Daily Times

Soon to be tabled in the National Assembly, the Income Tax Bill 2021 is, in essence, a natural consequence of Pakistan knocking at the doorways of the IMF. Whether this bill would put the brakes on the “remarkable turnaround” being proclaimed by the government remains to be seen.

Amid growing rumours about the impending contraction of the corporate sector, the pressure of these exemptions on government budgets cannot be made light of. To salvage its $6 billion deal with the IMF, Pakistan has been asked to deal with as many as 80 income tax exemptions to the tune of Rs200 billion. Going by the FBR’s Tax Expenditure 2020 report, these exemptions (income, sales tax and customs duty) cost the national exchequer Rs1.15 trillion last year. This does not take into account the cost-benefit analysis for individual concessions. Therefore, asking for their continuations without analysing the impact on economic growth is, simply put, stumbling around in the dark. It comes up to around three per cent of our GDP and over 29 per cent of the total projected tax collection of Rs3.9 trillion. A developing country like Pakistan cannot afford to give away such a hefty chunk of its shrinking pie in the name of “business favours.” Then again, there are constant howls and jeers for duty concessions from the industrial sector. In light of these economic fallouts–especially when the authorities are not capable of assessing their true cost or prevent their abuse–Islamabad is spot-on in putting an end to the use of this carrot to attract investment.

PM Khan has already termed these reforms as yet another attempt at making the tax code simple and transparent. The groggy nature of Pakistan’s tax policy often makes the headlines for all the wrong reasons: regressive; unfair; complex and opaque. The country’s top one per cent is busy running a fiscal Ponzi scheme that makes use of borrowing to knit illusions after illusions. Income tax filers stand at an abysmally low number (10 per cent tax-to-GDP ratio). The only sustainable solution to the ever more complicated money troubles lies in taxing the rich. Nothing else! While the transfer of tax burden to the poor (through a raft of indirect taxes) is a dilemma on its own, making the coming generations pay for unrestrained borrowing can also not be overlooked.

There remain no qualms about the testing times ahead for the power and manufacturing sectors as well as the stock market once the parliament greenlights these withdrawals. Moody’s positive speculations about Pakistan’s economy–no matter how modest–, remittances at over two million, the slow recovery of the stock market all are clear indicators of a bouncing economy. But this has only been possible due to the extensive relief given during the extraordinary COVID times. The suspension of the IMF programme allowed PM Khan the free space to avoid taking hard steps last year but now that Pakistan is back in the ICU of economies, the fate of the middle-class hangs in the balance! *