Pakistan - Tax Policy Report : Tapping Tax Bases for Development - Summary Report

Abstract

The main message of this report is that
 Pakistan can take measures to increase the tax to gross
 domestic product (GDP) ratio by around 3.5 percentage points
 over the next five years. In order to ensure a healthy
 long-run economic development, Pakistan needs to embrace
 substantial changes in tax policy aimed at increasing the
 buoyancy of the tax system, broadening the tax bases,
 reducing distortions and phasing out exemptions. Such tax
 reforms are also required to deal with the risks stemming
 from sustained large budget deficits. Failing to act sooner
 rather than later, only makes the problem more difficult to
 address without considerable instability, raises the
 probability of fiscal and financial disarray at some point
 in the future, and runs the risks of further constraining
 policy flexibility in future. This report highlights design
 ingredients for a comprehensive reform of tax policy in
 Pakistan. In the final analysis, the success of tax reform
 will depend less on the mechanism of taxation and more on
 the politics of taxation. Beyond adequate administrative
 resources and an implementation strategy, this will require
 a clear political recognition of the importance of the task
 and the willingness to persist with tax reform over the long haul.