The aim of the “National Fiscal Pact,” which the federal government and province administrations will sign together, is to improve revenue collection and harmonize state taxes in order to bridge Pakistan’s external finance imbalance.
Having an emphasis on increasing tax collections from the agriculture sector, improving provincial incomes, and realigning federal spending, this historic agreement will establish a single fiscal framework among the federal government and all four provinces.
Efforts to collect taxes have been stepped up. In the past year, the number of people filing taxes has doubled to 3.2 million, and 723,000 new filers have been added this year alone.
The finance minister approximated that tax evasion results in an annual loss of Rs1.3 trillion for the government and urged for a crackdown on cash transactions to reduce the size of the informal economy, which is estimated to be Rs9.3 trillion.
As a significant move towards tax reform, the finance minister declared the elimination of the non-filer category. The government intends to introduce a digital platform and algorithm to identify under-reporting of assets.
Aurangzeb disclosed that only 14 percent of manufacturers and 25 percent of traders are registered for sales tax.
The government will target tax evaders by restricting access to utilities, bank transactions, and property transfers.
Proposed Reforms include:
- Elimination of non-filer category.
- Introduction to digital interface.
- Identify under reporting of assets.
- Target tax evaders by restricting bank transactions and property transfers.
- Introduction of digital check points.
The finance minister of Pakistan also pointed out two major challenges facing the country: the rapid population growth and the impact of climate change.
He mentioned that talks with the IMF had included the establishment of a fund for climate resilience and Pakistan intends to take part in the upcoming IMF meeting on October 19.
The minister stated that the IMF recommended the completion of the EFF program before progressing with the fund.
Aurangzeb also drew attention to the issue of child stunting, which affects almost 40 percent of Pakistani children, as another important matter being addressed by the government with the assistance of the World Bank.
