THE incumbent government launched multi-pronged reforms over the past two years, but the economic crisis is far from over as is evident from continued crippling reliance on foreign loans and inability of the authorities concerned to offer any meaningful relief to different segments of the society in the face of restrictive programme of the International Monetary Fund (IMF).
It is, however, satisfying that the government seems to be fully alive to the issue as highlighted by the speech delivered by Prime Minister Shehbaz Sharif at the Governance Forum on Wednesday, promising that the next federal budget will envisage measures aimed at growth and production, exports and investment, foreign direct investment (FDI) and across the board reduction in indirect taxes.
There is no denying the fact that the country was at the verge of virtual default when the present government assumed power, forcing it to introduce policies and measures which an elected government can hardly afford. Credit must be given to the PML(N)-led coalition government, which prioritized interests of the country at the cost of the popularity of the party. Its bitter strategies paid off as the macro economic situation was stabilized due to the great teamwork of the federal, provincial governments and the military hierarchy. The galloping inflation, which was hovering around 35% at that time, had been capped below 7%, the policy rate was brought to 10.5% and tax-to-GDP ratio increased to 10.5%. However, the country is so pitiably entangled in the debt trap that experts believe it would be difficult for the government to realize the dream of getting rid of IMF programmes as growth and exports almost remain stagnant because of conflicting policies of the Government itself.
In this backdrop, the Governance Forum aimed at establishing a Stable, Transparent, Agile and Responsible (STAR) governance system to transform Pakistan into a $1 trillion economy by 2035 has the potential to play an active role to help devise home grown solutions to governance issues as it is a national, inclusive platform for policymakers, experts and stakeholders to move from ideas to action on structural reforms. A beginning should be made by implementing in letter and spirit the announcement of the Prime Minister to cut direct taxes across the board to facilitate the business community and provide confidence to investors. This has become necessary due to the fact that Pakistan could not attract genuine foreign investment the way it was envisioned because of our inability to offer a competitive investment package. Unfortunately, our focus remained on increasing the tax rate on existing tax-payers compelling the corporate sector to register companies abroad. A number of foreign companies including famous names left Pakistan citing lack of proper environment to do business.
It was because of all this that the Prime Minister has pledged a cut in direct taxes in the forthcoming budget, observing that sustainable economic growth could not be achieved by increasing the tax burden, adding ‘how long can we keep stretching this and how much more tax can you continue to impose?’ He also referred to another huge problem that has repeatedly been highlighted in these columns: indirect taxes taken from the consumers and end users were not being deposited with the government, constituting huge injustice with the nation. This leakage has assumed dangerous dimensions and the problem needs to be addressed through optimum use of technology so that taxes are directly credited to the relevant head at the time of making/receiving payments. Apart from growth, there should also be more focus on economic diplomacy to strengthen collaboration in high-value manufacturing, information technology services, mineral resources, agro-processing and the halal food sector with regional and global partners.
