ISLAMABAD: The Policy Research Institute of Market Economy (PRIME), in its quarterly economic review, has stated that the proposed increase in income tax rates announced in the federal budget will incentivize non-compliance and undermine the government’s ability to raise its revenue and broaden its tax collection base.
According to the newest edition of PRIME Plus, the quarterly economic review by the PRIME stated that no serious attempt was made to eliminate the persistent fiscal deficit by curbing unnecessary expenditures, and this is most reflected in the expansion of the public sector development fund.
The higher tax incidence on private salaried individuals and businesses will curb disposable income and diminish economic activity further. According to the report, monetary expansion was higher than real growth, causing inflation. At the same time, the announcement of salary increases for the public sector contrasts with policy goals of managing inflation and will result in unequal distribution of inflationary pressures amongst the population.
Furthermore, the private sector borrowing has been declining due to the high cost of borrowing, and the manufacturing sector output continues to be subdued amidst higher utility and input prices. The report also notes that supply-side bottlenecks remained unaddressed, especially those related to Ease of Business in the country. Concessionary measures to industry are largely in the form of import substitution frameworks and will prove ineffective in the development of internationally competitive businesses. The report points out that Pakistan remains an unattractive destination for foreign investors and despite improvements in the current account balance, external financial pressures are continuing to mount.