The PTI coalition government has presented its first full-year budget 2019-20 in parliament, last month. The last year’s budget was prepared by the previous government and subsequently subjected to minor changes proposed by the current government when it assumed power. Thus, this budget should be seen as an important step towards PTI’s objectives including ‘building just and equitable society’, as enshrined in the Madinah Charter and visualized by the father of the nation. This budget should also be seen in the backdrop of current year’s economic performance, chronic issues such as unemployment, poverty, public debt, poor social services, high level of corruption, poor governance, low rate of savings and investment, and water and energy crises. It should be appreciated, however, that while these issues need sustained and long-term efforts, this budget could be used as a critical step for setting the direction.

The international institutions (e.g., IMF, World Bank, Asian Development Bank), as well as national institutions (State Bank of Pakistan and Pakistan Bureau of Statistics), have assessed the state of the economy during the current year. The Economic Survey, Annual Plan and other documents that released with the Budget gave an updated position of the economy.

Indications are that, in general, the performance is below the planned target. The fiscal deficit is likely to be above 7% of GDP which is mainly contributed by the shortfall in tax revenues, rise in debt servicing and defence-related expenditures. GDP growth is likely to be way less than 5.2% recorded in the previous year. The main area of concern, however, relates to the external economy and rising prices. The inflation rate in 2018 was 3.9% and in 2019 it is leaping towards double figures i.e., 9.4% projected to remain high in 2019-20. The foreign exchange came down to precarious level and external debt repayment liabilities compelled to seek funding from friendly countries and international institutions. Despite funding arrangements with Saudi Arabia, UAE, and China, the government had to negotiate a medium-term arrangement with the IMF. The rupee depreciated substantially while there is also stress owing to a steady rise in international oil prices.

These have adversely wedged the economy; rock oil costs were raised leading to energy and transport price rise. Depreciation also resulted in an increase in the cost of external debt in the rupee. The people suffered due to the rise in prices with inflation likely to exceed 9% during the fiscal year. This coupled with unemployment, poverty, the societal disparity in income and wealth and poor social and environmental conditions have made the life of common man difficult. The incumbent government has taken some initiatives in health, education and housing sectors. Some more may be forthcoming in the coming years. Mobilization of resources for financing these programs and managing them in an effective way will be a real challenge. PM Imran’s government will have a heavy agenda for next year and the main burden will fall on the budget. Many tasks will have to be addressed. On the economic front, it should attempt to pay attention to human development and welfare, environment and climate change, national security, governance, and clean society. The focus has to be on such repeatedly highlighted areas as, people’s welfare, equity, justice and equal opportunities for all.

Besides this, in order to have macroeconomic stability and fast economic growth, experts opine that it is necessary to sustain the GDP growth rate of 7 to 8% for at least 10 years without any interruption. To attain such a high growth-rate it is inevitable to ensure an increase in investment, along with raising facto productivity and efficient use of resources. Clear policy and confidence making measures are the essential parameters needed for investment promotion.

It is reiterated that the tax system has been reformed yet collection has not improved. Pakistan’s tax to gross domestic product magnitude relation is a smaller amount than 100% that is amongst rock bottom within the world. It is rightly believed that the country has the potential of increasing tax revenues without increasing tax rates. This can be done by serious tax reforms and enhancement of progressive taxes while limiting tax exemptions only to targeted areas. Something innovative and drastic is required for tapping the potential, eliminating corruption, reduction of tax evasion and broadening the tax base. In this context, the Value Added Tax (VAT) is a promising area which has not been introduced so far under the pressure of vested interests. This proposal should be revived.

We need higher tax coverage, lower tax rates, less reliance on indirect taxation and progressive tax regime. FBR should move away from predatory taxation and serious efforts are required to restore the trust of people. Tax should be collected from people who do not pay taxes and existing taxpayers should not be excessively burdened. Form and procedures of tax on individuals, in particular, need to be simplified and incentives provided to induce them to pay tax voluntarily. Strong institutional framework and initiatives are required to revive the system of Zakat and Ushr. Moreover, the Revival of the agricultural sector is inevitable in order to boost the economy of the country. In this regard, the government should ensure the availability of credit facilities to the whole of the sector in general and to small scale farmers in particular. Low input cost along with improved marketing and storage facilities for agriculture products is recommended in order to boost the agriculture sector.

To sum up, the task ahead is difficult and challenging which requires tough decisions. One of the main causes of current malign is the tendency of the past governments to prefer soft options against the hard ones. They, for instance, opted for public borrowing instead of attempting to raise tax revenue. The need of the hour is a movement for self-reliance and comprehensive austerity drive with a focus on public welfare and inclusive progress.

The flawed approach and poor practices of tax collection machinery keep burdening the existing taxpayers with more taxes instead of bringing new taxpayers into the tax circles. An innovative approach is required to broaden the tax base, monetize the economy and encourage people to pay taxes. One budget cannot address all problems, but it should at least set an effective base to achieve national objectives within a medium and long-term framework. The practice of preparing five-year and perspective plans should continue so that all development efforts are set out in an integrated framework with a long term vision.