EDITORIAL: It’s a bit rich of the FBR (Federal Board of Revenue) to claim an improvement in the country’s tax-to-GDP ratio “in the coming years” just when its own data revealed that it nosedived from 9.22pc in 2021-22 (already an abysmally low figure) to 8.77pc in 2023-24.
And since the breakdown showed that income tax collection decreased by a significant 21.5pc in the last fiscal, it’s clear enough that the miracle turnaround that the government was counting on to meet IMF’s revenue requirements for the EFF (Extended Fund Facility) in FY2024-25 is not coming.
All this means that a mini-budget is now inevitable. And the opposition can make all the fuss it wants about this to gain political points, but the sad fact is that no administration has ever truly initiated the kind of reforms that the FBR has been in urgent need of for decades.
Yet to give credit where it is due, the PTI (Pakistan Tehreek-e-Insaf) government did go further than the usual campaign slogan, when the FBR chairman, Syed Shabbar Zaidi, talked about cutting dead wood that staffs the body, but that was the end of it. Soon enough, Zaidi had resigned and reforms never saw the light of day.
Now the tax-to-GDP ratio is dropping just when it needs to increase to stay on the EFF. And even if a mini-budget enables the government to stay on track for now, what will it do next fiscal, and the one after it? This problem is only going to grow because not only has the government not done anything about FBR reforms, it has also flatly refused to expand the tax net.
Instead, like every administration before it, it continues to protect the biggest, fattest and best-connected sectors from the tax net even though it promised it would do whatever it took to turn the economy around when it took over after the most controversial election in the country’s history.
According to the World Bank, the average tax-to-GDP ratio for developing countries hovers around the 18pc mark, which goes to show how poorly Pakistan ranks even among poor countries. No wonder, nothing is left to spend on infrastructure or people’s welfare, pushing important social indicators down as well. This ought to count as a national emergency, forcing the government to announce an action plan that will reform FBR and ensure a more equitable tax policy.
It’s shameful that the few honest working class people that do pay their taxes are made to contribute more and more, even as recent years of historic inflation and unemployment have eaten away their real incomes and savings, while the highest earning sectors are left off the hook just because of their proximity to parliament or their nuisance value. Finance Minister Muhammad Aurangzeb promised, just like all others before him, that he’d be the first to tax the real estate, agriculture, retail and wholesale sectors, yet he still chose to keep the finance ministry’s tradition alive by not taxing them when the time came for the budget.
Now nobody’s surprised that the tax-to-GDP ratio is falling, there’s a revenue shortfall, the EFF is in danger, and a mini-budget is desperately needed; one that will squeeze more out of the honest working classes that comprise the country’s small tax-paying lot. Unless the government overhauls the FBR immediately, and enforces a more sensible, much wider tax net, there is a very real danger of the EFF going off course, the IMF abandoning us, and a head-first tumble into sovereign default.
Yet, for some reason, this realisation still seems missing in Islamabad.
Copyright Business Recorder, 2024
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