Tax collection target under IMF plan and CPEC investment.

Byline: S. Kamal Hayder Kazmi

Many studies revealed that the impact of taxation on economic growth, given that the problem of taxation and economic growth are at the heart of macroeconomic strategies. Presently the Government of Pakistan has enjoyed some economic growth, mainly on the back of the China-Pakistan Economic Corridor (CPEC), while security has enhanced and more reliable power supply should aid investment. But the deep-seated problem is tax avoidance in the country.

Different experts recorded that the Government of Pakistan and IMF have been unable to sort out differences over the fiscal policy due to the latter's demand that the federal tax collection be raised to about 13 percent of the size of Pakistan's economy within a year. Sources revealed that if the Government of Pakistan agreed International Monetary Fund (IMF) demand, a tax collection target of around Rs5.4 trillion would have to be set for FY2019-20. Under the current conditions and an extremely poor situation in the outgoing fiscal year, the FBRwould be unable to collect more than Rs4.9 trillion in the next fiscal year starting from July. The disagreement over the FBR's collection target is also undermining a deal on the budget deficit target for the next fiscal year.

Unluckily Pakistan's most endemic economic problem is harder to crack - the failure of almost everyone, including a majority of the officials, to pay taxes. Feeble tax revenues are at the root of most of Pakistan's other problems, not least a growing budget deficit. Successive governments have been well aware of this, but have lacked the backbone - or, having begun to act, the stamina - to fix it.

For the FY2018-19, statistics also showed that the present government had set Rs4.4 trillion tax collection target for the Federal Board of Revenue (FBR). However, looking at the board's performance in the first 9 months, it is improbable to collect over Rs4 trillion. The FBR declined short of the target by approximately Rs318 billion and could rake in only Rs2.68 trillion. The Rs4 trillion tax collection target is equal to 10.6 percent of the GDP and to raise it to 13 percent, the FBR would have to generate an extra amount of Rs1.45 trillion. This would require a 36 percent growth rate, which is impossible to achieve. The FBR has so far posted an average growth of 2 percent in revenue from July to March. After taking into account the optimistic impact of the nominal GDP rate of almost 12 percent, the FBR...