Raising Revenues: Conditionality Meeting vs. Doing Taxes Better Approach

The National Assembly has just passed the Finance Supplementary Bill, 2021 along with other legislative bills. The need for this supplementary bill was felt after the IMF 6^th Review Mission – October 4-19, 2021. It is reported that the demand of IMF was PKR 700 Billion in lieu of GST expenditures reduction which was conceded upto PKR 343 Billion. Besides this FBR also introduced new revenue measures in this Finance Supplementary Bill through changes in Income Tax Ordinance 2001 estimated at PKR 5 Billion (which includes increase in Advance Tax on vehicle registration to discourage own-money premium advocated by PIDE^[1]) and Federal Excise Duty based revenue measures of PKR 6.5 Billion. We can assume some of the other revenue measures are positive in value but so far no figure is apparent.

Earlier there was much debate on whether Pakistan should accede to the demands of IMF or not. This debate is persisting for quite some time and is back again after the passing of the Act for the Mini Budget (Finance Supplementary Bill) from parliament. Dr. Nadeem Ul Haq (VC-PIDE) critically appraised^[2] the earlier debate at the time and concluded “The decision, is not whether to go to the IMF or not. It is whether to move from colonial Raj to the twenty first century. For that we need to undertake a lengthy and careful agenda of economic, administrative, legal and social reform”. However the essential reforms that we need for a buoyant and sustainable revenue generating system are missing once again.

PIDE has been extensively debating on these potential tax reforms along with evidence-based revenue impact [3] [4] [5]. More recently PIDE Growth Commission has identified [6] potential reforms which are pro-growth and business friendly. These include a list of taxation reforms as well. But one sees no concrete debate leading to legislation of critical reforms in revenue raising methods. The debate must be on the overall tax policy design to make it more business friendly and pro-growth and not just on the measures suggested by the current supplementary bill.

1. The Issue of Own Money, PIDE Policy Viewpoint by Mohammad Shaaf Najib and Usman Qadir, November 9, 2021. 
2. The IMF Choice, PIDE Blog, by Nadeem ul Haque, December 15, 2021. 
3. Doing Taxes Better: Simplify, Open and Grow Economy, PIDE Policy Viewpoint 17, by Nasir Muhammad, Naseem Faraz and Saba Anwar, 2020. 
4. Growth Inclusive Tax Policy: A Reform Proposal, PIDE Research Report, by PIDE Macroeconomics Section, June 2020 
5. TAX, Expenditures, And DEBT: TRICA Of Budget Challenges, PIDE Policy and Research (P&R), Volume 2, Issue 6. June 2021 
6. The PIDE Reform for Accelerated and Sustainable Growth, PIDE, April 22, 2021