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Interim Privatization Minister Fawad Hasan Fawad on Monday stressed on the need for reforms in the civil service and taxation sectors of Pakistan, maintaining this will help fix distortions in the economy.
Addressing the 3rd Pakistan Prosperity Forum organized by the Policy Research Institute of Market Economy in Islamabad, he said public sectors reforms were crucial to improve the performance of the state. These reforms, he explained, should increase in the size of the federal and provincial governments, or the power of state functionaries. Rather, he continued, they should focus on building the state’s capacity to regulate markets.
Highlighting the flaws in the country’s taxation system, he lamented it not only incentivizes people to stay out of the tax system but also contributes to reducing corporatization. He claimed that available data showed that around 93 percent of collected tax revenue was either voluntary or withholding, while the Federal Board of Revenue (FBR) only collected 7 percent.
The FBR, he said, sends recovery notices to individuals worth billions of rupees while only managing collection of a few hundred million. Since 2016, he said, the tax burden on corporate taxpayers had increased by more than 40 percent on average. Such a burden has contributed to encouraging people to stay out of the tax system and corporatization, he added.
Emphasizing that the current state of the public sector was unsustainable and contributed to the deterioration in the country’s business, he noted that from 2018-2021, the government had spent Rs. 2.54 trillion for subsidies, grants, and loans to keep commercial state-owned entities operational. The size of the government, he lamented, had increased over threefold in the past two decades.
The caretaker also regretted the autonomy granted to the State Bank of Pakistan (SBP) at the behest of the International Monetary Fund, claiming this was aimed at gathering information on sectors the government did not wish to publicly divulge. He said neither the IMF, nor the World Bank, had ever raised the issue of increasing the spread between the deposit and lending rates of banks, which had enabled them to collect profits of over Rs. 1,000 billion.
Earlier, in his keynote address, former SBP governor Shahid Kardar called for rationalizing public expenditures to achieve sustainability of public finances. Lamenting that wasteful expenditures on low-priority and poorly designed projects had made the debt unsustainable, he maintained that borrowing was beneficial only if it were utilized for productive activities and generating assets.