Pakistanis say the lack of clarity, transparency and accountability on where the government spends the revenue encourages tax evasion. – (File Photo)
KARACHI: The Pakistani government’s lack of credibility, both with its own citizens and donor agencies, has placed it in a double bind and hampered efforts to raise critically needed revenue.
Pakistanis say the lack of clarity, transparency and accountability on where the government spends the revenue encourages tax evasion.
At the same time, donor and multilateral agencies are linking the release of foreign aid to Pakistan aggressively pursuing fiscal reforms to increase its tax base.
“The major concern is the credibility issue,” said Salman Shah, a former finance minister.
“The issue is how the government is spending the money it is already raising.”
Pakistan’s tax to gross domestic product ratio is approximately 10 per cent, one of the lowest in the world.
US Secretary of State Hillary Clinton urged Islamabad this month to include tax improvements in its democratic and economic reforms, echoing what US Special Representative for Afghanistan and Pakistan Richard Holbrooke said last month that Pakistan needs “to figure out a way to raise the money”.
The comments come at a crucial time as Pakistan needs billions of dollars for reconstruction and relief after devastating floods caused $9.7 billion in damage.
“Asking donors for cash to reconstruct and rehabilitate the flood-affected areas without looking inwards for relief shows the lack of political courage on the government’s part,” said Asad Iqbal, chief investment officer at Faysal Asset Management Ltd.
Pakistan relies heavily on foreign aid. Its balance of payments is still vulnerable and the country is committed to a $11 billion IMF loan programme agreed to in November 2008.
“The IMF and World Bank aid is linked to fiscal reforms and bilateral agencies are also joining in. Pakistan at this point simply cannot survive without these external flows,” said Sayem Ali, economist at Standard Chartered Bank Ltd.
The lack of tax revenue means Pakistan, a vital US ally in the war against Islamic militancy, doesn’t have the resources to tackle problems such as security and education, acute energy shortages and poverty – all of which could contribute to a growing militancy.
“There are key segments such as agriculture which are almost exempt from taxation,” said Asif Qureshi, director at Invisor Securities Ltd.
Agriculture contributes about one-fifth of Pakistan’s $17 billion Pakistan GDP and employs 45 percent of its labour force. Taxing agriculture could provide the government with badly needed additional revenue but there are political reasons why it has escaped the net.
“Of course agriculture is the vote bank and most parliamentarians are from a rural background and so they try and keep outside the tax net to a large extent,” said Shah, the former finance minister.
Along with including more key segments of the economy in the tax base, Pakistan also must implement the reformed general sales tax, a condition also set by the International Monetary Fund.
Pakistan said in June that it would replace its general sales tax by a RGST by Oct. 1. But that deadline has slipped to Dec. 1, and a bill is scheduled to be presented to parliament in its next meeting, according to official sources. – Reuters
Print This Post
Email This Post
Im an ex-pakistani living in europe now, when i read these scary stuff about how things are going on down there, i feel shocked and sorry for the Pakistani population. I pray for the future of Pakistan everday, but i see no hope. I think i will stay here in europe for a longer time than i imagined, as things are going from bad to worse. I do not want to live in a country that has shortages of electricty and water and the food is super expensive. I wonder how is the lower and middle class people managing. “Corruption is the road to survival” should be the slogan from now on. Shame on the government of Pakistan, how much longer before things get better? Will we see improvment in this life time? I am staying put here.
Father Lobo
I’m totally agree with habibullah, this is true, that almost all the politicians possess the lands, and there are been enjoying, from the corruption, and also from the agrecultural monopoly, because the avaiability of the water and other basic needs for the production of any crop, posses only the land lord and politicians, a common man can’t do any thing, so this kind of taxes should be impose only on the rich and land lord peoples.
There have been many discussions on these vital economic issues, but now the time has lapsed to think over it. Now, it is time to impose taxes only and only on Agriculture irrespective of the fact that about 80% of the politicians are from rural areas. Just Agriculture Tax and nothing else. If government will succeed to impose this tax, there will be more than enough revenue which even after paying debt, will remain in surplus which can be used to develop infrastructure.
We need to impose a 5% tax on the current market value of all residential and commercial properties in the major urban areas. That would push all provincial deficits into surplus and reduce the consolidated (federal plus provincial) deficit to about 2% of GDP. Debt can be repaid, interest rates would fall, aggregate demand pressures would ease and inflation would start to come down sharply allowing the central bank to cut its policy rate and thereby boost economic growth.
At present a residence sitting on 2,000 sq. yds in the richest province Punjab pays Rs 300 per month as property tax — about equivalent to one packet of foreign cigarettes.
To be sure, there are many other useful ideas. This is just one which is progressive since it would be targeted at the super-rich.
I dont agree with Mr. Meekal, because there are already many urban taxes that have been existed from time to time. But now the only solution for the problem is the Agriculture Tax because that class which is enjoying the most, on the one hand from politics and on the other from Agriculture. So, the time has now come to impose this tax.