Of revenue mobilization

Tax revenues are an important part when it comes to achieving fiscal stability. Over the years Pakistan has faced a dismally low tax to GDP ratio whereas the tax base has also struggled to expand.

In its recent report the IMF also underscored the need for "mobilisation of tax revenues to be further strengthened" in light of slackening fiscal consolidation. The fiscal deficit registered a higher than expected increase at 3.8 percent of GDP for the first three quarters of FY17.

The Fund also noted that tax revenues were 0.6 percent of GDP less than expected which it attributed to lower collection of sales tax, direct taxes, excises and gas infrastructure development cess. There was no optimism on the non-tax revenue side as well which was 0.7 percent of GDP less than expected on account of lower SBP profits, PSEs dividends as well as the fall in disbursements under the Coalition Support Fund (CSF).

In order to achieve medium-term fiscal consolidation, the IMF emphasised revenue mobilisation as the main tool. As this column has also previously commented upon, Pakistan's tax-to-GDP ratio is lower when compared on an international basis. The graph shows that the country lags far behind the emerging market average and regional peers India and Turkey, which have a tax-to-GDP ratio of roughly 18 percent.

In light of the growing infrastructure spending and the need to ramp up social spending, there needs to be a concerted effort to mobilise additional tax revenues. The fund provided further reducing tax concessions and exemptions, raising petroleum taxes and withholding taxes, and strengthening collection of provincial taxes on services, property, and agricultural income as options to achieve the required goals.

Tax administration has been poor on account of all standards and the IMF highlighted the need to improved FBR's access to third-party information, enhancing tax audits, and reducing the stock of outstanding tax refund claims. The last part will also go a long way in alleviating the liquidity crisis that has engulfed the cash-starved exporters of the country.

Lastly, an important point that this column would like to add is the inter-provincial as well federation-provinces co-ordination that is vital to achieving any meaningful tax reform post devolution. This will not only aid in tax compliance but at the same time bring down the extraordinarily high cost of doing business in the country.