Pressing Need for Tax Reforms in Pakistan: A Path to Economic Revitalization
By: Mannan Samad
As Pakistan faces mounting economic challenges, the government’s approach to tax collection has largely focused on increasing the tax burden on already compliant citizens rather than broadening the tax base and improving the efficiency of tax collection. The recent federal budget for the fiscal year 2024–25, approved by parliament on Friday (June 28), is a testament to this flawed strategy.
It introduces an additional Rs1.7 trillion in taxes to achieve an ambitious tax revenue target of Rs13 trillion, representing an over 40% increase from the previous fiscal year. This approach will directly hit low-to-moderate-income households, exacerbating economic inequality and deepening the trust deficit between the government and the populace.
Furthermore, the budget’s provision for a 35% increase in indirect taxes is unrealistic given the current economic slowdown. Indirect taxes, which are regressive in nature, disproportionately affect those with lower incomes. The budget has also increased direct tax collection by 48 percent without actually expanding the existing narrow tax base.
The tax authorities should aim to expand the tax base. This involves bringing under-taxed and untaxed sectors, such as retail, agriculture, and real estate, into the tax net. These sectors have significant political clout, but incorporating them into the tax system is essential for equitable revenue generation.
The category of ‘non-filers’, introduced to exempt certain groups from paying income tax, must be abolished. This will ensure that everyone, including traders, realtors, and property developers, contributes their fair share to the national exchequer. Creating a culture of compliance is crucial for sustainable economic growth.
The government also must lead by example and reduce its own wasteful expenditures. This includes cutting down on unnecessary administrative costs and focusing on efficiency in public spending. By demonstrating fiscal discipline, the government can justify its tax policies to the public and build trust.
Fiscal authorities need to undertake comprehensive tax reforms by focusing on digitalization and documentation of the economy. A digitalized tax system would simplify tax filing, reduce the compliance burden on taxpayers, increase transparency, and improve tax enforcement. Documentation of the economy would help broaden the tax base and reduce tax evasion.
By broadening the tax base, reducing government expenditures, documenting and digitalizing the economy, and ensuring that all sectors contribute fairly, the country can achieve sustainable economic growth. The path to effective tax reform is challenging but imperative for economic revitalization.
The writer is a freelance journalist based in Quetta.
