EDITORIAL

The International Monetary Fund (IMF) has reportedly asked the government to raise the revenue target to Rs590 billion from the original target of Rs580 billion. According to the news item, IMF believes that the Rs10 billion raise can be possible without levying any additional taxes and merely by broadening the tax base. There is a consensus on the issue of broadening of the tax base, and the current economic reforms are primarily designed to achieve the same. A country with 11.5 per cent tax to GDP ratio can hardly expect any social change for the better and hence there can hardly be two opinions with regard to raising this ratio so that the financial position of the State is improved. But this should not be pursued with the conventional policy of taxing the captive tax payers, which will not only be ineffective but might be counter-productive in the ultimate analysis. So, it is believed that in spite of low tax to GDP ratio, it will be prudent to allow the reforms to take roots so that the tax base is broadened, which will improve the revenue besides making the whole system more equitable and therefore acceptable.
Raising any revenues through arbitrary measures would definitely affect the GDP growth target. The hidden potential of the economy needs to be explored and this is for the first time that the government has adopted a laxity on twin deficits so that the economy is given a chance to grow. The stabilisation policy of the government yielded dividends in the form to macroeconomic stability through increased revenue and reduced expenditures. But the growth of the economy remained less than the desired level and soon there was a feeling that further squeezing of the expenditure through higher taxation would not yield the desired results. The Pakistan demands are such that the revenues are raised through increase in economic activity, rather than imposing taxes as it will cripple growth resulting in lowering of the tax potential of the economy itself. In order to raise growth while keeping the stabilisation of economy intact, it is necessary that the situation be addressed through economic reforms, which envisage increase in revenue through increase in economic activity. For the Prime Minister with solid economic background this situation is best understood at the top level and therefore the situation is likely to be addressed in the right way.
Furthermore, Pakistan has the requisite economic sovereignty to take its decision according to the objective conditions and the Prime Minister Shaukat Aziz has maintained a number of times that the situation has arrived where Pakistan can do away with the IMF after the present PRGF. Under these circumstances, there are reasons to believe that the IMF advice will not be allowed to prevail without first taking into consideration the pros and cons of the economy. The objective conditions demand that the growth of the economy is given the top most priority as it will help in creation of jobs and elimination of poverty. As Prime Minister Shaukat Aziz will now need to think on much broader plane, it is necessary that other pressing needs of the economy should also be given due consideration. As the reforms envisage 0.2 per cent annual increase in tax to GDP ratio, it is necessary that the situation be allowed to take the natural course, which will help in raising the ratio in due course of thing. Rushing through this issue is highly undesirable.