he budget for fiscal year 2024-25, presented by Minister for Finance and Revenue Muhammad Aurangzeb on June 12, purportedly aims at transformative growth focusing on key macroeconomic and fiscal priorities. The government’s stated objectives include fiscal discipline, privatisation, stimulating investment and reorienting exports. The key priorities involve optimal revenue mobilisation, addressing energy sector imbalances and enhancing the social protection system.

The finance minister has emphasised that the Federal Board of Revenue will undergo digitisation and AI integration to meet its ambitious revenue targets. Austerity measures and improved governance of state-owned enterprises are expected to create fiscal space for pro-poor spending, climate change mitigation and quality public services. The Public Sector Development Programme has been allocated Rs 1,400 billion, the largest in history, to ensure development in energy, water, IT and special interest sectors.

While stressing the government’s commitment to fiscal discipline, economic revival, and stability, the minister has outlined strategic directions for revenue generation, spending priorities and fiscal consolidation by reducing inflationary pressures, strengthening external accounts and improving the balance of payments.

However, the minister’s priorities and strategy to put the country on the track to sustainability do not align with the country’s financial situation. The fiscal deficit for FY2024-25 stands at a staggering Rs 8,500 billion, highlighting a significant imbalance between federal revenue and expenditure; the net federal revenue is projected at Rs 10,377 billion and the federal expenditure at Rs18,877 billion, including a current expenditure of Rs 17,203 billion.

The development and net lending are projected at Rs 1,674 billion. The gap is undeniable. Despite the Public Sector Development Programme allocation of Rs 1,400 billion aimed at fostering growth, the deficit highlights the government’s financial constraints. To address this, the government plans to secure net external financing of Rs 666 billion from multilateral and bilateral sources, alongside Rs 676 billion from commercial lenders and Euro bonds.

However, the bulk of financing, Rs 7,803 billion, will come from domestic sources, including Rs 7,683 billion from banks through government securities, Rs 120 billion from National Savings schemes, and a modest Rs 30 billion from privatisation proceeds. The heavy reliance on domestic borrowing threatens to exacerbate the already high debt accumulation, with limited room for fiscal maneuver, potentially leading to increased inflationary pressures and undermining economic stability.

The proposed measures appear insufficient to address the root causes of the fiscal imbalance, raising concerns about the sustainability of its financial strategies.

The solution to Pakistan’s problems lies in good governance and effective revenue generation measures. However, the government’s strategy to enhance revenue is heavily reliant on the imposition of new taxes, duties and surcharges, as well as on borrowing. There is no clear roadmap for improving governance, efficient utilization of resources to boost revenue without overburdening already struggling families and allocating these resources to promote growth, improve the social sector and broaden the tax base.

The budget is merely a customary allocation of funds to various sectors without assessing the effectiveness of the expenditure. The current budgeting system has failed to keep pace with global efficiency standards, which prioritise achieving more with less through result-driven strategies.

A significant example to be cited in support of this argument is governance under Arvind Kejriwal in India. As chief minister of New Delhi, Kejriwal, also the convener of the Aam Aadmi Party, implemented transformative governance and strategic approaches, significantly impacting New Delhi’s development.

Pakistan can optimise its revenue stream by emphasising governance reforms and effectively utilising the resources by embracing digitisation, enhancing transparency, and combating corruption. Streamlining processes through digital solutions improves tax collection efficacy. 

Through strategic planning and resource utilisation, the Delhi budget rose from Rs 310 billion in 2014-2015 to Rs 690 billion in 2021-2022, making it the only jurisdiction in India to have a surplus. The feat was achieved without introducing any new taxes. The revenue growth was achieved by eradicating harassment of businessmen, gaining their trust and lowering tax rates to reduce tax evasion and enhance tax compliance. Additionally, the government’s reduction of the value added tax rate from 12.5 percent to 5 percent on select items showed a remarkable increase in tax compliance.

In his recent budget speech, the Delhi finance minister highlighted some interesting statistics showing how they countered the fake traders. New Delhi has a total of 788,000 sales tax taxpayers of which 482,000 fall under the Delhi government and 306,000 under the union government. Strengthening the audit process, the Delhi government used Ground Intelligence, Business Intelligence and Fraud Analysis, and GST Portal intelligence to conduct 167 special audits this year, detecting a staggering tax deficiency of Rs 53.21 billion. The field verification exercise led to the suspension of 2,911 fake firms and the detection of Rs 13.16 billion in tax evasion.

Apart from tax collection, the Delhi government has prioritised enhancing governance by digitising various systems to facilitate public services, improve efficiency and reduce corruption. They have also reformed the education system, fostering an entrepreneurial mindset by providing seed money for developing business ideas and turning them into reality. Moreover, they have reserved special seats in top universities for top performers in business idea development, granting them admission without any entry tests.

The achievements did not rely on a bid to extract more from the existing taxpayers or imposing new taxes. The chief minister has frequently accused the central government of not paying the territory its fair share of taxes. Despite the challenge, he has turned a deficit-running jurisdiction into a surplus one. His success is rooted in better strategy and effective governance resulting in the provision of free electricity, water, bus travel for women and world-class education and healthcare facilities for all citizens.

Meanwhile, Pakistan government’s approach to revenue growth is based on larger contributions from the existing taxpayers. Tax revenue receipts are projected at Rs 12,970 billion, representing an increase of nearly 38 percent over the previous year. This includes the imposition of additional taxes on existing taxpayers by raising tax rates and altering tax slabs.

An unsustainable burden has been shifted to the salaried class by increasing the tax slabs and raising the top tax rate. This imprudent measure will further reduce the incomes of private sector employees, who are unlikely to get the raises promised to public sector employees.

Similarly, the projected non-tax revenue target for FY 2025 of Rs 4,845,415, is 64.37 percent higher than the previous year. This figure includes income from various sources such as levies, fees, property and enterprises, receipts from civil administration, and miscellaneous earnings. The petroleum levy is set to rise by Rs 20 per litre within the year. While this increase won’t be immediate, its effects will be felt over time.

Pakistan too can optimise its revenue stream by emphasising governance reforms and by effectively utilising the resources by embracing digitisation, enhancing transparency, and combating corruption. Streamlining administrative processes through digital solutions improves tax collection efficacy and minimizes fraudulent activities.

Prioritising strategic investments in the social sector alleviates financial strain on vulnerable households and fosters economic growth. Drawing insights from successful governance models, such as those demonstrated in Delhi, offers valuable lessons for our economic managers. Ultimately, a clear focus on effective governance, digital integration and strategic socioeconomic investments will enhance revenue streams while advancing societal welfare.

Dr Ikramul Haq, an advocate of the Supreme Court and writer is an adjunct teacher at Lahore University of Management Sciences.

Abdul Rauf Shakoori is a corporate lawyer based in the USA.