The sources in ministry of finance has revealed that the government sent a document containing the details of economic and financial measures PTI government want to take for stabilization of economy. The finance ministry wants to get the approval of IMF board for the new loan soon after the Christmas and New Year holidays. The next board meeting has already been scheduled for January 15, 2019.
Federal finance minister Asad Umar already announced that the 13th IMF programe would be last IMF programe. Pakistan is hoping to get the 13th programe in the first few months of next year. But to make this programe is the last one; PTI government needs to introduce tax reforms and serious measures to increase the revenues. That is the real challenge before the PTI government to end the dependence on loans to fill the gap between expenditures and incomes.
PTI government needs to change the habit of borrowing and spending as easy way to temporarily fix the economy. No government in last three decades tried to reform the tax system and to widen the tax base. Past IMF programmes have stipulated a fiscal deficit ceiling and left it up to the government to decide whether to comply via expenditure cuts or revenue increases.
According to the sources in ministry of finance, the IMF is stressing the need to raise the taxes by 2.5 percent of GDP in next two to three years. Prime Minister Imran khan pledged to double the revenues from Rs 43 trillion to Rs 90 trillion in next five years. But this is not an easy task under the current circumstances.The slowdown in the economy will not help the government to achieve its revenue targets. The domestic investments are crucial to generate economic activities and to accelerate the growth rate.
But domestic investment needs political stability and continuation in the economic policies. PTI government needs to restore the confidence of local investors. The business sentiments are negative at the moment that needs to be changed. The best way to accomplish this is by broadening the tax base and encouraging a culture of compliance, rather than simply squeezing those already within the net.
In the months to come, should the government embark upon the steep climb it has committed to the IMF, there will be temptation to resort to gimmickry to increase the burden on compliant taxpayers. Broadening the tax base is easier said than done, and the three previous governments all met with substantial failure on this front. The PTI government has promised that it will succeed where everybody else failed, and tax reform provides the perfect ground upon which to demonstrate its commitment to this promise.
All economists agree that a good tax system is one that raises money with minimal distortion to the economy. In Pakistan, the tax system is the main source of many distortions in the economy. We need a fresh approach to reverse the negative role of taxation to achieve higher growth in economy. It is imperative to lower marginal tax rates and broaden the tax base with few, if any, tax exemptions.
The taxation system should be simple and must keep down the cost of compliance and monitoring. Our current system is monstrously complicated, and the cost of complying with taxes is extremely high.
The chances of radical tax reforms in Pakistan are very slim as the main stress of the government is on raising money through a higher rate of taxes, rather than using taxation as a social policy tool. Successive governments, military and civilian alike, have never thought of using refundable tax credits as the chief form of income support for the working poor.
We must tax rich Pakistanis, who at present are not paying any income tax due to excess deductions, reduced tax rates or exemptions such as those on agricultural income, gains on immovable property and shares listed on stock exchanges. In the Pakistani scenario, where the tax base is dismally narrow, the AMT could be used as a vehicle for tax reforms. The AMT can be made more progressive.
By constituting task forces and committees – this is the worst one can do as too many cooks spoil the broth – the PTI government has conceded that it had not done its homework as what to do when in power. The Prime Minister and Finance Minister need to be reminded that tax reform is too serious a matter to be left to the economists.
The government of Pakistan Tehreek-i-Insaf (PTI), like its predecessors, has no definite action plan for tax reforms though independent research studies are available for achieving the desired goals mentioned in its First 100-Day Agenda.
General Musharraf after the unconstitutional takeover of October 12, 1992, constituted an expert group to suggest changes in tax system to suit the ‘new economic agenda of the chief executive’. The output was Tax Laws (Amendments) Ordinance, 1999, promulgated on 16 December 1999. It showed the shortsightedness of group members as the only thing they highlighted was revenue targets. They did not bother to consider the plight of the officers and staff that had to administer the laws. This exercise proved counterproductive.
The same thing happened under the six-year long (2000-6) World Bank-funded Tax Administrative Reforms Programme (TARP). The government of Pakistan People’s Party during (2008-2013) and that of Pakistan Muslim League (Nawaz) during 2013-18 constituted many economic advisory committees, task forces for tax reforms and even Tax Reforms Commission in 2014, but all failed miserably. The main reason for failure was that none of the economist consultants had specialization or experience in taxation. They had no idea of the ground realities in Pakistan to offer workable reform action plan.
The so-called experts invited from abroad were not capable of understanding the mundane realities prevailing in Pakistan. They might be very competent and sincere too, but the task of tax reforms in Pakistan could not be successfully carried out by them. The same is true for our IMF-trained economists/experts or the bureaucrats sitting in FBR.
Dr. Vaqar Ahmad in a recent article aptly observed: “Perhaps, it would be best to take some urgent executive decisions now, based on the available research and not resort to a task force approach to tax administration. Time is of essence here; forming more committees for providing the same advice received in the past goes against the new government’s ambitious first-100 day’s agenda”
Your email address will not be published. Required fields are marked *
18 August, 2019