Every year on Eid-ul-Adha, we sacrifice animals such as goats, sheep, cattle and camels as per our budget to perform Sunnah -e- Ibrahimi as Qurbani (a sacrifice) is a sacred act of worship highly encouraged by Allah. Since the past few years many of us are unable to perform this sunnah owing to no savings, decreased income and increased expenditures. This year's budget 2024-25 to be announced on Friday 07 June, 2024 and more masses to be slaughtered well before Eid ul Adha as the government has assured to collect taxes of Rs.1.3 trillion, out of which around Rs1 trillion to be eaten by interest payments to internal and external financial institutions. An amount of $1.5 billion net outflow is projected to be paid to the IMF for debt repayment and interest.
Every year on Eid-ul-Adha, we sacrifice animals such as goats, sheep, cattle and camels as per our budget to perform Sunnah -e- Ibrahimi as Qurbani (a sacrifice) is a sacred act of worship highly encouraged by Allah. Since the past few years many of us are unable to perform this sunnah owing to no savings, decreased income and increased expenditures. This year's budget 2024-25 to be announced on Friday 07 June, 2024 and more masses to be slaughtered well before Eid ul Adha as the government has assured to collect taxes of Rs.1.3 trillion, out of which around Rs1 trillion to be eaten by interest payments to internal and external financial institutions. An amount of $1.5 billion net outflow is projected to be paid to the IMF for debt repayment and interest.
FY2023-24 to be ended this June with around 1.8 percent of GDP growth and one who has little knowledge of economics, understands business can feel the trauma of a common man and salaried persons went through in recent years. Flawed economic policies, exemptions of taxes to the elites and unending of Himalayan expenditures have crushed the common man of this country, who are paying high amounts of indirect taxes yet being labelled as non-filers.
Since 1950, after joining the IMF, Pakistan has sought IMF bailout packages 23 times and one Stand by Arrangement in 75 years, reflecting the high unpredictability of its economy, led to substantial loans to address economic challenges but neither economy is back on track, nor masses got any relief. The reasons are built in structural problems, country needs fundamental reforms in these areas:
High Tariff Imports: A Barrier to Economic Growth
Pakistan's bureaucracy believes that high tariffs are an easy source to collect taxes from imports to meet set targets to run the government, keep current account deficit under control and or CA in surplus to celebrate their achievement. They hardly realize that our exports are stagnant, unable to compete with regional peers owing to the high imports tariff in Pakistan. Our policy makers are indulging in the romance of old myth “to grow our own, consume first later export if any surplus”.
High tariff imports are a significant obstacle to Pakistan’s economic growth. The import tariffs are among the highest in the region, making it difficult for businesses to access raw materials and machinery for value addition and or imports substitutions. This leads to increased production costs, reduced competitiveness, and decreased exports.
High import tariffs are running a vicious cycle of under-invoicing, Hawala Hundi, smuggling and flying invoices culture. Government must reduce import tariffs and adopt a more liberal trade policy so that all SMEs and big manufacturing companies may have a level playing field to compete with each other. End SROs, EOU, EFS approvals and eliminate discrimination between commercial importers and industrial importers as end users of any raw material semi finished materials are consumed by the industries. Commercial importers sell materials on credit terms and finance small scale industries who do not have collateral to get financing from banks to import their inputs.
High Corporate Tax Rates: A Disincentive to New Investments
Pakistan's corporate tax rates around 40 percent to 60 percent are among the highest in the world, discouraging new investments and hindering economic growth. The government should reduce corporate tax rates to encourage investments, promote industrialization, and increase economic activities. Most of the listed companies at PSX are owned by families, have directors and top management level posts drawing huge amounts of salaries and perks within family members. Reduced corporate taxes and high tax rate on individual directors may help companies to increase investments.
Regressive Taxation & High Tax on Working Salary Class: A Burden on the Poor
Pakistan's tax system is regressive, with a high tax collection at source and indirect taxes that disproportionately burden the poor. The IMF and World Bank are suggesting government to shift towards a progressive tax system, tax more on rich and super riches, tax on wealth and inheritance tax on huge wealth of super riches so that the poor masses are protected and ensured necessities of life such as safe drinking water hygienic living, health and quality education for all.
High Tax Exemptions: A Loss to the Economy
Tax exemptions to super rich elites are excessive in Pakistan, increasing the gulf between rich and poor, resulting in significant revenue losses. Monthly rent income collected Rs.100,000 and above from residential, commercial and industrial properties is subject to GST. Government should review and reduce tax exemptions to increase revenue and promote economic growth to take all citizens towards prosperity through equal distribution of wealth.
Shifting to Universal Self-Assessment: A Progressive Tax Reform
Pakistan's tax system should shift towards universal self-assessment, where taxpayers declare their gross income, expenditure, net income and pay taxes voluntarily. This will promote a progressive tax system, reduce tax evasion, and increase revenue. All transaction points must be linked with FBR dynamic portals.
High Electricity and Gas Tariffs: A Burden on Industries & Consumers
Pakistan's electricity and gas tariffs are among the highest in the region, making it difficult for industries to operate competitively thus unemployment is rising rampantly. The government should reset the energy mix, and reduce thermal based on imported fossil fuel which is almost 50 percent. Shifting from imported LNG, furnace and imported coal towards indigenous and renewable green energy can help to reduce energy tariffs. All contracts with inefficient power generation need to be scrapped. Sugar mills are already enjoying the lucrative tariff of bagasse based power generation, now there is news that sugar barons intend to get an increased rate of biomass energy by increasing the price of bagasse which is a byproduct of crushed sugarcane. Investments in renewable energy, biomass, hydel through floating turbines on river canals and tidal turbines and floating solar panels on sea water can aid and abet reduce imported fuel based energy mix, reduce tariff and not by giving “take or pay” model to increase installed capacity. Need to attract investments on distribution of electricity infrastructure to promote industrialization and economic growth, only possible at competitive energy tariff.
Investments in Properties Abroad: A Lack of Confidence in the Economy
Many Pakistanis invest in purchasing properties in countries such as Canada, USA, UK, EU, UAE etc due to a lack of confidence in the economy, political instability, and limited investment opportunities and or high rate of taxes and complex cumbersome taxation. Government should address these issues to encourage investment in Pakistan and promote economic growth gaining local investors' confidence as most of FDIs attracted in Pakistan neither transferred technology nor helped to increase exports, where consumers based resulted in higher outflows. Retain precious local investments through reduced rate of taxes, otherwise, Wikileaks Panama Pandora Box Dubai Unlocked Properties and next would be Canada or Turkey Property Leaks
Gender-Biased Economy: Empowering Women Entrepreneurs
Pakistan's economy is gender-biased, with limited opportunities for women entrepreneurs. Women play a limited role in Pakistan's economy, leading to a missed opportunity for economic growth. The government should promote gender equality, provide education and training opportunities, and address societal barriers to increase women's participation in the economy.
Size of Parallel Economy: A Challenge to Documentation
Pakistan's cash economy breeding parallel economy significantly, leading to a loss of revenue and economic instability. The government should implement policies to document the economy through a simple tax system, build a database through registration of all business certificate BRC mandatory to start push carts, nano business tyre tube puncture wala, barber shop to Kiryana Grocery shop SMES and big business. This will aid the database, broad tax base and reduce tax evasion, and promote economic growth.
These highlighted areas are few where fundamental reforms are needed to restructure Pakistan's economy, promote economic growth, and reduce poverty and inequality.
The write is a business leader
