Fiscal conundrum- steps for $750bn GDP, $6bn monthly tax in 2035?

November 05, 2023 (MLN): October was a good month for exchequer. Reportedly, FBR collected Rs707 billion in the month, a whopping 37% YoY growth. Under the IMF - and under heavy debt burden - Pakistan's fiscal statement needs to be carefully assessed in line with dynamics of the economy.

If we can control our expenses then the path to prosperity is long but achievable. But then what's going wrong?

Let's look at historical number to put things in perspective. In October 2010, FBR collected Rs104bn ($1.2bn). So the Tax revenues have doubled to $2.6B (Rs707bn) in 13 years showing a compounded USD growth of 6% per year. That is a very good growth rate in isolation.

However, that's still not enough to keep Pakistan on a steady path of growth. Essentially, FBR is rightly and wrongly criticized for low tax collection. So what is the solution?

1) Population Control: "Please" control the population bulge in Pakistan as it is going towards a ticking time bomb. A country of our size - land and economic resources - can not feed 250mn and yet offer the ticket to middle income. There needs to be financial incentive to reduce child count especially in Rural Areas. 

2) Tax the undertaxed: While the economy size has also grown at reasonable pace since 2010, several new industries - especially in services sector - need to be effectively targeted.

That domain - along with agriculture - falls under provinces head but there are no material incentives for provinces if under NFC award, their share is already enough to spend on big ticket discretionary projects. Tax agriculture, real estate and traders. 

3) Control expenses: Federal government should only restrict itself to paternal role while delegating the core responsibilities to provinces (maternal role?). With BISP, PSDP and Discos losses being shared/transferred to provinces, sufficient financial incentives should be given to provincial tax collectors to expand the pie.

Central government should focus on debt repayment, defense expenditure and some critical projects of national interest, if can not be done on PPP. 

Conclusively, we have to identify the bright spots. Country has tremendous growth potential - as evident from growth in GDP from $210bn in 2010 to $375bn in 2023. Mind you, this is despite poor governance, lack to educational development and despicable debt management. 

If only we could focus on lowering debt for next 10 years, we could be a $750bn economy in 2035 with monthly Tax collection of $6bn (twice the historical rate).

Long way, but baby steps. Track your monthly progress. Politicians need their own KPIs. Five (5) years of job (election) security is too long. Keep them on toes. Mid term elections are needed.

The author is an independent economic analyst and writes on Twitter and Linkedin.