AIT revenue collection is ear-marked for debt servicing

AIT

Agriculture Income Tax is a sector which lags far behind as far as its share of collections is concerned. According to the World Bank Report tax collected in lieu of agriculture income tax is below 90 percent of its estimated potential. Though the government has shown some improvement in this sector during the last five years by raising the collection from a meager RS.717 million in FY2011 to RS. 1.39 billion in FY 2016, yet the estimated potential remains too high at RS. 14.5 billion.

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Tax on Profession

This sector is also underrated in terms of tax collection. Almost one million professionals are out of the tax net, who are otherwise liable to be taxed. Besides this, the rate of tax levied is also very low i.e. RS. 475 per person at an average.

 

 

 

 

Inflation and Public Debt:

 

The rate of inflation has been relatively low and in control in the recent years, however, a perpetual increase in the prices of oil and commodities internationally is a matter of much concern. The only silver lining is an increase in productions from agriculture, food supplies coupled with the stable exchange rate and an effective monetary policy which together can contain the rate of inflation.

Public debt is the accumulated quantity of annual budget deficits, it is primarily owing to government’s extravagant habits of spending more than they collect through taxes. According to the World Bank report Pakistan owes a net public debt amounting RS. 18,893 billion. This is a staggering amount and has very adverse implications in the form of the huge amount of resources being allocated to debt servicing. In case of Pakistan, the ratio of public debt servicing is also very high i.e. above 30%, and anything above this is considered too high. http://www.finance.gov.pk/survey/chapters_15/09_Public%20Debt.pdf

 If a good chunk of the revenue collection is ear-marked for debt servicing only, poverty alleviation and social welfare works remain untouched.

 

Investment and Business Environment:

Investments come to a country if the environment is friendly enough for the investors and businessman to carry out their businesses with ease. Pakistan has been hell to foreign investment and business particularly in the post-9/11 era, however, during the last four year, the situation has improved. One of the best indicators for a business-friendly environment in a country is how the stock exchange is performing? Pakistan stock Exchange PSX has been termed as one of the best performing stock market in the world by Bloomberg. Pakistan Development Update, Growth: A Shared Responsibility

May 2017, The World Bank

 Some of the factors positively affecting KSE- 100 indexes are; improved security situation, wider reforms undertaken by Security and Exchange Commission of Pakistan and an overall improvement in macroeconomic indicators. Resultantly the KSE- 100 index rose to the ever-highest level of 52,387.87 points in May 2017.

 

Challenges:

 

There are significant risks to the economic outlook of the country. Pakistan remains vulnerable to domestic and external shocks. Domestically, the country is experiencing political uncertainty and terrorism. The recent issue of Panama papers has enhanced political risks and created some policy uncertainty. The upcoming national election in 2018 may affect reform momentum and macroeconomic policies. Slower progress on much-needed structural reforms would weaken growth and decrease private investment. A stable Rupees/US$ nominal exchange rate would have to be maintained in order to keep Pakistan’s export competitiveness. 

 

The global economic situation such as Brexit can also have a negative impact on Pakistan’s exports. Falling remittance flows may be a threat to continued growth. Uncertainty about the course of US economic policy can have a significantly negative effect on global growth prospects. Pakistan would also be affected by the decline in remittance flows, particularly from oil-rich countries. Low oil prices will improve the current account deficit and create an environment conducive for a reduction in energy subsidies. Low oil prices have been positive for Pakistan, being a net oil importer. Conversely, a sharp increase in oil prices will increase the trade deficit and would result in increased energy subsidies.

 

 

Way forward

 

Macroeconomic reforms are required to bring the country out of this quagmire. There is a need to build momentum and introduce properly sequenced tax policy and administration reforms. Several of the taxes discussed in this section share common reform needs. With respect to tax policy, collections would benefit from eliminating exemptions, improving definitions and expanding the sectors or groups covered by each tax. Increasing the consistency and coverage of taxes in these ways (coupled with effective implementation) could provide the government scope to reduce tax rates while increasing revenues. To improve tax administration, the government could invest in gathering and then regularly update its datasets, including accurate property valuations.

 

Conclusion:

The population of Pakistan is increasing, yet with this increase, it is providing us with a window of opportunity, pertaining to the young who are entering working age group. Some people opine that population growth has a negative impact on per capita income, but it is also a fact that it’s negative impact is neutralized by the dividend added by the more economically active population that comes with it. It is an acknowledged fact that if this young population, entering the workforce is provided with a conducive environment, the dividend from it can be enhanced through an increased and improved labor supply, savings and human capital. Each of these afore-mentioned variables is discussed in the following paragraphs.

Labour Supply:

When a demographic transition passes from one phase to another especially from young age to that of working-age, it has two benefits. Firstly, it increases the number of the labor force as more and number of male and female enter the market.  Secondly, when more number of women enter the working force, it has a two-pronged effect on economic growth. On one hand it adds to production and on the other hand, it decreases fertility rate- leading to fewer consuming younger population. Nevertheless, it depends upon the market, how it makes able and optimum use of all this.

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