Myth of Karachi saray mulk ko khilata hay
Karachi alone contributes 70% of Pakistan’s revenue. Karachi has a share of 70% in GDP. But, does it?
If you have not heard this, or something on those lines, you surely have been living under a rock. None knows the source of this information, none has attempted to verify its accuracy but everyone keeps throwing them in your face as an 11th commandment — from mainstream media to Karachi’s genuinely neglected awaam. But leaving charged emotions aside, what’s the reality? Let’s decipher objectively with bias for transparency and data.
The GDP contribution
First, let’s get to the GDP contribution. To set the record straight,
the contribution of Karachi in Pakistan’s GDP is not 70% or 50% or anything but 25% with 10% of the population share if we believe the official figures, or 22% if we believe Karachi-wala figures.
Second, this is not unusual — several global cities have a much higher contribution to their respective country’s GDP. In fact, for the city the size and scale of Karachi with a port and history of being the capital; 25% is under-achievement and it shows the full potential of Karachi is yet to be reached. Seoul and Copenhagen contribute nearly half of the GDP to their respective countries.
The largest 300 cities are home to a fifth of the world’s people (19%) but account for nearly half (49%) of economic output
The report further adds:
London, for example, produces more than 30% of Britain’s entire GDP. Neither is it the most extreme example: it is just 30th on our list of cities that most dominate their countries. See full list.
BOTTOMLINE: Karachi’s GDP share is not an anomaly in global cities.
Karachi and other Pakistani cities
For 2019 nominal GDP figures by federating units of Pakistan, see below data published by State Bank of Pakistan:
A McKinsey report published the GDP data for Pakistan’s largest cities and it shows absolutely no anomaly between Karachi and Lahore considering the respective areas and population of the two cities:
Finally, I gathered some numbers on population and nominal GDP on some cities of Pakistan and mapped them to calculate a score, here is what I found:
Faisalabad and Sialkot outperform Karachi!
Faisalabad, even Sialkot outperforms Karachi in terms of GDP considering population, with Karachi falling behind if we consider its population at even 25 million — which we have previously addressed here. So much so that, if Karachi’s population is really 25 million, even Lahore outperforms it. Ouch!
BOTTOM LINE: Karachi’s GDP share is not even an anomaly even in Pakistan with several smaller cities like Faisalabad and Sialkot in Punjab outperforming it in GDP contribution in relative comparison to their population.
Income Tax Collections
The other common argument thrown is Karachi collects 70% of the income tax of the country and feeds Pakistan. let’s look at some data again:
I looked at Income Tax collection figures for 2018 available here, and compared that against population of the cities. Lo and behold, Islamabad ranks way higher than Karachi in terms of Income Tax collections in Pakistan with a very small population.
114 billion of Karachi’s total Income tax collections came from Karachi South — its the port stupid, which serves all of the country and not just Karachi.
I also considered much higher population figures for Karachi (25 million against official 14.9 million), but it still lags way behind. In fact, even at 25 million population, the income tax score for Karachi at 22.88 is not far off from Lahore’s 18.02 with half the population.
The reason: income tax collections are not city specific. A bank with branches all over Pakistan might have their HQ based in Karachi and those income tax collections are counted in Karachi, however, the professionals working in the bank might be based all over the country. Its a shameless and cheap tactic to use income tax collections as a figure to boast about Karachi feeding the country when it is not. If we go by this logic, Islamabad has the crazy claim of ‘saray mulk ko khilata hay’ which is way ahead of Karachi.
Bottom Line: Karachi’s income tax collections are actually way lower when relative population is considered. Islamabad saray mulk ko khilata hay!
Revenue Collections — It’s the port stupid!
A former Deputy Governer of State Bank of Pakistan wrote in Business Recorder that:
Before presenting and analysing data on taxes we should know two terms, namely impact and incidence. Those persons or institutions that pay a tax but pass on the final burden to others are bearing the impact of a tax, but those who bear the final burden are bearing the “incidence”. Thus if an imported vehicle or a piece of machinery is unloaded at Karachi (and taxes are paid in Karachi) but it is being used in Punjab or KPK, the burden of taxes paid on such items is on users in Punjab or KPK as the case may be. Those talking of Karachi contributing 70% of Federal tax revenue refer to collection (which actually is about 54%) conveying the impression that collection is identical with incidence. This is the source of misunderstanding. Thus the 70% myth stands exposed even on collection basis. But a more important aspect is who bears the final burden of a tax. A sizable part of customs duties and some sales tax are collected at the sea ports but final burden is borne by the consumers throughout the country.
Revenue collected in Karachi (through import taxes or customs duty) merely because the port happens to be there, for good imported for use in Punjab or KPK is not Karachi’s contribution to the revenue. It is contribution by those respective areas.
During the past one decade or so increasing amount of home remittances have provided crucial support to the economy of Pakistan, particularly for Balance of Payments, and building up foreign exchange reserves. In 2019, 8% of Pakistan’s GDP was made of these remittances.
Who is earning these home remittances? Contribution of Sindh is only 11%; 89% of these remittances are being contributed by other provinces: Punjab, KPK and Azad Jammu and Kashmir.
I hope the use of data and transparency in this blog puts an end to this ridiculous argument of ‘Karachi saray mulk ko khilata hay’. Clearly, it does NOT.