Ayesha Saba

Experts suggest that Pakistan must take decisive steps to reduce regressive subsidies. The call for such an action stems from the belief that restructuring these subsidies is essential to ensure fairness in providing financial assistance, foster economic growth, and promote social equity. Talking to WealthPK, Zafar-ul-Hassan, Joint Chief Economist, Ministry of Planning, Development and Special, argued that regressive subsidies could not guarantee competitiveness and sustained high growth of an industrial sector. "Despite injecting substantial amounts of money into export-oriented industrial sectors annually through subsidies and concessions, the country's exports continue to fall short of expectations." "The government needs to consider restructuring of subsidies for the industries. There should be targeted subsidies and tax exemptions for industry if necessary, and that too for short-term," he maintained. "It is important for the caretaker government to continue working seriously on structural reforms for the domestic-resource mobilization."

"Pakistan's economy faces several structural issues that slow the overall growth rate. Reforms are required in different segments of the economy, including the export sector, regulatory environment, privatization and de-regularization of state-owned enterprises (SOEs), tax administration, inclusion of the informal economy, and more focus on the digital economy," he said. Talking to WealthPK, renowned economist and Director of Economic Affairs and National Development, Centre for Aerospace and Security Studies Dr Usman. W. Chauhan said, "At the forefront of this dialogue is the recognition that not all subsidies are being created equal. While intending to foster growth, alleviate economic burdens, and promote social welfare, regressive subsidies are under scrutiny for their unintended consequences." He added, "These subsidies, often benefiting higher-income groups more than those in need, are contributing to a widening wealth gap and hindering the pursuit of economic justice."

He pointed out that from 2015 to 2020, the government extended Rs29 billion worth of subsidies to the sugar mills, whereas the same sector contributed Rs22 billion in taxes during that timeframe. Emphasizing the point, he said there was no need to provide subsidies to the affluent sectors like sugar mills. He further cautioned that Pakistan was dealing with the challenge of high debt. "Improving the investment climate through reform policies is necessary. The fiscal management reforms will ensure the generation of higher tax revenues, leading to an increase in tax-to-GDP ratio. Pakistan should improve the quality of public spending and take serious measures to expand the revenue base, ensuring that the better-off pay their share." "A well-developed taxation infrastructure is necessary for ensuring equity, inclusiveness, and sustainability. Along the same lines, tax reforms should focus on shifting toward direct rather than indirect taxation, and broadening the tax base through technology, for inclusive economic growth," he stressed.

Credit: INP-WealthPk