The prevailing and somehow persisting global compression and slow down is having an adverse impact on the taxation system of many developing countries including Pakistan for varying reasons around the world. Declining oil prices as well as of other commodities in the international market have largely contributed to slowing down imports which in turn are having negative impact on the country’s taxation system because generally speaking lesser imports on different counts means less collection of duties and taxes. Present government inherited not so good economic situation and increasing import bill was squeezing the country’s foreign exchange reserves while on the other hand, exports were declining. The government is determined to improve the economic situation by curtailing the imports of the essential and necessary items to the maximum extent possible and at the same time taking appropriate measures to boost the exports in order to improve the negative trade balance into positive. But this is quite a complex situation at the same time for the economic manager’s team. How to curtail the imports and boost exports without adversely affecting the taxation system of the country. Over the years, there has been greater reliance on imports insofar as a collection of duties and taxes by the main revenue generation agency, Federal Board of Revenue (FBR) is concerned. As much as 43 per cent of collection by the FBR was made at the imports stages in FY 2018 which was five years back was 39 per cent in FY 2013. On one hand the government wants to compress imports to control and reduce the current deficit and on the other hand, revenue generation through taxes and duties collection at the given level has to be maintained to lower the fiscal deficit as well. Pakistan’s total import bill in FY 2013 was 40.1 billion dollars and taxes collection from the imports amounted to 20 per cent of the import bill. In FY 2018, the imports had soared up to 56.0 billion dollars and this had jacked up tax collection from the imports to 27 per cent of the import bill. The economic growth of the country during previous regime’s period FY 2013 to 2018 was mostly based on domestic demand which was met by more and more imports and for domestic production, raw material and intermediary goods were imported. But the exports not only remained static without showing a comparative increase but declined substantially in terms of ratio with Gross Domestic Product (GDP). It is a matter of record that the previous government had presented six budgets in its constitutional tenure of five years According to the economic experts, the previous regime used tariffs, sales tax and advance withholding tax at the imports stage mainly as a tool for revenue generation while the trade balance got worsened. The present government through its team of economic managers is trying to reverse the tide by using tariff as a trade tool rather than an instrument to generate revenue and thus improve the trade balance considerably by compressing the imports, substantially increasing exports and at the same time going for import substitution. It is a matter of record that the previous government had presented six budgets in its constitutional tenure of five years. The sixth budget was presented in the last week of April 2018 whereas its stipulated five years period was scheduled to expire on May 31, 2018. Accordingly, the 6th budget documents were by and large based on raw facts and figures for eight instead of at least ten months without caring least for the ground realities. For setting things right and updating the data, the present government has had presented so far two supplementary budgets, getting the figures updated on the basis of latest data and effecting reforms and correctness in different sectors at the earliest possible. The present government has also announced changes in the regulatory duties regime. In order to provide relief to some sectors and the same time in an attempt to discourage, curb and minimize the import of luxury items including those manufactured and produced within the country, customs duty and other taxes have been either abolished or reduced on one hand and enhanced substantially on the other hand. The adverse impact of the reduction of import duties can and must be offset by the FBR officials by putting extra hard work and tapping the untapped sources. According to the latest information available from official sources, the government’s policy measures have in the first month of 2019 resulted in shrinking of trade deficit, the decline in imports and increase in exports which quite obviously augur well for the overall balance of payment position of the country.The trade deficit stood at 17.7 billion dollars from July to December 2017 and has now shrunk by 5 per cent to 16.8 billion dollars during the corresponding period of 2018. It is good to note that the country’s imports are declining and exports increasing gradually and resultantly undue and avoidable pressure on the foreign exchange reserves is apparently reducing. The pressure on the foreign exchange reserves is also expected to ease further due to the availability of oil facilities from friendly countries including Saudi Arabia and United Arab States (UAE) and a record decline in oil prices in international market. As stated above, while all these developments are quite welcome, the government and the FBR have to continue looking for measures to offset the impact of compression on the taxation system through import substitution. Major imports of the country are Chemicals, Drugs and medicines, Dyes and colours, Chemical fertilizers, Electrical goods, Machinery( non-electrical), Transport equipment, Paper, board and stationery, Tea, Sugar refined, Art silk yarn, Iron, steel and manufactures thereof, Non-ferrous metals, Petroleum and products, Edible oils, Grains,pulses and flours. Country’s imports in 2010-11 stood at Rs 3455287 million,2011-12 Rs 4009093 million, 2012-13 Rs 4349880 million, 2013-14 Rs 4630521 million, 2014-15 Rs 4644152 million,2015-16 Rs 4658749 million,2016-17 Rs 5540921 million. While the imports registered gradual increase, the exports continued to decline during all these years thus adversely affecting the foreign exchange reserves. Tax Revue collected by FBR comprises Income Tax, Sales Tax, Federal Excise Duty and Customs Duty. Direct Taxes comprise Income Tax, Federal Excise Duty, Sales Tax and Customs Duty are indirect taxes. Customs Duty on Vehicles (Non-Railway), Edible Oil, POL Products, Machinery and Mechanical Appliances, Electrical machinery, Iron and Steel, Plastic resin etc, Paper and Paper Board, Organic Chemicals, Textile Materials, Tea and Coffee, Staple Fibres, Dyes and Paints, Articles of Iron and Steel, Misc. Chemicals Products stood at Rs 696993000 million in 2017-18 Budget and increased to 616915000 million and has been targeted at 755720 million in the Budget 2018-19. Taxes and duties including taxes on income; wealth tax; capital value tax; taxes on sales and purchases of goods imported, exported, produced, manufactured or consumed ; export duties on cotton; customs duties; federal excise duties excluding the excise duty on gas charged at well-head,and any other tax which may be levied by the Federal Government also provide basis for distribution of resources out of the Divisible Pool of Taxes between the Federation and the Provinces under the National Finance Commission Award. The Federal Government is currently working on Medium-Term Budgetaryy Framework, which was likely to be announced by the time this goes in print, to reduce tariff and duties on raw material; and intermediary goods and lower the incidence of other taxes collected at the import stage. The government may well dilate seriously on the tax structure on the whole and try to move possibly from General Sales Tax to Petroleum Levy (PL) for petroleum and Gas Infrastructure Development Cess (GIDC) as both PL and GIDC do not fall under the purview of the Divisible Pool of Taxes. The income from both these PL and GIDC can thus be used by the federal government for lowering the fiscal deficit which is a serious problem in the way of improving the overall national economic improvement challenges it has inherited from the previous government. The federal government out to continue laying stress on innovative measures keeping the ground realities in view and should ponder over introducing more taxation measures or by expanding the tax base in order to plug the fiscal gap. The country’s main tax collection agency FBR with its current structure may not be able to do the latter. The economic experts on being contacted have opined that the best way for the federal government in the prevailing circumstances is to ponder over possibility of taxing the petroleum products during the period when these are priced at lower level while keeping the fact in mind that petroleum products are already highly taxed and incidence of tax etc on petroleum products had increased during the last five years from 13 per cent in FY 2013 to 23 per cent in FY 2018. The writer is Lahore-based Freelance Journalist, Columnist and retired Deputy Controller (News) Radio Pakistan, Islamabad Published in Daily Times, March 18th 2019.