Daily Times

Even though Pakistan’s economic crisis in 2022-2023 is a recurring factor in the country’s political unrest, it has a history of ignoring the nation’s true issues, which include poor governance, a broken judicial system, outdated laws, complicated tax system, lack of transparency, duplication in the government system, ineffective bureaucracy, improper use of our human, natural and water resources, lack of efficient local government, inadequate/unreliable data for country’s planning, and the consistent flaws in policies in execution by the government departments. Pakistan’s GDP growth rate has always remained below its potential despite efforts to boost economic growth. The development of important sectors and investment prospects was hampered by inadequate revenue collection, structural problems, and governance issues.

Since it has been causing serious governance and economic issues for years, the cost of goods, food, petrol, and other necessities has increased, and inflation has almost reached 45 per cent, which is not bearable for the common man. On the other hand, there has been an increase in dissatisfaction among the public that no state institution is performing well and to save them from the haughtiness and bad administration pervasive in the system. The only way for this to go from a failure to a success story, as in other countries, is if the federal and provincial governments defy them and pursue fundamental changes in governance, fairness, openness, accountability, and the consistent economic policies minimum for 15 years.

Other troubling issues also exist, posing obstacles to our economy’s expansion. Pakistan is ranked 173rd internationally for tax payments. According to a World Bank analysis, Pakistani businesspeople pay 47 taxes yearly, compared to those of Hong Kong, the United Arab Emirates, Ireland, Malaysia, Sri Lanka, and India, which are the countries with whom Pakistan must compete. A single business that conducts business in four different Pakistani provinces annually disburses five corporate income taxes, twelve employer-paid pension contributions, twelve Social Security payments, one property tax, one professional tax, one vehicle tax, one stamp duty payment, one fuel tax payment, and twelve payments of goods and sales tax.

An exporter needs 75 hours to complete border compliance and document compliance

Additionally, Pakistan dropped 23 spots on the indicator for corporate loan availability. The nation was ranked 105th this year as opposed to 82nd last year. There wasn’t much money left to fund the company’s expansion because of the government’s expanding budget financing requirements. Pakistan’s Human Development Index (HDI) as of 2022 is 0.544, placing it 161st out of 192 nations. The HDI of Pakistan is among the lowest in Asia, right below Yemen and Afghanistan. The country dropped one spot, moving to positions 142 and 170 on the indices for registering businesses and properties, respectively. There are 12 different treatments, and it takes roughly 18 days to finish them all. Similarly to that, it took many days to register a property. The nation climbed nine spots in the rating for handling building permits, landing at position 141. It takes an investor 252 days to complete 15 different types of procedures to obtain a building permit.

Pakistan has had trouble raising enough money to cover its expenses. Due to the low tax-to-GDP ratio, borrowing and outside help are heavily relied upon to close the fiscal imbalance. In Pakistan, there is a recurring budget deficit because the government spends more than it takes in. The national debt burden has risen, as a result, needing substantial financial resources for debt repayment. Both internal and external debt in Pakistan has been constantly rising. The budget is largely consumed by debt servicing; leaving little money for social welfare and development initiatives. Circular debt, which is the accumulation of unpaid invoices and pending payments among power generation firms, distribution companies, and the government, is a problem in Pakistan’s energy sector. This problem has a significant negative impact on the power sector’s finances and hinders its ability to meet the rising energy demand.

Though Pakistan did move one spot on the index of cross-border trade, it still fell into the worst 20 economies at position 171. An exporter needs 75 hours to complete border compliance and document compliance, which needs to be streamlined. Pakistan is ranked 156 on the index of enforcing contracts, one spot higher than the ranking from the previous year. This is, once again, a very important problem for boosting the economy and for regaining the confidence of both domestic and foreign investors.

According to the World Bank’s Ease of Doing Business Index, Pakistan is ranked 136th in the world overall and 172nd, in terms of tax compliance. According to these rankings, the major obstacles to economic investment at the moment are the government’s complex systems, lack of transparency, and complex tax laws and regulations. Further, to boost foreign exchange revenues, the federal government must prioritize export promotion strategies. This can be accomplished by increasing export competitiveness, diversifying export products, supporting exporters, and locating new markets through trade agreements and diplomatic efforts.

The World Bank’s Paying Taxes report states that the sub-indicators of the overall measure of paying taxes, such as the number of payments and time to comply, in particular, evaluate the advancement of online tax filing and payment. The extent of these indicators decreases as IT-enabled tax system procedures increase. According to this data, Pakistan is ranked lower among the Asian Pacific nations for overall taxpayers. In other words, the lack of effective IT-based systems in the mechanisms for collecting taxes is represented in higher magnitudes of the “number of payments” and “time to comply” indicators, as in the case of Pakistan. As a result, the project of initiatives in IT has the potential to raise Pakistan’s standing in terms of tax compliance and commercial accessibility.

Several actions can be taken to address Pakistan’s fiscal and economic issues and provide pave the road forward such as strengthening tax administration and broadening the tax base by bringing more individuals and businesses into the tax net. It is crucial to promote economic documentation to increase revenue collection, diminish the informal economy, fight tax evasion, and boost tax collection methods through automation and digitalization. To lessen reliance on external borrowing and manage the present debt burden successfully, a strong debt management strategy is also urgently needed.

Additionally, to encourage investment and job creation, it is crucial to make doing business easier by streamlining regulations and removing administrative roadblocks. Additionally, it is crucial to take action in key industries like manufacturing, information technology, and agriculture. By reducing bureaucratic red tape and streamlining regulatory processes, the ease of doing business is increased. It is also crucial to support public-private partnerships and collaborate with foreign organizations for advice and knowledge.

It is also crucial to improve our institutional capacity and governance & justice frameworks by implementing transparency, accountability, and efficiency in public financial management. It is also crucial to continue putting into practice effective anti-corruption measures and enforcing strict penalties for corrupt practices.

It is also essential to have a thorough and varied approach to adequately solve Pakistan’s economic and governance issues as stated above. To execute reforms, enhance income collection, and ensure efficient resource allocation for long-term economic growth and development, this calls for coordinated efforts by the government, corporate sector, civil society, and international partners, It is also important to increase trade prospects, promote economic cooperation, and entice foreign investment, Pakistan should establish an independent institution and provision of one window facility to actively participate in regional and global economic integration activities, and to pursue bilateral trade deals while taking part in regional forums like CEPC, the Belt and Road Initiative (BRI), Shanghai Corporation, and nations in Central Asia and the Middle East, and most importantly to attract Overseas Pakistanis for their economic participation and investment.

The writer is a practicing lawyer at Supreme Court and has served as Chairman, Federal Excise & Sales Tax Appellate Tribunal and Senior Advisor Federal Ombudsman. He can be reached at: hafizahsaan47@gmail.com.