“Privatisation Minister Criticizes Taxation System for Encouraging Tax Evasion”
“3rd Pakistan Prosperity Forum Addresses Urgent Need for Taxation System Overhaul and SOE Privatisation”
Islamabad,- The Policy Research Institute of Market Economy (PRIME) inaugurated the 3rd “Pakistan Prosperity Forum” on Monday, drawing key stakeholders from the government, International Monetary Fund (IMF), business community, academia, and media. The forum highlighted the pressing need for a comprehensive revamp of Pakistan’s taxation system and the privatization of State-Owned Enterprises (SOEs) as central to addressing critical economic challenges and proposing sustainable reforms.
Federal Minister for Privatisation, Fawad Hasan Fawad, took the stage to shed light on the flaws within Pakistan’s taxation system. He emphasized that the current system not only encourages tax evasion but also disclosed a startling statistic: 93% of tax revenue is collected through voluntary or withholding methods, with just 7% attributed to the Federal Board of Revenue (FBR). Fawad highlighted the disproportionate tax burden on corporate taxpayers, resulting in a 40% increase in tax rates since 2016.
Fawad Hasan Fawad further underscored the unsustainable condition of the public sector, particularly commercial SOEs. He revealed that over a three-year period from 2018 to 2021, the government injected a staggering Rs. 2.54 trillion in subsidies, grants, and loans to sustain these entities. The rapid expansion of the government in recent decades has contributed to a deteriorating business environment.
In addressing the need for reforms, Fawad stressed the significance of bureaucratic and taxation reforms and advocated against expanding the size of federal and provincial governments. He emphasized the need to focus on enhancing the state’s capacity to regulate markets efficiently.
Former Governor State Bank of Pakistan, Shahid Hafeez Kardar, highlighted the importance of rationalizing public expenditures to ensure the sustainability of public finances. Kardar pointed out that Pakistan’s Gross Public Debt stands at 667% of revenues, with external debt reaching 232% of exports. To make the debt sustainable, he recommended reducing government expenditures, adopting a contributory pension system, minimizing government involvement in the economy, rationalizing tariffs, and revamping the taxation system.
Businessman Rizwan Rawji presented a Charter of Economy prepared by PRIME, emphasizing the critical role of political stability and strong political will in promoting economic prosperity. He outlined key pillars of economic reform, including low and broad-based tax rates, spending restraints, reduced government involvement, privatisation of loss-making SOEs, tariff rationalization, and sound monetary policies.
Ali Salman, Executive Director of PRIME, stressed the importance of reducing the government’s size and presence in the economy for fiscal sustainability and creating a conducive business environment.
In unanimous agreement, the speakers emphasized that reforms should begin with restructuring and downsizing the government, coupled with constraints on public spending. The focus should also extend to reforming the taxation system by reducing the number and rates of taxes to broaden the tax base and stimulate economic growth.