Improved Management Of Twin Deficits For Sustainable Economy.

The govt evidently should be on tightrope on revenue targets. Five percent GDP with economic stabilization and fiscal consolidation with improved management of twin deficits and increased revenue streams is prime focus to keep economy sustainable in the near term.

At the same time, government will find little or no room to make cut in public expenditure. The delay in taking position to collect the projected numbers will not only make a daunting task but will also land government in hot waters as there would be no margin of delay without commencing much deferred FBR reforms.

Besides, rolling year's non-tax revenue estimates relied significantly on the collection of petroleum levy (PDL) and Gas infrastructure development CESS (GIDC), which did not turn out to be the case on the back of multiyear high oil prices and yet will stay posing a challenge for government this year as well.

Growth exceeded expectations in fiscal 2022, however, opportunity cost was ominously too immense to bear for government on a sustainable basis. The revenues growth brought yawning twin deficits, weakened Pak rupee, dwindling forex reserves and double-digit inflation with it. Whereas, going into fiscal 2023, government expects growth momentum to slightly ease off by restraining domestic demand but bet is on improved management of the twin deficits and increased revenue streams to keep it sustainable in the near term.

There is clear and broad consensus that simplification of tax structure is the key that government needs to move with optimal taxation, which is real among the main challenges by shifting the paradigm of tax policy to encourage businesses perform better, ultimately promising more tax revenue collection for government.

Pakistan has substantial potential to increase tax receipts without imposing new taxes or raising tax rates

Pakistan has substantial potential to increase tax receipts without imposing new taxes or raising tax rates, which recommends a Broad Base-Low Rate approach. A detailed gap analysis that has been recently completed by World Bank indicates that Pakistan's tax revenue potential could easily be reached 26 percent of GDP if tax compliance were to be raised to 75 percent, a realistic level of compliance for LMICs.

This means that country's tax authorities are currently attaining below half of this revenue potential. The size of the tax gap varies by tax instrument and by sector. The tax gap in the services sector is larger than in the...