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Experts claim Pakistan’s tax system is anti-growth

Pakistan Institute of Development Economics along with Islamabad Policy Research Institute hosted a webinar where flaws within Pakistan's taxation system were discussed.

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Pakistan Institute of Development Economics (PIDE), Islamabad in collaboration with Islamabad Policy Research Institute (IPRI) hosted a webinar with a blend of experienced and young economists of Pakistan, titled ‘Federal Budget 2021-22; Growth and/or Austerity’ on 21st May 2021.

Dr. Abid Aman Burki, Fellow, Mehboob ul Haq Research Center (MHRC), Former Professor, Department of Economics (LUMS) with Dr. Muhammad Salahuddin Ayyubi, Assistant Professor Department of Economics, Forman Christian College University, Lahore along with Dr. Ikramul Haq, writer, Advocate Supreme Court, International Tax Counsel, and partner Huzaima & IKRAM and Mr. Muhammad Sabir, Principal Economist Social Policy and Development Center (SPDC), Karachi, joined the session which was moderated by Dr. Nadeem ul Haque, Vice-Chancellor, PIDE.

Read more: Current RCET policy can lead to shutdown of textile industry: PIDE

Dr. Abid Aman Burki expressed that we cannot achieve prosperity unless there is a high growth rate. According to Dr. Abid, there are three factors that can affect the growth rate, and the first one is Agriculture. He stated that the major cause of the decline in the agriculture industry of Pakistan is the lack of research and development.

The last time Pakistan produced new seeds was in 1970- 80 and after that, there has been no significant innovation, which resulted in the decrease of basic commodities such as wheat and cotton.

Read more: Cotton: Handling the White Gold Crisis of Pakistan

The second factor that affects the growth rate is the huge difference between wages. Since the 1990’s there has been a rising difference between the wages of lower and higher education sectors.

Dr. Abid mentioned that the wage gap between a college graduate and a non-college graduate was 9600 in 1991, and has seen a huge increase of 156000 in 2000, which brings our attention to the third factor which is low investment in primary and secondary education.

Read more: Pakistan education system on knife’s edge

Pakistan’s outdated taxation system

Dr. Ikramul Haq stated that taxation is anti-growth in Pakistan, the FBR has taxed people left, right, and center. The common accusation by government authorities is that Pakistani’s are tax thieves whereas in reality, Pakistani’s pay taxes in a form that they are not even aware of.

For instance, there are 110 million broadband users, and it is one of the highest tax-paying sectors, but no one has mentioned it. Then there is the disease of advanced taxation, which needs to be eliminated from the source. A solution to this issue is to redesign and reconstruct this outdated taxation system.

Read more: 10% of tax filers in Pakistan pay 45% of total tax: report

 

Dr. Salahuddin Ayyubi raised a point that a statesman must not delay an issue, to a point that everyone knows the problem but not the solution. He further added that there should be a collective space for the government to be truthful rather than apologetic to its people.

Need for major changes

Dr. Salahuddin also mentioned that we need to qualify growth and for that, we need to set realistic expectations from the government. The growth that Pakistan needs right now is in the employment sector since the COVID-19 has drastically increased our numbers of unemployed masses.

Mr. Muhammad Sabir, discussed the fiscal deficit in the last two years was 9.1-8.1 percent but in the last three months, it has been 7.1 percent. He also explained that the budget has gainers and losers, but in this scenario, middle-class citizens are the only losers.

Read more: Reality behind Pakistan’s latest tax amnesty scheme

The citizens pay their taxes on time yet they are not facilitated in any way. The biggest flaw in the budget is that it lacks unemployment benefits for the middle class. The mechanism of taxes needs to be revised and progressive income taxation should be adopted.

In closing remarks, the panel agreed that hope cannot be our only savior. The government needs to pay attention to research and development to bring a positive change in the growth and overall prosperity of Pakistan.

Read more: Pakistan needs realistic strategies for economic growth

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