ZAHID HUSSAIN

The fiscal year 2019-20 proved to be the second year under the incumbent government when the country’s fiscal deficit stood above 8 percent of GDP.

It was a percent lower than expected. That lower one percent is attributed to underutilization of the Prime Minister’s Economic Relief and Support Package. Lesser fiscal deficit may economically be good for a country but in this case, prompt spending by the government to help struggling people of the country would have been better in the aftermath of the coronavirus pandemic and economic crisis that followed.

However, fiscal deficit has become normal for Pakistan even before the pandemic. Perennial fiscal deficit is not good for a country. It has to be balanced with borrowed money. The country has to pay more than it takes as capital and interest and subsequently a cycle of circular debt begins.

But why does the country incur a fiscal deficit in the first place? The reason is that a country spends more in paying salaries to government employees, armed forces and on development projects etc. and collects lesser revenue in the form of duties and taxes.

The difference between spending and government revenues is fiscal deficit or surplus, in case government revenues are more than what it spends.

Last year, the fiscal deficit was highest in at least four decades at 8.9 percent.

There’s no denying that the present government inherited a lot of economic challenges. But it was the same case for the previous government. However, if the present government wants to do something differently, it must also address the fiscal deficit.

To deal with this, the government either spends less or increases its revenues. But the increasing population, the importance of spending on defense to protect the sovereignty of the country and the need to develop will always see government spending rise.

The best thing the government can do is to increase its revenues and the Federal Board of Revenue (FBR) has a crucial role to play. They shouldn’t burden the common people by taxing the essential goods as it always does in trying to increase tax revenues. They should be taxing progressively. Means, the rich, either individuals or businesses, should be paying more taxes.

Moreover, the businesses that evade taxes should be the ones under immediate FBR radar for tax collection.

For instance, Pakistan’s tobacco industry is marred by tax evaders. Illicit cigarette trade in Pakistan is being carried out with impunity. According to a report, non-tax-paid cigarettes increased up to 50% of the total market.

One question that comes to mind is how they operate with impunity and how does one put an end to this menace?

The large undocumented part of the industry is hurting the country on two fronts. Firstly, it is depriving national exchequer of Rs50 billion annually by evading taxes according to an estimate. Secondly, it is also flooding the market with low quality cigarettes with higher levels of health hazards.

This can be one such industry which FBR should focus on to not only increase tax revenues by documenting it and bringing it under the tax net but also to prevent people from accessing low quality cigarettes. This may also perhaps alleviate pressure on, although slightly, the stressed health sector of the country as lesser people may get ill due to smoking low quality cigarettes. It is expected that if the undocumented part is documented, then it will also be obliged to follow health guidelines.

A report compiled by the Centers for Disease Control and Prevention mentions some ways in which illegal tobacco trade can be eliminated by authorities.

For example, an effective system can be used to track tobacco products throughout the tobacco supply chain via a national information database. The imposition of heavy fines on manufacturers and retailers that cater to illegal cigarettes and tobacco products.

Illicit tobacco trade is rampant in Pakistan. The authorities should not look the other way and let it continue unabated. Such businesses are damaging the country economically as well as the health of the people of the country.

The FBR needs to pull up its socks and start taking action against such businesses. Bring them under the tax net and also help other government authorities to inspect these manufacturers to follow health standards.

— The writer is a 

freelance journalist.