Islamabad: Pakistan has made some progress in collecting taxes but more reform is needed for it to become one of the world’s more successful emerging markets, the International Monetary Fund said on Tuesday.
Last month, the IMF released a tranche of $501 million halfway through a three-year IMF-supported loan programme ‘based on the solid progress’ made on Pakistan’s economic reform agenda.
Cracking down on tax evasion is key to that programme. Only about one in 200 citizens files income tax, leaving the state begging donors to fund crumbling schools and hospitals.
Anger over poor public services fuels the Taliban insurgency and other militant groups destabilising the nuclear-armed nation. There’s little political will to improve tax collection. Most legislators and many ministers are tax evaders too. Although income tax collection remains abysmal, the IMF said Pakistan made some progress on eliminating special tax breaks often granted to political cronies.
“Pakistan has these so-called Statutory Regulatory Orders (SROs), which grant tax exemptions and concessions, riddling the tax system with loopholes,” Jeffrey Franks, the IMF’s outgoing mission chief for Pakistan, said on the IMF’s website.
“At the beginning of this fiscal year, the government eliminated a significant number of those SROs, and it is expected to improve tax collection from that source by about 0.3 percent of GDP this year.”
He said the upcoming budget would eliminate another batch of SROs worth a similar amount.
“The government has also made some headway in administering taxes – catching the people who are evading taxes, making sure that they pay, and collecting taxes in a more efficient manner, but much more is needed,” he said, especially at the provincial level. No one has been prosecuted in Pakistan for income tax evasion for nearly 30 years. Non-tax revenues from things like surcharges, petrol and things like disproportionately squeeze the poor while millionaires still largely avoid paying up.
Franks said a balance-of-payments crisis had been averted in Pakistan since it approached the IMF for support in 2013.
“Reserves at the (central) State Bank of Pakistan, which had declined to perilously low levels, are now rebounding.”
But 11 of 12 IMF programmes in Pakistan have been scrapped because it failed to institute reforms.
Meanwhile, Resident Representative of IMF for Pakistan Tokhir Mirzoev met Finance Minister Ishaq Dar on Tuesday. Mirzoev has recently assumed responsibilities of his office in Pakistan.
The Finance Minister welcomed Mirzoev to Pakistan and exchanged views with him on the current profile of Pakistan’s economy and the forthcoming 7th IMF review.
The senior IMF official said the budget 2015-16 outlook and Pakistan’s efforts for revenue generation would be the focal point of discussion in this review besides the work done in the energy sector.
The finance minister said Pakistan had successfully conducted record six reviews with the IMF though in the past governments had not gone beyond two reviews. This had been possible due to the hectic reforms process that the government had religiously implemented, yielding positive results, he remarked. He said that the PML-N government had taken measures to set the economy on the right track not just for re-engagement with international financial institutions but for the general good of the country and the masses. It was in our national interest that we achieve an economic turn-around and we have made all-out efforts to make this happen, Dar said.
The minister said he looked forward to the 7th review with full confidence as Pakistan had fulfilled all its obligations. Pakistan’s economy was held in esteem by international rating agencies and Moody’s has already enhanced Pakistan’s economic outlook from stable to positive, Dar said. He also made special mention of Pakistan’s continued struggle for elimination of terrorism and said peace and security would ultimately benefit the economy.
Mirzoev wished success to finance minister and his team in their efforts for economic progress in the country. He said that he looked forward to a meeting with the minister in Washington during spring meetings of the IMF and World Bank.
