The economic picture is one of confusion and listlessness. There are both green and red lights flashing. On the one hand, the tax base has expanded from 1.4 million to 2.2 million taxpayers. However, the tax receipts at the start of the fiscal year against the yearly target of Rs 5.5 trillion are disappointing. The target is to take the number of taxpayers up to 4 million as early as possible.

In the absence of the desired growth in industry, exports and investment, it is unlikely that the Federal Board of Revenue (FBR) would be able to meet its revenue collection target of Rs 5.5 trillion, which could trigger a cycle of even harsher fiscal conditions in 2019-20. The International Monetary Fund’s tough conditionalities have hit all segments of society very hard. The worst affected are the salaried middle classes whose tax liabilities have increased to such an extent that many may slide down to the lower middle class segment, if not lower. At the same time, the tax on property rental has been increased by more than 100 percent, adversely affecting retired people, pensioners and widows, who mostly survive on rental incomes. Petrol and gas prices continue to rise. The same is the case with the utilities whose rates have gone beyond the paying capacity of a large section of the population.

Inflation, hovering around 14 percent, has been fuelled by a freefall of the Pakistan rupee as per market dynamics, withdrawal of subsidies, changes in the taxation structure, increase in tax rates. Following the hard taxation drive by the government, the industry is sluggish, exports are not picking up while foreign direct investment (FDI) is showing a downward trend. There is growing disenchantment among industrialists, exporters and investors. A big portion of investments has been diverted from industry to real estate, dollar accounts and invested abroad. The stock market is going through its longest bearish spell ever. Market capitalisation eroded by more than $60 billion – from $100 billion to $40 billion – in just two years.

Industrial growth, exports and investment may take a further hit on account of withdrawal of zero-rated tax regime and other concessions, imposition of new slabs of sale tax and the resistance to the change being put up by the stakeholders. So far, the public has put up with the shocks in the hope that the government will soon redeem its pledge to the nation of a better tomorrow. Experts agree that the economy is in need of both short and long-term remedial measures which the government has set rolling. The legacy of the past has subjected Pakistan’s economy to an immense burden of internal and external debts and the economy is largely dependent for its sustainability on loans from institutions, such as the IMF, to meet its debt liabilities.

The IMF is focusing on some serious structural reforms of which the foremost is the privatization of loss-making public sector entities (PSEs), particularly the Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM) and power generation, transmission and distribution companies. On account of poor governance in the last decade the Ease of Doing Business has slid from 70 in 2007 to 137 in 2018 which classify it as a country extremely challenging for business and investment. Whereas, the Cost of Doing Business has sharply risen making our LSM and SME sectors uncompetitive in local market in the face of an influx of Chinese products, under-invoicing, mis-declarations at import and similar practices. Likewise for exports too, the country is uncompetitive against fierce competition from Bangladesh, India and Vietnam. Pakistan’s competitors work on cheaper input costs.

The primary reasons behind cost escalations are: expensive electricity, bureaucratic obstacles – multiple NOCs and permits, low productivity and outdated skills and cumbersome imports, exports and taxation regimes and processes. The biggest threat to economy is the poor state of governance which has not been addressed so far. Characterised by incompetence, lethargy and vested interests, the state institutions are no longer in a position to effectively manage the onerous task of turning around the national economy. One of the viable options is to mobilise a fresh team of industrialists, investors and exporters and provide them with an enabling environment to deliver.

Needless to say, the only way to get out of the present economic crisis is to develop indigenous resources through a broadened tax base, and gradually lessening the debt burden. The main thrust of the IMF package is on increasing the tax-to-GDP ratio, which is a good approach. The aim should be to increase the ratio to at least 20 percent. The average tax-to-GDP ratio of EU countries is 35 percent. African countries, like Zimbabwe and South Africa, boast of a tax-to-GDP ratio of 27 percent. India collects 16.1 percent taxes out of its total GDP, whereas Nepal stands above the whole region with 27 percent.