ISLAMABAD: Pakistan was in the spotlight again this week over its need to reform the tax system as the government and potential donors worked on a plan to help the state in the face of a financial crisis. Just 1% of tax is collected in Pakistan.
Economic policymakers led by Shaukat Tarin, the Pakistan prime minister’s adviser on finance, said a radical improvement in income tax collection was vital in securing a crucial loan programme under discussion with the International Monetary Fund, reported the Financial Times.
Under the IMF loan, Pakistan is seeking to borrow $7.6bn (€6bn, £5bn) until the last quarter of 2010 to stave off a crisis on forthcoming debt payments. The government’s net liquid foreign currency reserves, which are below $3bn, are just enough to pay for about two to three weeks of imports.
Those reserves are likely to fall further without the IMF’s approval on the future policy direction of Pakistan’s economy, including measures such as tax reform. Only about 1 per cent of Pakistan’s population of more than 165m pay income tax, while the country’s tax-to-GDP ratio of about 10 per cent is the lowest in south Asia.
Mr Tarin said his objectives included raising the ratio to at least 15 per cent in the next five years. “We have to make everyone pay their dues. There should be no sacred cows. Everyone must pay their taxes so that we can overcome large-scale evasion and have more revenue to lower our fiscal deficit,” he said.