Budget proposals prepared by the Institute for Policy Reforms (IPR) have recommended that the government consider non-filing of tax returns a crime and toughen penalty for tax evaders. According to IPR budget proposals, "Financial constraints have restricted the government from providing people with public service and infrastructure; the people who want jobs, economic activity and reliable power supply. Everyone knows the reasons for the low tax to the gross-domestic-product ratio. It is now time to take action.
"The Federal Bureau of Revenue will most likely achieve this year's tax collection target. The fiscal deficit too will likely stay within the target of 4.3 percent. However, the government has yet to introduce structural reforms to stimulate economic activity and investment. It has not addressed issues of the political economy, governance improvement and productivity enhancement. The external sector remains vulnerable with falling exports and a high-foreign debt.
"Although Pakistan's Extended Fund Facility arrangement with the International Monetary Fund will end soon, the economy must never lose the stability gained in recent years. "At the same time, there should be no new taxes, except to reduce tax expenditure (exemptions) from direct and indirect taxes. Revenue increase must come from broad-basing collection. The current expenditure may stay at the present inflation adjusted level. Growth, inducing public investment, must increase to enhance productivity.
"It is necessary to increase the development envelope also for China-Pakistan Economic Corridor's projects. The government may reorient the Public Sector Development Programme (which is the main instrument for providing budgetary resources for development projects and programmes) to increase allocation for productive sectors."
In a report, IPR also introduced specific recommendations for increase in tax collection and focus on broadening the tax base and strengthening compliance. "There is need to simplify procedures, rationalise systems and remove distortions. The government must impress its provincial counterparts to increase revenue from agriculture and urban property taxes. To build effectiveness in current expenditure, the government must begin to review recurrent expenses, which is about 80 percent of the budget. The current expenditure receives funding with practically no review. It is critical that the expenditure align with the government's major objectives.
"Zero-based budgets, especially for over 100 autonomous organisations and departments in the government, will help determine their contribution. This will enable the government to decide their use and further existence. The government may also consider merger or devolution of some federal ministries. With mark-up rates low, the government must rationalise debt servicing expense by increasing share of long-term debt to lock in present low mark-up rates. Eventually, the government must address the issue of unpaid circular debt. It is critical to check revenue leakage from distribution companies. Likewise, public-sector enterprises preempt considerable resources. Improvement in their performance is necessary.
"For effective development spending, the Planning Commission may prepare annual plans several months before the Public Sector Development Programme. As the road map for it, there should be a broad consultation on the annual plan with the political leadership and other stakeholders. This will reduce a top-down-project selection and create a better connection between strategy and budget.
"Rather than spread thin-limited resources, the Planning Commission must prioritise three or four sectors for funding so that projects do not have a throw forward of more than three years (other than for operational reasons). Reduction in the number of Public Sector Development Programme projects will help with timely completion of priority projects while staying within the Finance Ministry's envelope. To ensure long-term benefits from projects, new approvals must have the ministry's assurance that funds for maintenance will be available."
The proposals also cautioned that the budget preparation must never be an exercise to balance receipt with expenses. It must support the country's development strategy. The budget must meet larger objectives of the economy to build competitiveness and alleviate poverty.