What Does PIDE’s Reform Agenda Offer for Pakistan’s Economic Recovery?

News Desk 

Islamabad: Pakistan needs to swiftly transition from withholding taxes to advanced income tax mechanisms, emphasized Dr Nadeem ul Haque, the Vice Chancellor of the Pakistan Institute of Development Economics (PIDE), on Tuesday

He stressed the importance of harmonizing the sales tax system across goods and services, expediting the implementation of Point of Sale (POS) systems through outsourcing within six months, and transitioning to a Value Added Tax (VAT) mode with consistent rates as imperative steps forward.

Furthermore, Dr Nadeem ul Haque suggested increasing excise duties on products detrimental to health and the environment, such as tobacco and beverages, to promote public well-being and sustainability. 

He was speaking at the launch event of the Pakistan Institute of Development Economics (PIDE)’s ambitious reform strategy, ISLAAH: Immediate Reform Agenda: IMF and Beyond, aimed at propelling Pakistan towards economic stability and growth amidst its looming financial crises.

This initiative, encapsulating the ideals of rethink, reform, and revive, addresses Pakistan’s pressing need for external financing exceeding $120 billion over the next five years, as emphasized by the recent IMF Report, according to a press release issued on Tuesday.

PIDE’s strategy serves as a clarion call for a systemic overhaul to ensure economic progress and prosperity, transcending the narrow interests that frequently dominate the discourse on reform in Pakistan.

The PIDE VC underscored the necessity of adopting a comprehensive approach to tackle Pakistan’s economic challenges effectively.

It is noteworthy that PIDE has delineated an agenda aimed at addressing pivotal areas such as regulatory modernization, tax reform, market liberalization, energy sector efficiency, and enhancements in agriculture and banking.

A pivotal aspect of this strategy involves the implementation of a ‘Regulatory Guillotine’ to eradicate cumbersome regulations impeding business growth and innovation.

Additionally, the VC highlighted that the agenda delineates a series of innovative reforms intended to revitalize Pakistan’s economic landscape.

These encompass debt restructuring and intensified collaboration with the IMF, holistic tax reforms to foster a more business-friendly environment, and the strategic liberalization of the economy to prioritize exports and modernize import regulations.

Additionally, it addresses energy sector inefficiencies, agricultural and banking sector improvements, and the development of real estate and capital markets to encourage investment and deepen capital market participation, he said. 

 The anticipated impacts of these reforms are substantial, promising to catalyze investment, foster job creation, and facilitate higher GDP growth. 

They stated that PIDE’s groundbreaking economic reform initiative aims to streamline governance by addressing the burden of 122 regulatory bodies operating directly under the Federal Government, which currently account for over 50 percent of the GDP, as revealed by PIDE’s Sludge Audits.

In our pursuit of economic efficiency, it’s imperative to shift from a system of permissions to clear rules, as permissions not only consume valuable time and resources but also incur significant documentation costs, both directly and in terms of missed opportunities. 

To achieve this, we must prioritize clear rules, digitization, and market liberalization, putting an end to the bureaucratic penchant for permissions and paperwork, thereby overcoming the ‘Permissionistan’ syndrome. 

Drawing inspiration from India’s successful reforms in 1991, it’s evident that piecemeal approaches won’t suffice. Instead, we advocate for the implementation of a regulatory guillotine, a proven strategy adopted by countries like Hungary, Mexico, South Korea, and the UAE, among others.

Nadeem ul Haque further stated that amidst the urgent need for tax simplification and policy certainty, this budget season demands immediate attention towards streamlining taxes in a revenue-neutral manner and ensuring stability for a decade, with a commitment to refrain from introducing new taxes in each budget cycle. 

He said the adverse effects of tax uncertainty and instability, as highlighted by the PIDE State of Commerce Report, cannot be overstated, as they have driven investments underground, hindered firm growth, and impeded corporatization and listing. 

In addressing the income tax regime, we advocate for a uniform tax rate across all sources of income, with provisions for agriculture income loss carry-forward and adjustment, along with the elimination of the presumptive tax regime and taxes on turnover, he said. 

Furthermore, we call for uniformity in taxation for AOPs, sole proprietors, and corporations, along with reforms in inter-corporate dividend income and asset sales taxation.