As Pakistan struggles to achieve sustainable growth, the federal government is firmly resolute in its commitment to tax reforms and rightsizing to achieve macroeconomic stability and secure a prosperous and progressive future for the country.
For ordinary citizens, the impact of tax reforms and rightsizing may seem distant, but government is clear in its thinking that everyone must contribute to country’s economy and play their respective role in economic uplift. Federal Minister for Finance and Revenue, Senator Muhammad Aurangzeb in a message termed the structural reforms as crucial for achieving macroeconomic stability, which he called is a “basic hygiene” for sustainable growth.
“Structural reforms are pivotal for ensuring sustainable economic growth and stability, forming a cornerstone of the government’s policy agenda,” the finance minister said while reacting on the issue.
Since respective governments have been endeavoring to broaden tax base by bringing more eligible into tax net, the efforts could not generate desired results. Therefore, the present government has once again embarked on an agenda to improve tax collection and bring the most needed reforms in this regime.
As per the official data, country’s 43% of sectors in the economy pay less than 1% tax, resulting in a tax-to-GDP ratio of just 8.8% which is unsustainable and no country in the world could be run with these meager resources. The consequence is very much evident that Pakistan had to depend on external financing to bridge the fiscal gaps.
In order to reduce dependence of external financing and improve revenue collections, the government eyes on lifting the tax-to-GDP ratio up to 13% as envisaged in the budget document for current fiscal year (2024-25). The way forward is clear and needs to broaden tax base and bring potential taxpayers into tax net to boost income of the national exchequer and help reduce dependence on external financing besides encouraging investment and economic growth.
In addition to tax generation, the government has been seriously taking measures to reduce its expenditures and slash fiscal deficit. The federal budget 2024-25 predicted a headline deficit of 5.9% of GDP and a 2.0% primary surplus against 7.4% and 0.4 percent respectively during 2023-24.
Currently Federal Minister Senator Muhammad Aurangzeb is heading the High-Powered Committee on Rightsizing of the Federal Government to reduce size of different ministries and autonomous bodies.
Six ministries were asked to prepare an implementation plan for rightsizing, considering their employees, resources, properties and litigation matters. Once this process is complete, further ministries would be considered for reforms and rightsizing. However, the government would need to bring legislative changes in Civil Servant Act 1973 to carry forward the rightsizing process smoothly.
Experts believe that rightsizing would help reduce expenditures and slashing fiscal deficits; improve efficiency and productivity in the government ministries and autonomous bodies; reducing size of the federal government and improving governance besides encouraging private sector growth and investment.
Although the ride is bumpy, yet the efforts look sincere as ever since the incumbent government had assumed power, the economy is gradually coming on the right track as demonstrated by various economic indicators.
According to Economic Update and Outlook the country’s economy started Fiscal Year 2025 with positive developments, setting an optimistic tone for the months ahead.
”Both the fiscal and external sectors have shown resilience, attributed to improved management,” revealed Economic Update and Outlook and noting that the current account has improved and FBR tax collection exceeded the target.
Meanwhile, a drop in Consumer Price Index based inflation to single digit (6.9), as per the data of Pakistan Bureau of Statistics (PBS) suggested that the economy is on track. The drop in inflation would help bring the policy rate by State Bank of Pakistan (SBP) down accordingly, hence helping businesses to flourish.