FINANCE Minister Muhammad Aurangzeb, during his news conference at Kamalia, transmitted firm messages as far as the plans of the government to expand the tax net, withdraw tax exemptions, reduce the government expenditure, bring down national debt, privatize state-owned enterprises and tackle the menace of inflation is concerned. Emphasizing that the current tax-to-GDP ratio of 9.5 per cent was “not sustainable”, the Minister vowed to bring other sectors into the tax net and reduce tax exemptions.
The growing realization that the tax burden is becoming unsustainable augurs well for the economy and hopefully all segments of the society would contribute their share to help the country stand on its own feet. Luckily, the Minister has an elaborate plan to realize this objective as has also been reiterated by him during the said presser. He elaborated the strategy to enhance the tax-to-GDP ratio to 13.5% and said that the first approach is to bring all sectors that were previously excluded from direct taxation into the fold and secondly to phase out the tax exemption of 39 trillion rupees gradually. This is not mere rhetoric as a beginning has been made in the budget for the next financial year and the global rating agencies are expressing optimism that the measures announced in the budget have the prospects of addressing the fundamental ills of the economy. In its latest reports, Fitch has forecast that Pakistan’s budget for 2024-25 would significantly reduce the government debt, which is projected to decline to 68% of GDP by the end of the outgoing year.
The rating agency, in its statistical analysis of Pakistan, stated that the inflation will remain at 12% in the economic crisis-hit country while the policy rate, which has recently been slashed by 150 basis points to boost growth, would come down to 16% next year. Privatization of loss-incurring entities makes sense and this was the original concept of the process but with the passage of time we included highly profitable institutions in the list of privatization, which is not a prudent approach as who will invest in loss-making units when gold mines are for sale. In some cases, privatization resulted in creation of monopolies depriving the government of the tools to intervene in case of exploitative tactics by vested interests. There is logic in the suggestion by the Finance Minister to dissolve ministries and institutions relating to the subjects that have already been devolved to the provinces.
The Minister is heading the austerity committee set up by the Prime Minister to analyze the working of the federal government and suggest measures to save expenditure and hopefully something concrete would emerge in two months that have been assigned to the said committee for its final report. He rightly pointed out that there was no need for the government to provide jobs as children were already earning sitting at homes and in this connection he referred to the $3.5 billion revenue being generated by the IT sector and potential of the agriculture sector to boost production and earn handsomely through exports. True, but some of the measures proposed in the budget are retrogressive in nature and the IT and telecom sector is already strongly opposing them as these would affect its growth and expansion.
Already, the government is not finding interest in the sale of 5G spectrum due to some of the policy measures that have shattered confidence of potential investors. Similarly, it would be naïve to expect the agriculture sector to perform superbly given the unresolved controversy over procurement of wheat in the backdrop of unnecessary import of low quality wheat during tenure of the interim setup. The plan to expand the tax net is dependent on capacity building of the FBR which would surely improve with the completion of the ongoing process of its end-to-end digitization. However, it is also linked to the commitment of the government to bring influential sectors and lobbies into the tax net. The plan to register retailers for a nominal annual tax is facing stiff resistance and something concrete will have to be done to ensure compliance.
