Experts call for tax reform to boost macroeconomic stability

KARACHI Experts at a pre-budget stakeholder consultation urged the government to moderate the country's inconsistent tax regime and cumbersome regulatory steps to achieve macroeconomic stability.

The consultation, organized by the Sustainable Development Policy Institute (SDPI) and the Revenue Mobilisation, Investment and Trade (REMIT) Programme, brought together stakeholders to provide recommendations for corrective measures, a statement said on Tuesday.

Nagham-e-Tehniat Jerral, Governance Adviser and Tax Lead – REMIT, said the UK is a close partner of Pakistan in its development journey with a key ambition to make the latter achieve its economic potential.

She mentioned that the World Bank, in its report, indicated that Pakistan's economy could go beyond $5 trillion by 2057 with correct interventions and reforms in its economic system.Jerral said that in the global race for trade and investment, Pakistan has been lagging for the past three decades, whereas revenue mobilization is also one of the challenges faced by Pakistan amid small tax revenue being collected, which was half of the total potential.

She claimed that the taxes collected were insufficient and, according to a World Bank study, the poorest 10 percent in Pakistan pay more tax than the richest 10 percent, highlighting the regressive nature of Pakistan's tax system.

Hamed Yaqoob Sheikh, Team Lead – REMIT, said the purpose of the dialogue is to come up with recommendations and solutions to provide guidelines to the government for corrective measures. “REMIT has the edge in that it can lead the policy recommendations to the highest level forum,” he said.

Dr Wasif Ali Memon, Chairman of the Sindh Revenue Board, said that political will was very important to implement reforms and taxation measures, otherwise no change can happen in the system.

"With a tax-to-GDP ratio below double figures, the burden of taxes falls heavily on the salaried class, leading to tax evasion. It's time to reform the tax system for a fairer distribution of the burden. "

“An increase in utility charges, gas, electricity and petroleum charges will keep the country in the vicious circle and leave the industry crying in crises. We have strange ties at western and eastern borders that make the country unable to become a vendor industry for China along with continuously changing revenue loss and tariff,” he added.

Anwar Kashif Mumtaz, President, Pakistan Tax Bar Association, highlighted that the masses have a lack of trust in the revenue departments, which is a hindrance to promoting a tax-paying culture. However, it is necessary to have a paradigm shift in the mindset of taxpayers and non-filers.

“The government has to take harsh decisions as there is no such thing as a traders’ friendly government concept in the world,” he added. Kaiser Bengali, Director, Engro Powergen Qadirpur Ltd., said the country lacked a cogent and well-defined privatisation policy or discourse at the cabinet level for state-owned enterprises.

He underlined that there has never been any strategic factor considered during the privatisation of PTCL or banking entities as there was no such policy on the issue that led to the loss of precious state assets of strategic nature.

Naheed Memon, a Member of the Board of the Privatisation Commission of Pakistan, said the country needed a cogent privatisation policy for medium to long-term goals along with the abandoning of successive regulations choking the businesses in the country.

"The biggest hurdle in mobilising investment in Pakistan is the cumbersome regulatory environment. Prioritizing mobilizing domestic investments is crucial, and foreign direct investments should not be the only focus,” she added.

Saif Junejo, Chairman of the Exports Processing Zones Authority, said Pakistan's six export processing zones are falling short of their potential as the Karachi Export Processing Zone (EPZ), planned for 3,000 acres, is only developed on 300 acres, in phases. However, as compared to Jebel Ali Free Zone's $104 billion, Karachi's export processing zone generated only $600-700 million, about 75 percent of national export processing zone revenue.