Pakistan fit for growth but needs to tread carefully: FBR chief

ISLAMABAD: Chairman Federal Board of Revenue (FBR) Rashid Mehmood Langrial Sunday said Pakistan was fit for growth but it would be achieved by striking an equilibrium and without creating imbalances on the internal and external economic fronts.

He expressed these views during Geo News’s special transmission titled, “Aakhri Mauqa: Pakistan Kay Liye Kar Dalo” hosted by Shahzeb Khanzada.

Prominent participants included Chairman Arif Habib Group Arif Habib, Lucky Cement CEO Muhammad Ali Tabba, Topline Securities CEO Muhammad Sohail and Pakistan Business Council CEO Ehsan Malik.

The participants engaged in a candid discussion on the economic challenges facing the country.

The FBR chairman conceded that the tax rates for corporate, salaried and manufacturing sectors were on the higher side. There is a tax gap of Rs1.7 trillion in income tax side for 5% top quintile of income earners, while one percent top earners close to 0.6 million possess tax gap of Rs1.2 trillion, he said.

However, all experts asked for adoption of a ‘cautious and gradual’ approach while moving from stabilisation to higher growth trajectory, as increased import reliance growth in the past two experiences — 2017 and 2022 — led towards widening the current account deficit, ultimately plunging the country into the destabilisation mode.

The crux of the discussion was that the country will have no option but to opt for the IMF programme again.

Shahzeb Khanzada, the programme host, said the economy had stabilised after striking a deal with the IMF shoring up the foreign exchange reserves and cutting the CPI-based inflation.

However, the growth remained lower while exports and remittances performed well. What kind of growth need to be pursued?

Langrial said there was a realisation that if the growth objective was not rightly calibrated, it could cause problems.

He said the next one year — Feb 2025 to Feb 2026 — would be quite crucial, as it would determine whether the past mistakes would be repeated or not.

“Pakistan will move towards growth but it will have to move in a cautious manner,” he said, adding that Pakistan will have to maintain the current account and primary balance in the surplus and it would be a painful path in the short-term. He said the IMF calculated the foreign exchange reserves after due payment in the next 12 months.

The reserves stood at negative USD10 billion. There’s need to increase the foreign exchange reserves up to $22 billion. So, there should be more reserves to go for the growth trajectory.

Langrial said the FBR would move towards a faceless tax system, as the customs faceless system was placed in Karachi which would now be replaced in the whole country.

He said there were tax gaps in the sales tax side as well and the FBR would go for production monitoring. He said the FBR transaction taxes were placed on the higher side, which was not the right policy. The Capital Gains tax would remain intact but the withholding taxes would be rationalized, he added.

The FBR chairman said the government was working to reduce the cost of houses and different proposals were under consideration. Langrial said higher growth could not be achieved in one day so adjustments in higher tax rates could not be done overnight. It would be done in a gradual manner, he added.

Arif Habib said, “We seem more defensive, as two experiences in the past need to be analysed what factors contributed towards the higher current account deficit.” He said it was a blessing that Pakistan could not get dollar inflows in shape of loans, so the SBP raised dollars from the market. He said construction was overtaxed than the industry; hence, there was a need to rationalize it.

Muhammad Ali Tabba — Lucky Cement CEO — said the government will have to achieve a balanced growth. He backed the FBR chief’s statement of moving “carefully and gradually” toward economic growth, saying that it should be “inclusive and sustainable”.

“If we achieve 6-7% growth based on $6-7 billion imports, it would be detrimental...we, again after six months, have to slow down the economy and devalue our currency to recover it,” he said.

Referring to inflation, the businessman noted that it was still higher compared to the previous years, stressing the need to evaluate the supply constraints to slow down the prices of necessary items and increase affordability. “We have to spur indigenous growth...we do not want an import-based growth, nor we can afford it.”

Furthermore, Tabba said there were sectors in Pakistan where the industries exist but on a very small scale, emphasizing the need to shift the country’s focus towards such areas such as shipping and aviation industries.

He regretted “excessive taxation” in establishing a shipping industry in Pakistan, noting the government could not attract new industries with high tax rates.

“We should focus on developing new areas, which also include data centre and IT industry, which would also increase employment and export services,” he added.

Top Line Securities CEO Mohammad Sohail said Pakistan was not fit for higher growth, as the foreign exchange reserves were still negative and there was a need to jack them up after which the country would be poised to achieve growth trajectory in a gradual manner.

Pakistan Business Council CEO Ahsan Malik said the PBC had presented three-year budget proposals to the government to set the directions adding that there was a need for coordination among all the policymakers.