New Delhi, Jan 11 (NationPress) The International Monetary Fund (IMF) and Pakistan’s Federal Board of Revenue (FBR) have overlooked the suggestions presented in Tax Reforms: Agenda for Self-Sustainability. This agenda highlights the possibility of generating Rs 30 trillion at the federal level alone, allowing Pakistan to tackle its enormous fiscal deficit, decrease reliance on new loans, accelerate economic development, and extend social services to every citizen, as stated by an article in the Lahore-based Friday Times.

The article emphasizes that the solution lies in establishing fair taxation rights as outlined in the Constitution between the federation and its constituent units.

It is crucial to empower provinces to generate sufficient resources, which in turn would alleviate the overall fiscal shortfall experienced by the federal government.

For instance, Balochistan should be entitled to the “net proceeds” from excise duty on natural gas, while Khyber Pakhtunkhwa should receive its rightful share from electricity, as indicated in Article 161(1)(a) and (b) of the Constitution—provisions that are currently not being honored.

Their existing allocations in sales tax under the 7th NFC Award are a mere 9 percent and 15 percent, respectively. Despite possessing abundant natural resources like oil, gas, and electricity, their small populations result in minimal shares of the revenue generated from the goods they produce. The article further mentions that Sindh is facing similar challenges.

According to Article 167(4), the role of the National Economic Council (NEC) has gained significant importance, yet this has not been acknowledged by either the federal government or the provinces. Post the 18th Amendment, planning should have been decentralized rather than centralized. The amendment restructured the NEC to follow the model of the Council of Common Interests (CCI). The NEC is part of Chapter 3 of the Constitution, titled “Special Provisions”.

Post the 18th Amendment, the authority to impose wealth tax, capital gains tax on real estate, gift tax, inheritance tax, etc., now lies with the provinces. However, they are hesitant to implement these taxes on the wealthy and powerful, indicating a lack of political will at both the federal and provincial tiers.

The dismal collection of agricultural income tax—less than Rs 3 billion by all provinces and the Centre combined in the fiscal year 2024-25—is highly regrettable, as noted in the article.

The path towards achieving and maintaining fiscal consolidation, while ensuring business facilitation, is through a unified sales tax on goods and services, similar to practices in various federations, at a low rate (perhaps 10 percent). This unified sales tax should be collected by a federalized National Tax Authority represented by both the federation and its constituent units.

Additionally, further constitutional amendments should be pursued, following thorough discussion and consensus, to allocate the authority to tax all forms of income—including agricultural income—to the federal government.

The provinces should receive a complete 100 percent share of agricultural income tax, as the NTA would function as a federalized body, with its expenditures covered by revenues collected on a pro-rata basis.

Implementing these strategies could significantly reduce the national fiscal deficit and is the sole viable route to achieving and maintaining fiscal stability in Pakistan. However, this can only be accomplished if all tax collection agencies at both federal and provincial levels undergo reform and ultimately merge into a singular National Tax Authority, manned by officers from the All Pakistan Unified Tax Service (APUTS).

The NTA would be responsible for tax collection at all levels and distribution in adherence to constitutional mandates. It would also manage disbursements for benefits such as pensions, social security, food stamps, and income support.

Linking the databases of various institutions with the NTA through complete digitization would be a pivotal move toward e-government, which is currently nearly non-existent, although initial steps are being taken.

The NTA's structure and operations should be deliberated and finalized under the Council of Common Interests, with oversight from the National Economic Council. It is imperative for the federal and provincial governments—including representatives from Pakistan-occupied-Kashmir and Gilgit-Baltistan—to convene under the Ministry of Inter-Provincial Coordination.

They must discuss the federalization of economic planning as mandated by the Constitution, pool available resources under APUTS, and work towards fiscal consolidation to transform Pakistan into a prosperous nation characterized by inclusive development and an appealing destination for both domestic and foreign investment.

Clearly, the current federal and provincial administrations and vested interests are unlikely to enact these reforms unless civil society and the media initiate a vigorous campaign.

Despite much discussion surrounding a “charter of economy” in Pakistan, no political parties or stakeholders have genuinely engaged with the true essence of the 18th Amendment, even after more than fifteen years, as lamented in the article.