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Author: PRIME Institute

Public Sector Reforms: Second Islamabad Policy Exchange

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Public Sector Reforms: Myths and Realities


PRIME (Policy Research Institute of Market Economy) organized the 2nd Islamabad Policy Exchange in Islamabad on 20th of March 2023. The event was attended by policy practitioners from the government and private sector.

The topic of discussions was Public Sector Reforms: Myths and Realities and was organized with the help of German Political foundation Friedrich Naumann Foundation.

The Islamabad Policy Exchange is a forum for candid discussions for policy stakeholders, held under Chatham House rules.

In the session it was explained that Public sector reform consists of deliberate changes to the structures and processes of public sector organizations with the objective of getting them to perform better. Structural change may include merging or splitting public sector organizations while process change may include redesigning systems, setting quality standards, and focusing on capacity-building.

Pakistan’s public sector is generally considered Cumbersome, inefficient, and corrupt. All reform efforts tend to improve its efficiency, effectiveness, transparency, and accessibility. Public Sector Reforms in Pakistan date back to the 1950’s and reflect different models such as NPM (New Public Management), SAP (Structural Adjustment Programme), and PRP (Poverty Reduction Programme).

The weaknesses of the government emerge from its Monopolistic nature of doing business, an unmanageable large size, managerial inefficiencies, public inaccessibility, economic inertia and Self-serving agenda.

It was revealed that in Pakistan’s low ranking on the World Competitiveness Report, inefficient government bureaucracy is the second most significant cause hampering Pakistani goods and services in international markets. The leading cause is corruption.

It was noted that ever since 2016, SOE’s have consistently incurred significant losses. These losses are compensated by recurring subsidies, concessions, taxation exemptions and bank borrowing. The book value of SOE assets is around PKR 21 Trillion, and account for 40% of the country’s GDP. At independence, Pakistan inherited only 12 SOE’s. This number grew in the 1950’s and 60’s but really exploded in the nationalization policy of the 1970’s under Zulfiqar Ali Bhutto. At present, there are 200 SOE’s and most are loss making institutions.

Tax revenues have been increasing every year despite news of most FBR targets being missed. The real problems are on the expenditures side, where no sincere attempt has been made to curb public spending and balance the budget.

While automation in government processes is viewed as critical to improving sectoral performance, most participants express grave concerns and pessimism on the capacity to reform the public sector soon.

How Pakistan’s Federal Government is Sabotaging Its Own Economy

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How Pakistan’s Federal Government is Sabotaging Its Own Economy

How Pakistan's Federal Government is Sabotaging Its Own Economy: 10 Examples of Fiscal Indiscipline

Fiscal indiscipline is a persistent challenge for Pakistan’s federal government, and it is essential to analyze the ways in which it manifests. This article provides an analysis of 10 common ways in which Pakistan’s federal government expresses fiscal indiscipline. 

Detailed suggestions on the resolution of Budgetary policy issues can be found within the Pakistan Charter of Economy.

 

Low Tax Collection

Pakistan’s tax collection is considerably lower than other countries with similar income levels. The Federal Board of Revenue (FBR) reported that Pakistan’s tax-to-GDP ratio was 11.2% in 2020, which is well below the average for middle-income countries. This low tax collection is a significant contributor to fiscal indiscipline, as it limits the government’s ability to fund its expenditures adequately.

Unproductive Spending

Pakistan’s federal government also engages in unproductive spending, which is another contributor to fiscal indiscipline. For example, the government has a history of investing in large, expensive infrastructure projects without proper cost-benefit analysis. These projects often lead to increased debt, which can lead to further financial instability.

Poor Management of Public Sector Enterprises

Pakistan’s public sector enterprises have a history of mismanagement and financial inefficiencies, which can lead to a significant drain on government resources. According to the Pakistan Economic Survey 2020-21, state-owned enterprises’ accumulated losses reached Rs. 2.6 trillion in 2020. This mismanagement leads to increased government spending to keep these enterprises afloat, contributing to fiscal indiscipline.

Lack of Transparency

The government has been criticized for its lack of transparency in awarding contracts and allocating resources, which can lead to increased corruption and inefficiencies.

One example of the lack of transparency is the inadequate public disclosure of information on government spending. The lack of comprehensive and timely information on public spending hinders accountability and makes it difficult to monitor and assess government spending. The Public Financial Management Act of 2019 aims to improve transparency and accountability in public financial management. However, implementation has been slow, and transparency remains a significant challenge.

Another example is the lack of transparency in tax administration. Pakistan’s tax administration has been criticized for its lack of transparency and accountability, leading to low tax compliance and revenue collection. The absence of clear and consistent procedures, as well as limited access to information on tax administration, contribute to this problem.

The lack of transparency in public procurement processes is another area of concern. Public procurement processes are often opaque, leading to mismanagement and corruption. The absence of clear rules and guidelines, coupled with a lack of transparency, often leads to the awarding of contracts to politically connected individuals or firms, which may not be the most qualified for the job. This results in the misallocation of resources and reduced effectiveness of public spending.

Excessive Defense Spending

Pakistan’s defense spending has increased significantly in recent years, which can contribute to fiscal indiscipline. According to the Stockholm International Peace Research Institute (SIPRI), Pakistan’s military expenditure was $10.3 billion in 2020, which represents 4% of the country’s GDP. This excessive defense spending limits the government’s ability to fund other critical areas, such as health and education, contributing to fiscal indiscipline.

Dependence on Loans

Pakistan’s federal government also has a high dependence on loans to finance its expenditures, which can contribute to fiscal indiscipline. According to the Pakistan Economic Survey 2020-21, external debt and liabilities increased to $117.8 billion at the end of March 2021, which is 38.8% of the country’s GDP. This reliance on external financing can lead to increased debt and financial instability.

Lack of Long-Term Planning

Pakistan’s federal government also lacks long-term planning, which can contribute to fiscal indiscipline.

The lack of long-term planning results in poor decision-making and the misallocation of resources. Short-term policies often lead to incomplete projects and the inefficient use of resources, which results in cost overruns and further drains on the budget. This issue is evident in the government’s energy policies, where frequent changes in policies and a lack of long-term planning have resulted in an inadequate and unreliable energy supply system.

Another example of the lack of long-term planning is insufficient investment in infrastructure development. The government’s failure to prioritize infrastructure development has led to inadequate road networks, limited access to clean water and sanitation, and poor quality of public transportation. This hampers economic growth and development, as businesses struggle to transport goods and services efficiently, and individuals face challenges in accessing basic services.

The government’s lack of planning also affects social welfare programs. The government often introduces social welfare programs without adequate planning, which results in poor implementation and inadequate funding. This is evident in the government’s poverty alleviation programs, where a lack of long-term planning has led to inadequate funding, inefficient implementation, and limited impact on poverty reduction.

Weak Revenue Administration

One of the key challenges facing Pakistan’s federal government is the weak revenue administration, which contributes to fiscal indiscipline. The government has struggled to increase its revenue collection and improve tax compliance, resulting in a low tax-to-GDP ratio and an over-reliance on borrowing.

According to the World Bank, Pakistan’s tax-to-GDP ratio stands at around 11%, which is significantly lower than other developing countries in the region. The low tax-to-GDP ratio is due to the government’s failure to effectively implement tax policies, a narrow tax base, and a lack of enforcement.

The government has also struggled to broaden the tax base by including more taxpayers and sectors into the tax net. A significant portion of the economy remains undocumented and operates in the informal sector, which limits the government’s ability to collect taxes effectively. Furthermore, tax exemptions and concessions granted to influential individuals and industries also contribute to a narrow tax base and revenue losses.

The weak revenue administration also results in a high degree of tax evasion and non-compliance. Tax evasion is prevalent in Pakistan, and it contributes to a significant loss of revenue for the government. According to a report by the Federal Board of Revenue (FBR), around 72% of registered taxpayers in Pakistan do not file tax returns. Tax non-compliance not only results in revenue losses but also contributes to a lack of trust in the government and a culture of impunity.

Dependence on External Financing

Pakistan’s dependence on external financing is a significant contributor to fiscal indiscipline. According to the Pakistan Economic Survey 2020-21, the country’s external debt and liabilities increased to $117.8 billion at the end of March 2021, which is 38.8% of the country’s GDP. This indicates that the government is relying heavily on external financing to finance its expenditures.

Simplification of the Pakistani Tax Regime

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Simplified Taxation Fair Tax

Simplification of the Pakistani Tax Regime

Pakistan’s tax system has been faced with several challenges including low tax-to-GDP ratios, a narrow tax base, and high rates of tax evasion. 

 

 

Pakistan’s tax-to-GDP ratio was only 10.4% in 2020, which is significantly lower than the average of 15.3% for countries in the South Asian region (World Bank). Economists and policymakers have proposed that a low rate, flat, broad-based, and predictable tax regime can help Pakistan overcome these challenges and achieve greater economic growth and development. The proposals are reflected in the Pakistan Charter of Economy.

Low Rates

Several reasons support the implementation of a simplified tax system with a low tax rate. First, low tax rates encourage taxpayers to comply with their tax obligations. High tax rates can discourage people from working, investing, or saving, as the cost of these activities may be too high compared to their after-tax returns. Conversely, low tax rates provide individuals and businesses with more financial resources to engage in productive economic activities, which leads to increased economic growth and development.

Furthermore, a one-percentage-point reduction in tax rates can lead to a 0.3% increase in GDP in the short run and a 0.6% increase in the long run, according to a study by the International Monetary Fund (IMF). Tax evasion in Pakistan amounts to about 70% of the total tax revenue (Pakistan Institute of Development Economics).

Lower Administrative Costs and Compliance

A simplified tax system can lead to lower administrative costs, resulting in significant cost savings for the government. According to a World Bank report, Pakistan spends approximately 1.7% of its GDP on tax administration, which is higher than the average for countries in the South Asian region. Streamlining the tax collection process and reducing the need for expensive technology and personnel could lower administrative costs.

The current tax system in Pakistan is characterized by a multitude of tax rates, exemptions, and deductions, making it complex and difficult for taxpayers to understand and comply with. A flat tax rate would simplify the system, reduce the need for tax planning, and promote greater transparency and accountability. A World Bank study found that a flat tax rate could increase compliance by up to 7%, as taxpayers would be less likely to engage in tax evasion or avoidance.

A Broader Base

A broad-based tax system is desirable because it ensures that all individuals and businesses contribute to the tax base. Pakistan’s tax base is narrow, with only a small proportion of the population paying income tax. A broad-based tax system would ensure that all individuals and businesses, regardless of their income or status, contribute to the tax base. This would increase the revenue raised from taxes and promote greater fairness and equality in the tax system. 

Broadening the tax base by just 1% could lead to an additional Rs. 50 billion in revenue, according to a study by the Pakistan Institute of Development Economics. Dr. Ikramul Haq in 2019 estimated that a flat tax rate of 15% could result in a tax revenue increase of up to 0.9% of GDP in Pakistan

 

Predictability and Certainty over the Long Run

A predictable tax system is desirable because it promotes certainty and stability for taxpayers. The current tax system in Pakistan is characterized by frequent changes in tax laws and regulations, leading to uncertainty and instability for taxpayers. A predictable tax system would provide taxpayers with greater certainty and stability, allowing them to plan their finances and investments more effectively. Countries with more stable tax systems tend to have higher rates of economic growth and development, according to a study by the Tax Justice Network.

Limiting Corruption

A simplified tax system can reduce corruption and tax evasion, leading to higher tax revenues for the government. According to the Pakistan Institute of Development Economics, tax evasion in Pakistan amounts to approximately 70% of the total tax revenue. A simplified tax system with lower tax rates and reduced complexity could reduce opportunities for corruption and increase tax compliance, resulting in higher tax revenues for the government.

Economic Efficiency

Simplified tax regimes can allocate resource more efficiently, as individuals and businesses are not deterred from engaging in economic activity due to high taxes or a complex tax system. According to a study by the International Monetary Fund, a simpler tax system can lead to higher investment, greater innovation, and higher levels of economic growth. This is because a simpler tax system reduces the time and resources required to comply with tax regulations, which can be a significant barrier to economic activity.

Low rate, flat, broad-based, and predictable tax regime can bring significant benefits to Pakistan’s economy. Such a tax regime would incentivize taxpayers to comply with their tax obligations, simplify the tax system, broaden the tax base, and promote certainty and stability for taxpayers.

 

Fiscal Indiscipline in Pakistan’s Public Sector

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Fiscal Discipline

Pakistan’s economy has been facing severe financial challenges for several decades, and one of the primary reasons for this is the government’s lack of fiscal discipline. The government’s spending has been increasing rapidly in recent years, leading to a significant surge in the country’s budget deficit. To address these issues and ensure sustainable economic growth, the government needs to exercise fiscal restraint and focus on reducing its expenditures.

In the most recently published Pakistan Charter of Economy by the Policy Research Institute of Market Economy, we try to address some of the issues. Check out the section on spending restraint. 

The government’s high level of spending is the primary reason for the country’s fiscal challenges. Pakistan’s government expenditures have been increasing significantly over the past few years, which has led to a substantial increase in its budget deficit. The government has been borrowing heavily to finance its spending, leading to a significant increase in the country’s debt burden.

Government Employees

  • The government of Pakistan employs 3.2 Million persons, or 5.1% of total labor force, and 1.57% of the total population.
  • The total government expenditure is 22% of GDP, and wages account for 3.6% of GDP and 19% of combined current expenditures of the Federal and Provincial Governments.
  • The provincial government employees constitute half of the bureaucracy while the remaining work with the Federal Government.
  • 35% of Federal employees work in security, 20% in infrastructure, and 18% in the energy sector.
  • At the provincial level, 41% of the government workforce is engaged in the education sector. Together with health and security, constitute 75% of employees, and 72% of wage expenditure.
  • 95% of government employees are in the unskilled (50%) and semi-skilled (45%) categories and constitute 85% of the wage bill.
  • 1.4 million persons are employed by the military.
  • In comparison, the ruling British raj needed no more than 1200 officers to conduct public services.

To address these issues, the government needs to reduce its spending. This can be achieved by cutting down on non-essential expenditures, eliminating all subsidies, and redirecting resources to more critical areas such as health, education, and infrastructure development. The government should prioritize spending on programs and projects that yield the most significant benefits for the country and cut down on expenditures that do not contribute to economic growth.

Curbing Expenditures

The government can also consider implementing austerity measures to reduce spending. These measures can include freezing salaries and benefits for government employees, reducing the number of government employees, and cutting down on travel and entertainment expenses. These measures will help the government save money, reduce the budget deficit, and improve the country’s fiscal health.

Efficiency

Another essential aspect of reducing government expenditures is improving the efficiency of public spending. In recent years, Pakistan’s government spending has been characterized by inefficiencies and waste. The government needs to implement policies that ensure public spending is directed toward projects and programs that yield the greatest benefits for the country. The government can achieve this by implementing a results-based management system that measures the impact of public spending and ensures that resources are allocated to projects that deliver the most significant results

Leakages from Corruption

The government also needs to focus on reducing corruption in public spending. Corruption has been a significant challenge in Pakistan, and it has contributed to the country’s fiscal challenges. The government needs to implement anti-corruption measures that promote transparency and accountability in public spending. This can be achieved by strengthening anti-corruption institutions, increasing transparency in public procurement, and improving oversight and monitoring of public spending.

Pakistan faces 'global embarrassment' trying to repair image of Finance Minister Ishaq Dar

Finally, the government needs to explore opportunities for public-private partnerships to reduce government expenditures. Public-private partnerships can help the government deliver public services more efficiently and cost-effectively by leveraging private sector expertise and resources. The government can partner with private companies to provide services such as healthcare, education, and infrastructure development, which will help reduce government spending and improve the quality of public services.

In conclusion, Pakistan’s government needs to exercise fiscal restraint and focus on reducing its expenditures to address the country’s fiscal challenges. The government should prioritize spending on programs and projects that contribute to economic growth and reduce non-essential expenditures. The government should also implement policies to improve the efficiency of public spending, reduce corruption, and explore opportunities for public-private partnerships. By taking these steps, the government can reduce the budget deficit, improve the country’s fiscal health, and ensure sustainable economic growth in the years to come

Does austerity lead to prosperity?

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Does austerity lead to prosperity?

Best way to achieve austerity, prosperity is to end govt monopoly over economic resources

 

Ali Salman | March 06, 2023

 The prime minister, while addressing the news conference announcing austerity measures, said “we have to make collective efforts to make the country prosperous.”

The federal cabinet has announced an “austerity package”, that includes steps such as early office opening, early closure of shopping centres, ban on the purchase of luxury vehicles by the government, sale or lease of government-owned properties, ministers to forgo pays and perks, and travel on economy class.

This, if implemented, will lead to annual savings of Rs200 billion, according to the government estimates.

The steps such as 15% reduction in the government expenditure, ban on the import of luxury vehicles at taxpayers’ expense and commercialisation of state property are appreciable. We should appreciate this even for a symbolic value.

However, I ask this question: does austerity lead to prosperity, as the prime minister said?

First, we need to differentiate between austerity by a government and austerity by households and private firms. Almost all households and all private firms, which are going concern, do not spend more than what they earn. They are already austere. If they overspend, they go bankrupt quickly.

However, the governments do that all over the world. They do not go bankrupt due to their political power and monopoly over economic resources.

Second, the prime minister needs to understand that no nation has become prosperous through austerity.

The best way to achieve both government austerity and social prosperity is that we should end government monopoly over any economic resource. This should not be justified only on austerity grounds, rather it should be part of a permanent policy.

If we need any policy at all, we need a prosperity policy. In its Charter of Economy, PRIME has outlined such a policy proposal.

Government ownership and control of primary urban properties, agricultural, commercial and industrial businesses, and trade of commodities should be done away with. According to this charter, “The government may not monopolise any economic resource. PSO’s monopoly over import of most fossil fuels will end.”

If done in a competitive manner, this will usher in an era of prosperity instantly. It will also help the government achieve its objective of austerity. We give away hundreds of billions of rupees each year to the government so that it can wastefully spend on running businesses inefficiently.

Giving up control and ownership is hard. Politicians will feel powerless once we take back their power to give contracts and jobs through government businesses.

These are really the hard decisions which no government or political party is willing to seriously consider. Instead, we are asking the businesses and citizens to “do more”. Increasing the GST is a tool for the same.

Shutting down businesses at 8pm is another futile idea which seems to have gained a lot of traction. Energy conservation through administrative measures is a bad idea. Let me give one example.

Everyone is aware how we waste water in our farms, houses and factories. The reason is very simple. We are not willing to price the water.

When I was an independent director of Punjab Saaf Pani Company during 2014-2016, I proposed that the government should adopt the Changa Pani model, which is a community-managed project of drinking water supply through a pipeline in Bhalwal.

Water is priced through meters and households pay as per their consumption. Results are amazing. Not only people pay, but the system is maintained while the government-run water supply schemes become dysfunctional.

Then chief minister rejected this proposal. Instead, the governments keep wasting billions of rupees in installing tube wells. By changing the incentive system, we can save these billions and encourage people to conserve as a result of pricing.

Talking about austerity, our favourite bogeyman is import. Curbing imports, as every finance minister from Tarin to Miftah to Dar, and most of the economists, would like us to believe, is the key to managing our accounts.

Miftah started it and it has continued till today in practice. Little did anyone realise that we were tinkering with the very basic nerve of our economy. Once we started stopping imports, even on the fallacy of luxury/ non-luxury distinction, we strangulated the trade flow.

Recently, soap manufacturers released an ad, demanding that the government include it in “essential industries”. Government thinks washing hands is a luxury. We did not stop there.

Import restrictions led to the rationing of dollars and in fact creation of a parallel exchange market. That brought us on the verge of default.

Economics is a tricky subject and sometimes we are caught by the intended consequences following intentions only.

As Bastiat observed centuries ago, we need to differentiate between the seen and the unseen. We need to bring in consequences in our thinking. While people who are talking about austerity are good people and they have noble intentions, their solutions are inconsequential.

The writer is the executive director of PRIME, an independent economic think tank based in Islamabad

This article was originally published in The Express Tribune on March 6, 2023

 

Calling all writers! Join PRIME Fellowship and share your ideas for a prosperous Pakistan

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Guidelines for Writers

Primarily policy research articles but also any other policy research media outputs produced by PRIME Associate Fellows can be topics relating to the economy of Pakistan, and on the following:

1. Policy realms
2. Economics
3. Energy
4. Agriculture
5. Water
6. Climate
7. Education
8. Healthcare

The standard structure of an output from a PRIME Fellow must be based on

1. Explaining a problem
2. Contextualizing the debate by referring to existing solutions
3. Offering or endorsing a solution consistent with the classical liberal/libertarian perspective

As these articles are designed as a direct contribution to public policy, it is important that the reference to debate should be linked with policy on the ground.

Here’s an example of a Problem – Literature – Solution structure.

Problem: Most Pakistanis do not have access to clean drinking water in their homes

Existing Solutions: For the last many years, various federal and provincial governments have invested billions of rupees in clean drinking water projects centered around provision of water filtration plants, from where citizens can collect water free of cost.
Proposed Solution: will be based on the principles of subsidiarity (local solutions) and cost recovery (user fee) along with necessary investment from the government.
As this example hopefully suggests, these articles should not be empty rhetoric, but based on sound reasoning backed up with argument and evidence.

This opportunity is for the professional development of Young people, and candidates within the age of 21 to 29 years of age are eligible to apply.

The blog post is aimed at those who are interested in joining the PRIME Fellowship Program. Click to view the original post.

PRIME Sales Tax Proposal For Federal Budget 2023-24

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PRIME Sales Tax Proposal For Federal Budget 2023-24

The Policy Research Institute of Market Economy (PRIME) has proposed a sales tax plan for the Federal Budget 2023-24. The proposal aims to address the regressive taxation system that results from keeping sales tax rates on the higher side. The plan suggests that a maximum sales tax rate of 5% should be fixed with no input/output adjustment, which would be ideal for sustainable long-term growth.

The proposal also focuses on broadening the tax base through a simple withholding sales tax (SWHT) regime. The current Eleventh Schedule of the Sales Tax Act, 1990 has ambiguity with regard to active tax payer suppliers, and separate SWHT rates on some supplies and supplier categories are not just justified. PRIME recommends simplifying the SWHT regime to achieve broad, predictable, low-rate taxes.

For more details on the PRIME Sales Tax Proposal for federal Budget 2023-24, please refer to the attached document link

Click here

Join PRIME Fellowship: Empowering Classical Liberal Thinkers in Pakistan

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Islamabad Policy Fellowship Program

You want to be a part of PRIME as a libertarian writer and activist? Here is the opportunity for you.

Libertarianism is a broad political philosophy that upholds Liberty as the core value, seeks to minimise state encroachment on the individual liberties, emphasises rule of law, pluralism, cooperation, civil and political rights, free trade, voluntary association and freedom of expression. 

The PRIME Fellowship is a publishing project which is gathering, nurturing and promoting ideas of young writers who are motivated to discover solutions for challenging problems in Pakistan in accordance with the libertarianism philosophy.

As a leading and independent economic think tank PRIME has been advocating for a smaller government, low rate of taxes, and simpler regulations for over 10 years working from Islamabad. As a center of free market ideas and debates, Prime is dedicated to mobilizing younger people towards logical thinking, and empirical study for writing and advocating libertarian solutions.

This PRIME fellowship serves as an umbrella for the entire spectrum of libertarian thinkers residing within Pakistan. Your ideas are welcomed, and your voice is appreciated here. Come and connect with your community. 

Apply by completing the Application Form​

This opportunity is for the professional development of Young people, and candidates within the age of 21 to 29 years of age are eligible to apply.

Click to see the guidelines for interested individuals

The Need for a Charter of Economy in Pakistan

by PRIME Institute PRIME Institute No Comments

PRIME'S Charter of economy: a blueprint for Prosperous economic future of pakistan

Introduction

In the past, prime ministers and Federal cabinet members under threat of losing popularity mobilize public resources and manipulate economic resources using policy tools. Pre election populist spending stimulates consumer demand, and disproportionately increases import spending, throwing the current account balance into unsustainable deficit levels.
Because the highest import spending of the country is made on petroleum imports, and the government has a near monopoly on these imports, the government runs out of dollars to continue import purchases.
Broad scale controls are activated in favor of slowing down international trade. When imports are choked out, it stresses that portion of the export sector which is in the business of processing imported goods or finishing imported raw materials.
All this occurs in the hope that multilateral financing institutions come to the rescue. Inevitably, the result is expensive petroleum, higher taxes, higher inflation, and shortages of essentials. This throws off existing economic relationships between private players influencing the viability of exchanges in unpredictable ways.
Additionally, political parties have been involved in blocking off civic infrastructure, and greatly affecting the lives and businesses of private citizens. Economic players cannot function optimally when access to economic capital frequently become unavailable.

Follow the link to access Pakistan's Charter of Economy.

Charter of Economy

In 2006, Mohtarma Benazir Bhutto and Mian Muhammad Nawaz Sharif signed the charter of democracy. This landmark pre-constitutional agreement between the two largest political parties of Pakistan serves as the foundation upon which parliamentary continuity in Pakistan has been sustained since 2008. With the goal of blocking undemocratic power upheavals in the political establishment, the arrangement became the basis of several constitutional amendments.
We have heard from players of almost all the political parties calling for a similar Charter of Economy. The stated goal of such a charter may be surmised as the elimination of political interests in the deployment of economic controls, and in the distribution of public finances.
Such a charter would have the effect of delinking public finances from the state economy in a meaningful way. It would be able to cultivate budgetary discipline, conservative fiscal policy, stable monetary policy and improve cross border trade prospects.
In pursuit of a stable economic future for Pakistan, the policy research institute of market economy is currently engaging with top legal and public finance expert Dr Ikramul Haq to draft a technical agreement known as the Charter of Economy.
Alongside this effort, PRIME is actively supplementing the charter with a consensus-building exercise between political stakeholders, directly reaching out to the Central Executive Committees of the top three political parties represented in Parliament: PTI, PPP, and PMLN. Through various outreach activities, such as meetings with politicians, newspaper articles, and social media messaging, PRIME is building political capital around the issue, positioning the Charter of Economy as a critical public interest matter for the welfare of all Pakistanis.

Taxation experts propose flat and low-rate taxation system for Pakistan’s Finance Bill 2023

by PRIME Institute PRIME Institute No Comments

Taxation experts propose flat and low-rate taxation system for Pakistan’s Finance Bill 2023

The Taxpayers Alliance Pakistan (TPAP), initiative of PRIME, an economic think tank, recently organized a meeting of its fellows to discuss ways to improve Pakistan’s taxation system for the upcoming Finance Bill 2023. Attendees included members of the alliance and field experts who aimed to generate proposals that would simplify tax regulations and reduce the compliance burden on taxpayers. 

(Excited to see the proposal that’s making waves? Simply click here to check it out!)

One of the notable contributions at the meeting came from Mr. Anas Farhan, Vice President of ZTBL. He presented a document and a detailed presentation on the advantages of a flat and low-rate taxation system, which was later commented by Mr. Zeeshan Merchant, Former President of Karachi Tax Bar Association (KTBA). 

Interested in learning more about the meeting details? Access the recording by clicking below

Mr. Farhan’s proposal emphasized the significance of streamlining the tax system and lessening the compliance burden on taxpayers. He argued that a flat and low-rate taxation system would accomplish these objectives while also promoting economic growth and reducing inequality. 

The proposal would eliminate the current complex system of tax brackets and exemptions, reducing the need for expensive tax planning and compliance. 

Overall, Mr. Farhan’s proposal is a crucial contribution to the ongoing debate on tax reform in Pakistan. It provides a well-argued and clear case for a simpler, fairer, and more efficient tax system that could benefit both taxpayers and the wider economy initiative.

Income Tax Proposal for FBR – Budget 2023-24

by PRIME Institute PRIME Institute No Comments

Revolutionizing Taxation: PRIME’s Proposal for a Fairer and Simpler Tax System

27, Feb 2023

 

PRIME, an economic think tank, has submitted a proposal to the Federal Board of Revenue (FBR) in Pakistan aimed at reforming the income tax system to promote simplicity, transparency, and compliance. The proposal comes in response to the FBR’s solicitation of ideas for the upcoming Finance Bill 2023. The proposal was developed in consultation with the Taxpayers’ Alliance, a group of tax experts from across Pakistan, as well as Mr. Anas Farhan, the Prime Fellow & Vice President of ZTBL. The aim of the proposed reforms is to eliminate taxes that are unjustified, discriminatory, do not contribute to the national exchequer, and have become redundant. This proposal aims to create a fairer and more efficient tax system in Pakistan that can provide sustainable funding for public expenditures.

PRIME INCOME TAX PROPOSALS FOR BUDGET 2023-24:

[pdf-embedder url=”https://primeinstitute.org/wp-content/uploads/2023/02/PRIME-Income-Tax-Proposals-23-24.pdf” title=”PRIME Income Tax Proposals 23-24″]

Incredible things happen when PRIME Fellows come together! This proposal was born from their expert input. Click here to get the full meeting rundown.

First Islamabad Policy Exchange

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ISLAMABAD POLICY EXCHANGE

23, Feb 2023

PRIME organized the “Islamabad Policy Exchange”, an in-camera discussion between academic, governance, political, and private sector specialists aimed at sharing and reviewing economic policy reforms and providing feedback to the Government of Pakistan. The discussion revolved around new Urban Policy by the KP government and the IT sector regulations. The participants unanimously agreed that the efficiency in the provision of public service delivery and facilitation of businesses require easing of regulations, digitization of processes and formulation of long-term policies to enable entrepreneurs/ investors to reap the benefits of incentives provided by the government and contribute to economic prosperity.

URBAN POLICY IN PAKISTAN AND KP GOVERNMENT AS CASE STUDY

The KP Urban Policy 2030 is designed with the vision to provide direction and a roadmap for creating inclusive opportunities for individuals, businesses, and communities in urban centers, and facilitate the better use of land, real estate development, provision of municipal services and tourism.
The real estate representatives highlighted the problems faced by them in getting requisite approvals for starting projects as the land records are not completely digitized, lack of clarity on segregation between residential and commercial land, myriad steps of documentation, and a complex bureaucratic system. The digitization of processes and easing of regulations are inevitable for higher economic activity. They also suggested separating Building Control Authority (BCA) and Development Authority (DA) for better urban planning, and easing regulations on the inflow of IT proceeds.

IT SECTOR REGULATORY FRAMEWORK: CHALLENGES AND STATUS OF REFORMS

The representatives of the IT services sector, freelancers in particular, highlighted that short-term policies contribute to uncertainty. The restriction of the retention of 35 percent of proceeds is not sufficient and diminishes the incentive to bring 100 percent of proceeds into the country. Resultantly, a significant proportion of the foreign exchange earned is kept outside the country. Moreover, the application of a tax differently for filers and for non-filers does not encourage the documentation of businesses as they are exposed to higher government scrutiny.
In contrast, the representatives from the government acknowledged the problems arising from short-term policies. However, the documentation of the economy and becoming a part of the taxation system are matters of national interest and obligations of citizens. The participants were informed about the steps taken by the government to facilitate freelancers in terms of opening foreign currency accounts, low tax rates and ease in the registration of businesses, and more will be announced in the coming budget. The representatives of the government also highlighted that insinuation regarding frequent and undue audits by the FBR is not completely based on reality.

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