Stabilisation measures

Editorial Published December 18, 2018

THE last few days have seen a flurry of news reports about Pakistan’s ongoing talks with the IMF. In the latest such report, the finance minister has confirmed that a document of economic and financial policies for stabilisation measures has been drawn up and sent to the Fund. This news is welcome.

The confirmation comes only days before the Fund breaks for Christmas and New Year, so it seems like the government has rushed to get its side of the commitments in before that happens, probably to ensure that the request for a programme can be placed before the board in a meeting scheduled in mid-January.

If all goes smoothly, Pakistan could be on its 13th Fund programme in the opening months of 2019, which is nothing to celebrate but that still provides the government a chance to fulfil its promise to make this the country’s last IMF programme.

What is new in this case are the specific performance benchmarks on revenue generation, according to early reports.

Past IMF programmes have stipulated a fiscal deficit ceiling and left it up to the government to decide whether to comply via expenditure cuts or revenue increases.

This time round, it seems the Fund wants to see specific improvements in revenue generation, and if early reports are true, then the government has a steep hill to climb to raise taxes by 2.5pc of GDP over the course of the programme.

There is little doubt that Pakistan needs to elevate its tax-to-GDP ratio, but now that it appears that the government will be bound specifically to this commitment, it bears repeating that the best way to accomplish this is by broadening the tax base and encouraging a culture of compliance, rather than simply squeezing those already within the net.

In the months to come, should the government embark upon the steep climb it has committed to the IMF, there will be temptation to resort to gimmickry to increase the burden on compliant taxpayers. Broadening the tax base is easier said than done, and the three previous governments all met with substantial failure on this front (a few partial successes notwithstanding).

The PTI government has promised that it will succeed where everybody else failed, and tax reform provides the perfect ground upon which to demonstrate its commitment to this promise.

https://www.dawn.com/news/1452123/stabilisation-measures

Published in Dawn, December 18th, 2018

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f k y

Dec 18, 2018 12:59pm

Broadening of tax bases is a huge task and challege for the current government.For more revenue generation and deficits cut reforms should be introduced in the taxation system.

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tide has turned

Dec 18, 2018 06:39pm

I pray they succeed. This perhaps our last hope!

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Amjad Durrani Engineer USA

Dec 18, 2018 08:03pm

This editorial serves a reminder to the sitting govt. with regard to its arduous journey in raising revenue through tax collection & that too by 2.5% of GDP - a Herculean manifestation with having present FBR as a mechanism & tool to accomplish. It is very true that we had several such failed attempts in the past which had not been built in as a conditionality in previous loans but this time around it is. Now the million dollar question remains that how our present financial pundits, sparing us no relief from anxiety due to taking numerous U- turns at slightest opposition to their novel ideas, can accomplish this difficult IMF demanded task? Having to live up with a corrupt/ inefficient FBR & absolutely tight timeframe work to deliver, where & how we go from here? Raising of taxes from existing 0.2% - 1.2% during current year & to 2.5% of GDP by the end of IMF program is not happening unless drastic institutional reforms in FBR & launching of an incentive scheme are not carried out.

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Syed Irfan Ahmed

Dec 18, 2018 10:50pm

The tax presently collected by the govt is never utilized. It is a bitter truth. Tax helps build a country's infrastructure, schools, hospitals, etc.where it is productively utlized. With already high inflation in place, broadening the tax-to-GDP ratio in the country like ours with an undocumented economy running into billion of rupees is a daunting task. This is not good news as the poor would face more hardships in days ahead.

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thoughts

Dec 19, 2018 02:11am

Only some two percent of Pakistanis now file tax returns, so there are ample opportunities to bring high end non filers into the direct tax net!

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Syed Nazim

Dec 20, 2018 07:15am

At least when Pakistan is passing through worst financial crises, rich agriculture class should be made to pay income tax on income from agriculture.

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