Pakistan is badly affected by global price hike. The current Ukraine-Russia conflict is going to make it worse. In the face of deteriorating investment clime, when foreign direct investment is substantially decreased and the existing businesses are struggling to survive, Federal Board of Revenue (FBR), instead of broadening tax base, is imposing oppressive taxes and increasing burden on existing taxpayers, to meet the enhanced target fixed by IMF in utter disregard of the rational tax model presented in Towards Flat, Low-rate, Broad and Predictable Taxes (PRIME Institute, December 2020), Tax Reforms in Pakistan: Historic & Critical Review (PIDE, Islamabad) and in articles Overcoming fragmented tax system, Business Recorder, October 19, 2018 and Tax model for prosperity, Business Recorder, December 17, 2021.
Contrary to suggestions made in The POL bomb, Business Recorder, April 5, 2019, the PTI government agreed with the IMF to enhance petroleum levy (PL) to its maximum level. The Federal Minister for Finance and Revenue, Shaukat Tarin, confirmed the commitment with the IMF to gradually increase PL in gasoline and diesel by Rs 4 per liter/per month until its maximum limit of Rs 30 under the Petroleum Products (Petroleum Levy) Ordinance, 1961.
In addition to borrowing from the IMF, the government has also been relying on other creditors to meet its requirements on the external front. It secured US$ 3 billion deposit, deferred oil facility from Saudi Arabia and took credit facilities from China. Moreover, G-20 Debt Service Suspension Initiative (DSSI) was extended by a third-round until December 2021 that helped the government manage short-term financing requirements.
PM’s relief package in perspective—I
Unfortunately, however, till today the present government has failed to devise a growth strategy to meet the economic challenges faced by the country. The projected GDP growth of 4%for the current year is not enough to bring any positive change in the lives of the people. The PTI government has already exhausted over three years of its terms but could not introduce structural reforms to generate employment, increase growth, and strengthen financial position of the country.
The manifesto of PTI promised to strengthen FBR’s autonomy by reducing the Ministry of Finance’s role and ensuring structural changes in tax system by simplifying the tax assessment, rules and shifting towards direct taxation. The growth strategy in the manifesto was based on reviving manufacturing and facilitating the small and medium enterprises (SMEs). However, all these sectors have been badly impacted by policies of the PTI government. Chapter II of the PTI’s manifesto deals with the transformation of the governance through accountability by providing full autonomy to National Accountability Bureau (NAB) and other institutions to pursue all major corruption scandals regardless of political affiliation. But, the PTI government failed to honour its commitments. NAB is repeatedly criticised by the apex court as a body, manipulated for political engineering.
Since 2018, Imran Khan’s focus remained on strengthening of power base by using different agencies against political opponents instead of undertaking structural reforms to promote long-term, sustainable growth — the country is thus facing serious economic challenges, current account deficit of nearly US$ 20 billion and an all-time high circular debt. In 2022, for our economic needs, we are heavily dependent either on the IMF loans or bailout packages Saudi Arabia and China. The PM, knowing well that shift of non-compliance of terms agreed with the IMF can land Pakistan in front of new financial challenges, decided to announce an incentive/relief package without doing basic homework of meeting the revenue gap and narrowing fiscal deficit. The government now needs to ensure that this political move at a time when the opposition is planning to table a motion of no confidence against the Prime Minister, will not cost the nation heavily in the future.
(Huzaima Bukhari & Dr Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently
coauthored a book, Pakistan Tackling FATF: Challenges and Solutions)
Copyright Business Recorder, 2022