“The mission and the authorities agreed on the need for … a phase-out of all existing statutory regulatory orders (SROs) and other measures which grant special rates and tax exemptions.” This is from an IMF press release back in 2013 during the consultation discussion before entering the programme. Five years later, the gradual “phasing out” has only resulted in tax expenditure more than doubling to Rs541 billion
Granted, Pakistan does not always stand true to all the promises made with the IMF. And the IMF is not as strict as some think it is, when it comes to implementing reforms or imposing conditions. But the government itself had promised to phase out SROs by 2017. But concessions kept on coming, and the tax expenditure for FY18 is the highest ever.
Tax expenditure during the PPP tenure (FY09-13) averaged Rs178 billion per annum. That in the current government’s tenure has averaged Rs448 billion per annum. But to put things in perspective, the total tax expenditure as a percentage of total tax collected has come down from 8.8 percent in the last tenure to 7.4 percent in the current one.
It must be noted here that not all SROs are bad. It is quite possible that most of the tax expenditure had a broader positive impact on the overall economy. But it would be rather nice if such assessment is made in a way that details the economic evaluations and consequences of exemptions and concessions. A UNDP analysis titled: ‘SROs – The story of sordid regulatory orders’ highlights these concerns pointing towards the lack of rhyme and reason behind every SRO, which are “simplistically calculated on the basis of the differential between statuary rate and concessionary rate, leaving the broader economic assessment in the dark.”
The government would do well to make it a more consultative process with stakeholders to have some semblance of transparency. The rise of CPEC-related investments could also be one of the reasons why the tax expenditure has been on a rise, due to various exemptions granted to Chinese firms working on energy and infrastructure projects – as evident from the never-ending list of SROs. So, if it is about CPEC, it must all be transparent. The phasing out can surely wait.