have hundreds of billions of dollars of investment in the region.” This reality is well understood in official Washington, but the most important corporate-controlled media outlets—the television networks and major national daily newspapers—have maintained silence that amounts to deliberate politically motivated self-censorship.

The sole exception was an article which appeared December 15, 2001 in the New York Times business section, headlined, ”As the War Shifts Alliances, Oil Deals Follow.” The Times reported, ”The State Department is exploring the potential for post-Taliban energy projects in the region, which has more than 6 percent of the world’s proven oil reserves and almost 40 percent of its gas reserves. The Times noted that during a visit in early December to Kazakhstan, “’Secretary of State Colin L. Powell said he was particularly impressed with the money that American oil companies were investing there. He estimated that $200 billion could flow into Kazakhstan during the next 5 to 10 years.” Secretary of Energy, Spencer Abraham also pushed US oil investments in the region during a November visit to Russia, on which he was accompanied by David J. O’Reilly, chairman of ChevronTexaco.

Former Defence Secretary Rumsfeld also played a role in the oil pipeline maneuvers. During a visit to Baku, capital of Azerbaijan, he assured officials of the oil-rich Caspian state that the administration would lift sanctions imposed in 1992 in the wake of the conflict with Armenia over the enclave of Nagorno-Karabakh. Both Azerbaijan and Armenia aligned themselves with the US military thrust into Central Asia, offering the Pentagon transit rights and use of airfields. Rumsfeld’s visit and his conciliatory remarks were the reward. Rumsfeld told President Haydar Aliyev that the administration had reached agreement with congressional leaders to waive the sanctions.

The White House released a statement hailing the official opening of the first new pipeline by the Caspian Pipeline Consortium, a joint venture of Russia, Kazakhstan, Oman, ChevronTexaco, ExxonMobil and several other oil companies. The pipeline connects the huge Tengiz oilfield in northwestern Kazakhstan to the Russian Black Sea port of Novorossiysk, where tankers are loaded for the world market. US companies put up $1 billion of the $2.65 billion construction cost.

The Bush statement declared, ”The CPC project also advances my Administration’s National Energy Policy by developing a network of multiple Caspian pipelines that also includes the Baku-Tbilisi-Ceyhan, Baku-Supsa, and Baku-Novorossiysk oil pipelines and the Baku-Tbilisi-Erzurum gas pipeline.” There was little US press coverage of this announcement. Nor did the media refer to the fact that the pipeline consortium involved in the Baku-Ceyhan plan, led by the British oil company BP, is represented by the law firm of Baker & Botts. The principal attorney at this firm was James Baker III, Secretary of State under Bush’s father and chief spokesman for the 2000 Bush campaign during its successful effort to “shut down the Florida vote recount”.

The subsequent invasion of Iraq by US and its allies using the myth of weapons of mass destruction [which proved to be a hoax] and appointment of Zalmay Khalilzad as US Ambassador proved beyond any doubt that the reality of ‘war on drug’ is nothing but quest for OIL. Donald L. Barlett and James B. Steele [TIME, May 19, 2003] remarkably exposed the dark side of American oil policy from classified government documents and oil industry memos, involving a pair of Iraq’s neighbours, Iran and Afghanistan. The aim of controlling Iranian oil forced Americans for 25 years to spend more than $20 billion in U.S. taxpayers’ money as military aid and subsidized weapons sales for the Shah’s most undemocratic rule, its oppressive armed forces and ruthless intelligence apparatus SAVAK. These policies lead to takeover of Iran by anti-U.S forces in 1979. Resultantly for two decades, American oil companies were barred by the U.S. government from doing business with Iran.

 

In Afghanistan the story was even more bizarre as in 1977 the CIA “sounded an alarm on the Soviets’ faltering energy prospects in a secret 14-page memo titled: The Impending Soviet Oil Crisis.” President Jimmy Carter, in the wake of Soviet invasion of Afghanistan, concluded that the Soviet Army was passing through Afghanistan to seize the Middle East oil fields and “any outside attempt to gain control of Persian Gulf region will be regarded as an assault on the vital interests of the United States of America…” Soon after Reagan took office the CIA began one of its largest, longest and most expensive covert operations, “supplying billions of dollars in arms to a collection of Afghan guerrillas fighting the Soviets”. The arms shipments included Stinger missiles, the shoulder-fired, anti-aircraft weapons that were used with deadly accuracy against Soviet helicopters—these are now in circulation among terrorists who fight US and NATO forces in Afghanistan. Among the rebel recipients of U.S. arms was Osama bin Laden, who is now considered as Enemy No.1 in ‘war on terrorism’.

 

At the same time the USA was moving into the Persian Gulf militarily and supplying Afghan rebels, all based on a faulty CIA oil assessment, it was also secretly supporting Saddam Hussein—in 1982 when the State Department removed Iraq from its list of countries supporting terrorism. The root of all this folly was the U.S. government’s officially sanctioned version of faltering Soviet oil production, which was at odds with reality. In fact, Russia today is the world’s second largest [oil] producer, after Saudi Arabia. Instead of becoming a major buyer of Middle East oil, as the CIA had warned, Russia ships 3 million bbl. a day to other countries, including the U.S.  As all this makes clear, the former Soviet Union was not running out of oil. Neither is the world. The one exception: the USA, which was the Saudi Arabia of the first half of the 20^th century, is finally running out. As a result, thanks in part to American policy that put an emphasis on foreign intervention rather than domestic conservation, Americans are more dependent than ever on imported oil.

 

The second myth that Taliban was not able to effectively curb poppy cultivation and drug trade is equally false. According to The Economist (August 16-22, 2003), the Taliban regime clamped down on poppy growing with an iron fist, and banned it completely in 2000. Production collapsed from its peak of over 4,500 tonnes in 1999 to 185 tonnes in 2001. However, the ban did not cover trade, and opiates kept on flowing into Central Asia. After the downfall of the Taliban, poppy cultivation re-appeared with a vengeance, in spite of a fresh ban imposed by US-installed Hamid Karzai’s government.

According to UN estimates [United Nations Office on Drugs and Crime] production increased to over 8,000 tonnes in 2007. Afghanistan once again dominates world production of opium, with almost 80% of the total annual global yield. About 70-80% of Afghans depend on what they can grow. But Afghanistan lacks water and cultivable land. Even in the halcyon 1970s, less than 5% of the land was irrigated. The war halved that. Then during the seven-year-long drought in some places, most of the livestock died and staple crops failed. In the south and south-west of the country, water-tables are dangerously low. Even with the best possible governance, that part of Afghanistan is a poor proposition.

In post-Taliban Afghanistan, drought, drugs and insecurity started to feed off each other. Three of the country’s five big drug-producing provinces – Helmand, Uruzgan, and Kandhar – remained unsafe and parched. In today’s Afghanistan, poppy cultivation is spreading to new areas, and with it insecurity. The nightmare is a new Colombia: a place where drug lords capture and wreck governments and the economy alike—the return of butcher likes Rashid Dostum in August 2009 elections proves the point. The drug trade in the post-Taliban Afghanistan is becoming institutionalized. Opium is now being processed into morphine and heroin inside Afghanistan. That means a lot more money for warlords and militia commanders on the ground, something made apparent by the switch-over to ever more expensive jeeps. Self-styled, US-hijacked, NATO-sponsored democracy (sic) in Afghanistan plays in the hands of more sophisticated naro-enriched criminals—these include members of parliament, warlords and militia commanders.

Obama administration like that of his predecessor is not interested in democracy in Afghanistan. On assuming power Obama promised more military operations in war-ravaged country.  In fact, no US administration has ever engaged in any ‘war on terrorism (sic).  In reality, they have launched “oil and war bonanza” around Iraq, Afghanistan and Pakistan with multiple objectives: ensuring continuous enormous profits for war industry, control over oil and gas rich countries and containment of China by physical military presence in its nearby areas. The statement of Bush on September 8, 2008 declaring Pakistan “a major theatre” in ‘war on terror” and Obama’s AfPak Policy, followed by wanton attacks on civilians inside our territories, should be viewed in proper perspective: the purpose is to forewarn new democratic government in Islamabad not to deviate from the commitments given by ex-ruler Musharraf—with House of Saud acting as a guarantor—or results would be disastrous.  

Had Unites States been really serious in uprooting the causes of drug trade and terrorism, it could have played a useful role by acknowledging and supporting the efforts of Iran – whose policy on narcotics trafficking is in many ways more intelligent – and by cracking down on warlords and commanders. However, the American stance is diametrically opposite. Clinton, Bush, Obama et al have been levelling baseless allegations against Iran and of late Pakistan of supporting militants whereas CIA covertly keeps on aiding these elements. It unveils the hidden agenda of USA and its allies in Afghanistan and elsewhere to promote war industry, grab oil and gas resources, protect drug trade, use religious fundamentalism to threaten undesirable States and enforce mass acceptance of its policies of fascism for its own self-interests and economic benefits of certain corporations in which the ruling elite has substantial interest.

_____________________________________________

The writers, tax lawyers, authors of many books and articles on narco-terrorism, are visiting Professors at Lahore University of Management Sciences (LUMS).