Reform hurdles

LAHORE: The economy has stabilized after huge sacrifices by the electorate, but it could derail again if the needed corrective measures are stalled to please the general public.

The two main parties in the coalition government are already worried about losing public support because of the reforms they pursued in the last three years. The same parties have somehow retained power after the elections. On paper, the government remains committed to continuing with reforms, including privatization, forcing tax evaders to come into the tax net, and bringing traders under a new tax regime announced for them (which is again a fixed tax scheme, but instead of traders, the FBR has fixed monthly tax on each category of traders).

Progress on these issues has been painfully slow. The privatization process is almost stalled. The main coalition partner, PPP, is openly opposing the partial privatization of PIA, which would make all its employees redundant. Its privatization in time is crucial to negotiate a new long-term program with the IMF. The tax evaders have, for the time being, been let off the hook as the Pakistan Telecommunication Authority has reservations about blocking their mobile SIMs.

The move itself shows the weakness of the FBR. When it has data that shows that these people are evading taxes, it should confront them directly instead of creating hurdles in their lives. The FBR has already issued several notices to them, which most of them did not bother to respond to. The next legal step is action against them. To preempt litigations, the FBR should forward the list of defaulters to the court of law with a request to ask these defaulters to respond to the notices and permission to move against them (though such permission is not needed, but it could stop long court proceedings by tax evaders).

Traders have flatly refused to come under the new taxation scheme. The chambers of commerce and industry are supporting them. Under the new scheme, they are liable to pay a fixed monthly tax fixed for each category of traders by the FBR. Even under the new scheme, they are not required to document their businesses but simply pay the monthly fixed tax, which obviously is higher than what they used to pay under the yearly turnover scheme in which they determined their turnover without any documentary proof.

According to the promises given to the IMF, the implementation of these programs would start from the next fiscal year, starting from July 1, 2024. Failure in this regard would adversely impact our chances of entering into the new IMF program.

The coalition government is hoping that these issues could be prolonged by requesting the IMF for a new implementation date. The IMF might agree but would stall the new program until these conditions are met. The apolitical technocrats in the government desire immediate action on all three fronts as we need a letter of intent from the IMF that our newfound investors need to commit their resources.

Our economic health is also linked to the lowering of interest rates in view of rapidly falling inflation. But any hitch in the IMF program would put all improvements in reverse gear, and the central banks would not risk inflation coming back and keep rates high, thanks to its autonomy.