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GROWTH-FRIENDLY TAX REGIME

GROWTH-FRIENDLY TAX REGIME

A must to attract investment in Pakistan

To boost economic growth, to reduce unemployment rate and to keep inflation rate low: these are the three primary goals every government aspires to achieve and works for that vigorously. Pakistan’s current rates of economic growth are not encouraging. In 2006-07, GDP growth was 7 percent, but it fell to 2.4 percent in 2010-11. However, the growth rose to 5.8 percent in 2017-18. Pakistan’s fiscal deficit was 6.7 percent and debt-to-GDP ratio was over 70 percent at the end of fiscal year 2017-18. Therefore, the country’s fiscal sustainability risk is rising in view of large fiscal deficits and higher debt-to-GDP ratios, as well as fast depleting foreign exchange reserves.

Experts are of the opinion that in order to boost economic growth and achieve fiscal sustainability, the government needs to reform tax collection regime and work towards tax collection through growth-friendly policies. Prime Minister Imran Khan, while speaking at the Pakistan Economic Forum, pointed towards change of tax regime and investment policies for improving ease of doing business in the country.

The best way to reduce budget deficit is to enhance economic growth, implying more revenues. Taxation of property would not only enable the government to raise sufficient revenues, but will also pave the way for reducing income inequality; as one percent of the country’s population controls over half its wealth, with the other 99 percent struggling to survive on less than $500 annually.

There are different types of taxes on property and transfers, such as recurrent taxes on residential property, transactional taxes on the sale of real estate and financial instruments, taxes on wealth transfers (on estate, inheritances and gifts), and recurrent taxes on net wealth (assets minus liability).

Despite the fact that property taxes are relatively growth-friendly and can serve as a better fiscal tool for redistribution of resources for equity purposes, these are largely underutilized in Pakistan. There are virtually no taxes on wealth transfers, i.e. no estate duty, inheritance and gift taxes going by the poor revenue collection.

Read More: Radical Tax Reforms


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About Bilal Hassan

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The writer is a graduate in Taxation Policy & Management from Keio University Japan and has certification in International Economics and Law & Economics from Faculty of Economics Keio University, JAPAN. He can be accessed at bilalhassan70@yahoo.com

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