By Associated Press,
ISLAMABAD — Pakistan will collect more taxes in the next fiscal year, the finance minister announced Friday, presenting a budget aimed at controlling the nation’s deficit and reviving an economy battered by years of mismanagement, floods and surging violence by Islamist militants.
The plan to broaden the tax base, however, is considered far from enough to help fund the schools and hospitals that officials say are needed to stem the appeal of militancy in poorer areas of the country.
Pakistan’s urban elite and landed aristocracy have long avoided paying taxes. Successive governments, beholden to them for political support or part of those groups themselves, have resisted moves to widen the tax base. At around 10 percent, Pakistan’s tax as a percentage of gross domestic product is one of the world’s lowest.
The government is too weak to implement tax reform measures demanded by international lenders keeping the country afloat. Without enough funds, the government has relied on printing money to address the shortfall and pay interest on its debts, fueling inflation and strangling economic growth.
Finance Minister Hafeez Shaikh said the government had identified 2.3 million new taxpayers, of which 700,000 would pay an unspecified amount in an initial phase.
Shaikh read out the budget in parliament to shouts of “We reject it” and “Stop lying,” a sign of the intense political animosities that have crippled efforts to find cross-party support for tax reform. It contained few specific measures.
He said in the fiscal year that starts in July the budget deficit would total 5.1 percent of gross domestic product.
Shaikh forecast a budget deficit of 4 percent during the fiscal year starting from July 1, 2011. It “will allow us to achieve some debt reduction since our deficit this year is going to be less than our requirement for debt servicing,” he said.
He also announced general sales tax reduction to 16 percent from 17 percent.
Shaikh announced several measures to generate revenue, and hoped it would help ensure 4.2 percent growth during 2011-2012.
“To employ the youth entering the labor force, we need a growth rate of 7 percent per annum and more importantly we must be able to sustain this growth rate for a decade or more,” he said, adding “unfortunately we have never been able to sustain a growth rate of more than 6 percent for more than three years.”
Economic growth in the current fiscal year was 2.5 percent, far short of what is needed to create enough jobs for the 2 million people entering the market each year. Neighboring India’s economy is growing at almost 8 percent a year, by way of comparison.
Shaikh said last year’s floods caused $10 billion in losses to the economy. International investors have been kept away by the country’s corruption, political uncertainty, lack of infrastructure and four years of near constant bomb attacks by Islamist militants.
Despite the fiscal problems, Pakistan has enough foreign currency to avoid a balance of payment crisis like the one in 2008 that forced it to get an $11 billion bailout from the International Monetary Fund. Remittances from abroad are high, the currency is stable and exports are strong, thanks to the high cost of agricultural products.
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