How Can Government Generate Higher Revenues?

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Every Government runs its country with the government revenue it generates (in case of developing countries there is more reliance on aid but still government revenue plays an important role) through taxations, providing licenses to private organizations in order to carry out their operations and State Owned Enterprises (SEOs).

In case of Pakistan, government revenues have always been a problem. State has failed to collect taxes (with a meagre Tax-to-GDP ratio of 8.9%) and state owned enterprises have been crumbling like a stale cookie resulting in a domino effect (state has no money to invest into SOEs like Pakistan International Airlines (PIA) and Railways which leads to their collapse hence government revenues fall). Now, Pakistan can generate revenues, big revenues, through these licenses that government provides for operations to TV Channels and Industries; which I will discuss later in this blog.

Scarcity is a powerful phenomenon through which a government can generate large amounts of revenues. Scarcity of a particular product or a service provides its distributor an extraordinary power which the distributor can use to his advantage. Fortunately, we here in Pakistan, specialize in scarcity, which we unfortunately, haven’t learnt how to use to our advantage. But I will, through this blog, explain you how we can still generate huge revenues through licenses.

First I will take on licenses for TV Channels. Let’s first cancel all the TV Channel licenses and start an open auction for these licenses. And, in auction, provide 5 types of licenses. Why 5 types of licenses? Again scarcity; every TV Channel wants to have an ever increasing viewership, and the chances of getting a higher viewership increases with channel being placed in the initial slots of a TV Channels.

For instance, Channel 2 will be watched more than Channel 86 because while a consumer (person watching television) loves to surf through TV Channels she/he usually finds something interesting before getting to Channel 86 or turns off the TV out of frustration and disappointment. So, these 5 types of licences will be like: license A (channel 1-10), license B (channel 11-30), license C (channel 31-50), license D (channel 51-70) and license E (channel 71-100).

Now, TV Channels which are more concerned about their viewership will be willing to pay more in the form of license A, and within license A these channels will fight by throwing in big bucks for the highest of the spots available. And same holds true for all the types of licenses available.

Government can generate large amounts of revenues by providing TV Channels their favourite spot for operations, the only difference will be that now government will have the authority to grant them a fixed spot within the area of operations along with the right to operate which government can use to its advantage by auctioning off the most desirable areas to those who are willing to pay for favourable operating positions.

An open auction for the sale of these licenses should be organized, every channel will have to deposit a fix amount of money to enter the auction for a specific license and anyone who drops out of the auction won’t be allowed to enter again. Every license will be sold at a fixed price (price will be set according to the type of the license; license A being the most expensive) plus the price for channel slot within every license type (channel slot 1 within license will be most expensive). These licenses will be renewed every year at the inflation adjusted price which was incurred at the time of auction.

The auction should be open and done live on internet which will reduce the chances of corruption and will allow the competitors with a clear picture about their and their competitor’s prospects. Collusion is one of the biggest threats that any auction faces but in this case the chances of TV Channels colluding will be practically non-existent as everyone will fight for their self-interests.

Same can be done in the case of industries. Two types of contracts for electricity and gas supply should be auctioned to industries. Type 1 will provide electricity and gas to industries (from within the already allocated industrial quota) at a high priority (first preference when shortage at its peak) and Type 2 will provide electricity and gas at least priority again from within the industrial quota. This will turn out to be win-win for everyone. Government will be able to generate revenue and companies will be able to run their operations as they desire.


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About the author

Ali Zafar

Ali Zafar is a DAAD Scholar at University of Applied Sciences, Berlin and aspires to be an economist. He blogs at http://azpk90.blogspot.com/

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