If some newspaper reports and comments by some economists are to be believed, heavy taxation will follow the Poverty Reduction and Growth Facility (PRGF) under which Pakistan is to be given $1.3 billion over a three-year period by the IMF.

And that will add to the tax burden of the people who are already under heavy fiscal pressure due to numerous taxes, in addition to the hardships caused by the pervasive corruption which they experience.

Many economic analysts and some economists argue that the tax-GDP ratio in Pakistan is as low as 10 per cent and that the IMF now wants it to be raised to 14.3 per cent by the end of the PRGF programme in 2004.

If the ratio of tax revenues to GDP is as low as 10 or 11 per cent it should be raised soon to at least 15 per cent, if not higher. But the fact is that tax revenue - GDP ratio has never been below 12 per cent since 1981. In the 1980s, the annual average was 13.8 per cent,and last year it was 13.6 per cent. In several years since 1981, the ratio had gone above 14 per cent and was 14.4 per cent in 1995-96.

And the ratio of total revenue to GDP, including the non-tax revenues, was 17.3 per cent in the 1980s and 16.4 per cent last year and 16.9 per cent the year before.It reached 19.7 per cent in 1991-92 and was 18.1 for several years.

The non-tax revenues of Pakistan have also a large tax content. The surcharge on the POL which is pretty large, and is to be Rs47 billion this year and was Rs73.2 billion in 1998-99 when the world prices of oil went under $10 a barrel are treated as a non-tax revenue, while it is properly simple tax revenue. Finance minister Shaukat Aziz agrees it should be properly called tax revenue, and not surcharge simply because the world price of oil vary or revenues from that can fluctuate.

Compared to India we are far better in this area. Tax-GDP ratio net of the federal share of the taxes in India has been under 8 per cent of the GDP since 1995-96. It was 6.9 per cent in 1999-2000, 6 per cent the year before, and in the six per cent mode since 1995-96.

In India, inclusive of the non-tax revenues, the revenue-GDP ratio net of the provincial share of the taxes was above 10 per cent only 1990-91, and thereafter it has been in the eight and nine per cent mode and was 9.5 per cent last year. And if a we make our calculations for Pakistan net of the provincial share of the taxes, the tax-GDP ratio will be between 11 and 12 per cent and the overall revenue-GDP ratio between 13 and 14 per cent. Both ways we have a far higher tax-GDP ratio and gross revenue-GDP ratio than India.

The low rate are manifestation of over 40 per cent of the people living below the poverty line, too many unemployed persons and far more of low wage earners and too few income tax payers of whom many are low tax paying salaried persons.

In spite of the official Economic Survey coming up annually with the far higher tax ratios, in Pakistan too many of us talk of the 10 or 11 per cent tax-GDP ratio which is fallacious for a poor country which talks of its black economy being stronger than or more affluent than its open economy. It is time such irrationalism or non-realism comes to an end when we are seeking to undertake various fiscal and monetary reforms.

After the revenue-GDP ratio has been around 16 per cent during the last five years and 18 per cent and above during the preceding six years, the IMF has set the targets under the PRGF of 16.5 per cent for the current year, 17.3 per cent next year and 17.6 per cent the third and last year which is not difficult to achieve unless there are major economic upsets in the country.

Overall tax revenues during the last four years have risen by Rs147 billion and that is after the current year’s tax revenue target has been reduced from the budgeted Rs457 billion to Rs440 billion in view of the economic downturn following the September 11 terrorist attacks in the US and the Afghan war. And that is an increase of 50 per cent within four years despite the economic upsets, inclusive of the prolonged drought and the economic sanctions which followed the nuclear explosions of 1998 and the imposition of military rule in 1999.

The inflow of large aid buttressed by the large scale rescheduling of external loans, which leaves large funds with the government for promoting development, should result in higher economic growth and larger revenues on a sustained basis. Hence the rather easy targets set by the IMF should be met by Pakistan without great exertions or excessive pain.

What the IMF wants is not heavier taxation but better revenue collection and bringing larger number of persons into the tax net. It wants much of the 50 per cent more money paid by the tax payers to go into the treasury instead of the pockets of the tax collectors. It wants radical reform of the CBR which has to be an efficient and upright tax collecting machinery instead of a cess pool of corruption. For that it urges the tax collectors should be paid far better and rewarded otherwise as well for excellent performance. It also wants better monitoring of the CBR to weed out the corrupt and punish they very corrupt.

And it has identified two new areas for larger revenue collection. It wants the 15 per cent GST on agricultural inputs, and electric power to be brought under the same the GST regime. Both will add to the hardships of the people through spiralling food prices and higher cost of production and exports.

As against such new levies there is to be a five per cent reduction in import duties which will bring the average rate of import tariff to 25 per cent. If that can reduce the cost of production of some factories, it will make some other units unviable as the imported goods can become cheaper.

Higher cost of agricultural inputs to the industry, heavier cost of power, and cheaper imported manufactures will present a serious challenge to Pakistan’s problem-ridden industry.

A way out can be reduction in taxes as done in the US and Japan and cheaper bank credit as available in the West. Both options have proved to be too elusive in our midst. Untangling a highly tangled economy is not easy, and may not be too quick, through essential for economic survival.

Another option is boosting the revenues through reducing the massive corruption in the taxation services. But how many taxation officers are ready to take this road in national interest?