Daily Times

International Monetary Fund (IMF) Managing Director, Christine Lagarde, in a meeting with Prime Minister Nawaz Sharif in Islamabad on Monday, maintained that Pakistan is out of an economic crisis, but to sustain the progress, the country would need to widen its tax net among implementation of other reforms as soon as possible. Lagarde lauded the government on successfully completing the IMF programme worth $6.4 billion and achieving macroeconomic stability during a short period. The IMF MD also said that economic growth has gradually increased, and the fiscal deficit has reduced while inflation has continuously declined in Pakistan. She also appreciated Pakistan’s strengthened social safety nets, tax policy and administration reforms that have been undertaken.

The visiting IMF managing director, while speaking at a seminar later in the day, said: “Despite the marked improvements over the IMF-supported programme, Pakistan still only collects little more than half of what is estimated as a feasible amount in taxes. This means continued efforts are needed to bring more people into the tax net and ensure that all pay their fair share.” She also added: “Currently, these losses amount to more than two-thirds of what is spent on the Benazir Income Support Programme. Imagine what you could do with that amount of extra resources.”

Since the initiation of the assistance programme, the IMF has urged Pakistan to take certain measure to improve the budget deficit by improving exports and privatising loss-making public enterprises. Although the government has made some efforts, so far, the results are not appreciable. The loss-making entities like the Pakistan International Airlines, Pakistan Railways, Pakistan Steel Mills, power distribution companies and other state-owned companies have been running in losses for years. Despite giving certain dates for privatisation, the government has not been able to finish the process.

As far as the tax net is concerned, the number of registered taxpayers hovers around one million, an alarmingly low number in a country with a population of more than 180 million. Instead of widening the tax base, the government has resorted to indirect taxation measures, which have resulted in an increased burden on the salaried class. But the government has not been able to bring business class in the tax net. The tax amnesty scheme that was introduced to add a million taxpayers in the net could only woo 10,000 people, and was widely criticised by the business community.

Although the progress of the economy hinges a great deal on increased exports and foreign direct investment in the country, an increase in the tax net is the utmost necessity to self-sustain the economy. In just the past three years, Pakistan has new foreign loans of $25 billion, along with approximately $30 billion from local banks for the purpose of budget financing. This is a dangerous trend that could result in a potential crisis if Pakistan does not take measures to improve its income-generation through taxes and other reforms.*