BUOYED by the success of the deal with the International Monetary Fund (IMF), Finance Minister Muhammad Aurangzeb seems to be in an upbeat mood to carry forward the process of structural reforms and broadening of the tax base as part of the strategy to stabilize gains, accelerate the pace of economic growth and eliminate the possibility of going back to the Fund after completion of the ongoing programme. This was the sum total of the news conference of the Minister on Sunday where he also announced intentions of the Government to sign a National Fiscal Pact with the four provinces soon aimed at addressing Pakistan’s external financing gap through the harmonization of provincial taxes and enhancement of revenue collection.
We have long been hearing about the ‘Charter of Economy’ but it remains a paper dream because of political polarization that has scuttled progress on realization of the objective. But the Minister is expressing confidence about signing of the fiscal pact ‘soon’, which means practical work has already been initiated. However, things would become clear when any draft of the proposed pact is made public or shared with the provinces and what reaction or input is given by the federating units. The pact might get final approval, after necessary adjustments, in three provinces of Punjab, Sindh and Balochistan where governments of the allied parties are in power but nothing can be said with certainty about KP which is ruled by the main opposition party, the PTI. But it is hoped that the proposal will be considered by all the provinces in a professional manner as the idea is to improve financial worth of both the centre and the provinces and maybe, to provide relief to the masses through harmonization of the taxation system. This is evident from the remarks of the Minister that the landmark agreement will create a unified fiscal framework between the federal government and all the four provinces, focusing on expanding tax revenues from the agriculture sector, growing provincial revenues and realigning federal expenditures. A fiscal pact has become a necessity as a major portion of the taxes from the federal divisible pools goes to the province and the KP gets additional allocations because of its central role in the war against terror but despite all this the provinces frequently look towards the centre for allocation of more funds on this or that account. The Federal Government, which has the responsibility to pay back huge foreign and domestic debt and take care of the defence and security needs of the country, feels strained financially because of its shrinking share under the National Finance Commission (NFC) and frequent cuts in development expenditure, triggering debate about the need for reallocation of resources. The cooperation of the provinces is also important in the backdrop of intensified efforts of the Federal Government to expand the tax base, which would ultimately benefit from any improvement in the financial position of the country. A steady momentum is being built to increase tax collection and this window of opportunity must not be lost due to political differences. There are already indications about a positive change as the number of tax filers has doubled to 3.2 million, with 723,000 new filers added this year alone. In a major step towards tax reform, the finance minister announced the abolition of the non-filer category. The government plans to implement a digital interface and algorithm to detect under-reporting of assets. It is a pity that only 14 percent of manufacturers and 25 percent of traders are registered for sales tax, forcing the Government to target those evading taxes by blocking utilities, bank transactions and pledging properties. The financial woes of the country will ease to a great extent if domestic resources are mobilized properly and the right-sizing policy succeeds in achieving its targets in a well-considered and transparent manner.
