World Bank Urges Pakistan to Implement Tax Reforms for Economic Boost

World Bank Urges Pakistan to Implement Tax Reforms for Economic Boost

In a recent media briefing, the World Bank (WB) Country Director Najy Benhassine and senior economist Tobias Haque urged Pakistan to implement comprehensive tax reforms to boost its economy. The key recommendations focus on closing tax exemptions and bringing incomes from agriculture, properties, and retail businesses under an effective tax net, potentially generating an additional revenue of up to four per cent of GDP, approximately Rs4 trillion in the short term.

The WB emphasized the need to tax untapped wealth concentrated in two major areas within provincial jurisdiction—real estate and agriculture. These sectors are believed to hold substantial untaxed wealth, and taxing them could relieve the financial burden on the central government, which currently finances related services.

According to the recommendations, real estate and agriculture should contribute 2% and 1% of GDP, respectively, to the revenue pool (approximately Rs2.1 trillion and Rs1 trillion, respectively). The WB submitted a detailed policy paper to the government advocating for increased revenues through improved, expanded, and progressive agriculture income taxation.

The policy paper suggests immediate actions such as refining the current 12.5-acre tax exemption threshold in agriculture and categorizing land based on size, location, irrigation status, and productivity aspects. It also calls for provincial governments to establish reliable records of land ownership, harmonize valuation systems, and increase property tax rates to align with comparable countries.

The policy notes highlighted that Pakistan’s revenue collection is among the lowest in the region, emphasizing the need to broaden the tax base. The WB recommends bringing individuals, individually-owned businesses, and retailers into the tax system, reducing the tax-free threshold, and simplifying the personal income tax structure.

While the WB proposes comprehensive tax and expenditure reforms to reduce fiscal deficits, it underscores the importance of protecting the poor throughout the reform process. The suggested reforms include reducing subsidy expenditures, closing regressive tax exemptions, and increasing taxation of high-income earners, particularly in agriculture, property, and retail sectors.

In conclusion, the World Bank’s reform recommendations aim to enhance revenue collection, address fiscal deficits, and ensure a fair and progressive taxation system in Pakistan.