Amir Khan

The government's primary focus on augmenting tax revenue — historically achieved through elevating indirect taxes — is reaching a critical juncture. Approximately 60% of the total tax revenue is derived from indirect taxes, with around 70% of direct taxes sourced from withholding taxes, indirectly impacting consumers, reports WealthPK. This approach, aimed at countering inflation, which has averaged 25% over the past two years, has proven unsatisfactory due to the dominance of cost-push inflation over demand-pull inflation. The rising business costs, coupled with elevated interest rates, have compounded the situation, leading to a projected 37.2% poverty rate and a 38% decline in purchasing power in 2023. “Two primary options are on the table: relying on debt financing or adopting inclusive fiscal and administrative strategies,” said Dr. Faiz-ur-Rehman, Fiscal Policy Specialist, while talking to WealthPK. “The former exposes Pakistan to financial vulnerabilities, with external debt reaching $124.3 billion by June 2023.

A looming external debt repayment of $77.5 billion from April 2023 to June 2026 necessitates considerations such as debt rescheduling with key bilateral lenders. “Despite shared challenges with other nations, Pakistan's ability to develop effective counterstrategies is constrained by its limited capacity, primarily due to debt servicing obligations exceeding the overall tax revenue,” he pointed out. He said the current budget, with a total expenditure of Rs14.46 trillion, highlighted the risk exposure of Pakistan's banking sector, with over 83% of loans extended to the government. “Failure to address these challenges may deepen societal fissures, hinder formal sector advancement, and exacerbate poverty. The upcoming government's approach is crucial, and mainstream political parties must choose between concrete ideologies to address socio-economic issues effectively,” he emphasized. He explained that expanding the tax base, integrating individuals across income levels into the tax system, and minimizing discretionary spending were key recommendations.

“The government should consider dissolving redundant federal agencies, privatizing deficit-facing public sector entities, and implementing public-private partnerships for efficiency,” he further explained. Resolute measures are essential at this juncture, encompassing revitalization of civil agencies, reduction in defence expenditures, stringent oversight mechanisms for quasi-governmental entities, and a shift towards land reforms to boost the agricultural sector’s productivity. He concluded that the path to prosperity, growth, and sustainability in Pakistan necessitates the adoption of inclusive, just, and sustainable fiscal and administrative strategies, ideally realized through a consensus-based Charter of Economy.

Credit: INP-WealthPk