World Bank says Pakistan needs strong budget changes to protect economy

A broad program of policy reforms should be implemented immediately to achieve substantial fiscal consolidation and macroeconomic sustainability, address systematic resource misallocation from distortive tax policies, and improve spending quality by reducing administrative costs and regressive subsidies.

The corporation has suggested many ways to reduce fiscal limitations and boost revenue. The country must first prioritize revenue growth by decreasing sales tax exemptions and enhancing management.

Eliminate the 8th schedule of the Sales Tax Act and apply the normal rate to all goods susceptible to reduced rates. Additionally, zero-rating should be limited to exports.

The 6th schedule of the Sales Tax Act could initially move all domestically sold items in the 5th schedule to the exempt list until exemptions are rationalized.

Bring individuals and privately owned enterprises, especially merchants, into the tax system, lower the tax-free level, and simplify the personal income tax structure to widen the tax base.

Merge salary and non-salaried tax schedules to prevent tax arbitrage.

According to the World Bank, the two-tier structure should be collapsed into a single rate and the premium excise tax rate imposed ad-valorem to facilitate automatic inflation indexation.

The research advises dramatically reducing tax exemptions and raising agriculture, property, and merchant taxes to restore stability and provide the groundwork for medium-term recovery.

The country proposes lowering the 12 ½ acre tax exemption threshold to include more agricultural land in the tax net.A simulation of an acreage-based tax showed that it might yield 1% of GDP in provincial revenues. The government must categorize land by size, location, and irrigation status to determine tax rates.

This includes agricultural land utilized for non-agriculture yet taxed under the agriculture income tax structure, allowing tax arbitrage.

Improves public expenditure by reducing distortive subsidies, improving energy sector financial viability, increasing private participation in state-owned enterprises, improving public debt management through better institutions and systems, and developing a domestic debt market.

Property tax rates might be raised to match comparable economies to boost collection.

Harmonizing the three valuation systems used for land-related taxes and basing tax rates on market-priced capital values is necessary.

The World Bank's assessment also advised the government to remove electricity, gas, and other distortionary subsidies including wheat support price, petroleum, and others.

Managing rapidly expanding government staff and operational costs requires government-wide hiring and wage freezes, suspending vehicle purchases, and limiting supplementary allowances for all staff.

The entity suggests divesting or reforming SOEs with more private participation to reduce enormous SOE expenditure.

SOE governance will be reinforced by implementing the new SOE law, establishing the SOE Central Monitoring Unit for financial management and performance, and institutionalizing performance monitoring.

The 2019 Public Financial Management (PFM) Act will be completely implemented, including a comprehensive development project economic and risk evaluation. Monitor and evaluate public investment projects and initiatives.

The government must strengthen DMO staffing, debt publications, debt recording systems, fiscal risk assessment, and contingent obligations to improve debt management institutions and capabilities.

TSA is necessary to monitor, account for, and forecast the government's cash position, which can reduce public borrowing.

According to its research, the World Bank recommends developing the local debt market to boost domestic loan stock maturity and lower borrowing costs.

Enabling a bigger investor base to participate in public auctions of government securities, easing their trading, and issuing a wider selection of government securities to suit diversified investor demands can achieve this.

The financial institution stressed increasing the CCI's role as a forum for interstate interaction.

It has also called for a national tax policy to boost provincial own-source revenue for increased priorities.

To support national fiscal strategy, federal spending in devolved areas must be limited and legal reforms implemented.

Tax policy collaboration between the federal and provincial governments can improve Fiscal Federalism.

The World Bank advised revising the 7th NFC to ensure finance matches duties.