A study paper of the International Monetary Fund reveals startling facts about the level of mismanagement in Pakistan which cost the nation Rs 3.3 trillion a year. The amount is higher than the annual tax collections and vindicates the government of its tax amnesty scheme. The current tax-to-GDP ratio in the country is 11.5 percent against tax capacity of 22.3 percent with regard to the gross domestic product. It should be noted that the tax-to-GDP ratio in Pakistan is the lowest in the region. The report of the donor agency points out narrow tax base, tax concessions, exemptions and low tax compliance as few other reasons for the loss of revenue. As a result, the government fills the gap of less tax collections by levying additional taxes, putting the survival of the medium and small industrial units at stake.
According to the agency, the tax revenues peaked 12.4 percent during the Benazir government in 1996 and emphasizes for the enhancement of the tax base rather than enhancement of the current tax ratio. Contrary to the IMF notion, a World Bank report suggests that Pakistan has the higher tax rates than any other developing country. The PML-N government has imposed Rs 940 billion additional taxes since it came to power in June 2013 and the recent imposition of Rs 40 billion taxes is a classic example of the minibudget the government opted for under the pressure of the IMF. The government has failed to understand that more taxes means more pressure on the business and economy and it will not only adversely affect the mobilization of the money but also result in concentration of wealth in few hands. Common man is already feeling the heat of indirect taxes in the country.
If the government wants to enhance its revenues, it has to introduce structural reforms and establish an independent body free of political influence. No doubt Pakistan’s economy is resilient and it survives every shock and after sock, but what need to do is to establish independent institutions. Unrealistic tax targets open the floodgates of corruption and no one dares plug the loopholes. The government will have to start economic reforms programme from zero as basic structural change in the administrative set up is indispensible. The governments after governments in Pakistan prefer to keep status quo which is the mother of all evils in this country. It is the IMF or the World Bank, unless we as a nation do not take difficult steps, the foreign donor agencies will continue to interfere in the internal affairs of the country.