Governor State Bank of Pakistan Shahid H Kardar has said that the National Finance Commission Award has created serious structural issues between the Federal and provincial governments that must be resolved for the long-term economic revival and political stability in the country.
Delivering his keynote address at a pre-budget seminar organised by the local newspaper here on Sunday State Bank Governor lamented that Pakistan's direct tax ratio to the GDP was one of the lowest in the world. Guatemala has a population of 7 million people but its number of tax payers is double of that of Pakistan", he added.
"In my personal view, as I see it now, the terms of trade have moved in favour of the those sectors of the economy which are under provincial governments domain, agriculture, services, property taxes, agriculture tax etc' (after the 18th amendment in the constitution), Kardar said.
"What has happened now, that key liabilities and responsibility like national security, debt servicing, subsidies on electricity, food, circular debts etc have been left with the federal government while revenue collection resources have been given to the provinces', he added.
He said, "Now we have this dilemma after NFC Award that the resources are with the provinces who do not have the infrastructure to generate more revenue by collecting taxes and the Federal government is unable to touch those areas, which have come under provincial governments' purview".
He said that the government should bring about necessary structural changes in collection and distribution of resources so that the federal government was able to fulfil its national and international obligations. "When the provincial governments have the resources then they should also contribute to meet the state's obligations", Kardar added.
He called for fiscal measures to enhance revenue collection, stoppage of leakages in the tax system, broadening of tax net and cut in non-development expenditure for revival of the economy and stability.
He further suggested that the government should reduce the debt burden to manageable limits and bring the inflation to a single digit. The private productive activity and investment will have to be increased considerably to create more jobs for unemployed youth. The private sector credit has been squeezed due to mounting government borrowings", he said.