made for meeting the budget deficit targets had suffocated the economy.
He said enhancing tax has remained counterproductive. “For God’s sake, tax rate increase should come after growth, as it cripples economic growth. Once the growth is achieved, you can increase tax,” he added.
Pointing at the loopholes in the tax collection, he said out of around 62,000 companies registered with the Securities and Exchange Commission of Pakistan, only about 24,000 are paying corporate tax and interestingly only 98 companies are contributing 70 percent of the total corporate taxes. About value-added tax (VAT), Pasha said input tax invoicing is more than output tax invoicing in the country. There is about three-fourth difference. One percentage point input is about Rs20 billion. “VAT works, if we have zero rating regime or have one rate.”
The focus should be on corporate taxpayers and not only on individuals. In Pakistan, the revenue cost of expenditures and concessions is about Rs600 billion. In the last 10 months, credit to private sector dropped 37 percent, as banks are investing in government papers. GDP growth for the fiscal 2014/15 will fall short of government’s target of 5.1 percent. The actual rate will likely be close to 4 percent. Growth in large-scale manufacturing was a paltry two percent for July-February 2014-15, as sugar, textile, fertiliser and other sectors are not doing well.
IPR said government must send a positive signal to the private sector by reducing the corporate tax rate from 33 to 30 percent. It also recommended Rs500 billion for the both federal and provincial PSDPs. The IPR recommended that the State Bank of Pakistan may cut the policy rate to seven percent and allow concessionary credit at five percent for exports. Government must limit borrowing from commercial banks to 2.5 percent of GDP and enable more diversion of credit to the private sector.
Economist Dr Ashfaq Hassan Khan said if we exclude more than 300 percent growth in steel the overall growth of the sector will leave to only 0.9 percent.