Revitalizing Pakistan's Economic Future: A Roadmap Beyond Fiscal Crisis

In the year 2023, Pakistan encountered significant economic hurdles characterized by inherent structural issues, incompetence, and political turmoil following the unprecedented successful vote of no confidence in April 2022. The Federal Board of Revenue (FBR) and provincial tax entities fell short in bridging the tax divide, exacerbating the already challenging economic situation. The federal government grappled with diminishing debt servicing capabilities and extravagant expenditures, while provinces received amounts lower than what was budgeted under the 7th National Finance Commission Award. Despite constitutional provisions, provinces also struggled to mobilize resources, particularly in collecting agricultural income tax.

With the upcoming government, post the general elections scheduled for February 2024, there lies a formidable task of economic reconstruction amidst the persisting political instability. Navigating the stringent conditions of the ongoing $3 billion IMF standby arrangement and negotiating a more demanding long-term Extended Fund Facility program presents a substantial challenge. The management of foreign liabilities without accumulating additional loans adds to the complexity.

As of September 30, 2023, the total debt and liabilities amounted to Rs. 64.5 trillion, with Rs. 22.5 trillion constituting foreign debts. The federal budget estimated debt servicing at Rs. 7.3 trillion, and defense at Rs. 1.8 trillion, contributing to an escalating borrowing trend. The root of the fiscal predicament is recognized as irresponsible borrowing and extravagant spending, pushing the nation perilously into a debt trap.

Suggested resolutions involve a comprehensive overhaul of the taxation system by reducing corporate and income tax rates, streamlining tax return procedures, and offering income support to those below taxable thresholds. Recommendations also encompass terminating tax exemptions, curbing unnecessary expenses, augmenting non-tax revenues through asset leasing, and simplifying tax structures across all levels.

There is a plea to foster businesses, incentivize human resource development and research, support Small and Medium Enterprises (SMEs), and cultivate an environment conducive to entrepreneurship. The proposition includes the establishment of the National Tax Agency and All Pakistan Unified Tax Services for efficient tax administration.

The article underscores the necessity for universal pension, social security, and food stamps, advocating for the establishment of a National Tax Agency to convey tax responsibilities and social support entitlements. The focus should be on straightforward, foreseeable, and low-rate taxes at both federal and provincial levels.

Recommendations extend to the abolition of multiple taxes, delegating local taxes to local governments, and earmarking a specific percentage of GDP for education and research. Citizens and entities are granted an opportunity to disclose untaxed assets, with stringent consequences for non-compliance.

The article censures the disregard of proposals for tax collection at both federal and provincial levels, asserting that their implementation could surmount fiscal deficits, foster economic growth, and facilitate the provision of social services. Fundamental reforms are portrayed as imperative for economic rejuvenation, concluding with an optimistic aspiration for prosperity, equal opportunities, and universal entitlements for all citizens in the year 2024.

Credit: The Friday Times