The World Bank has urged Pakistan's caretaker government to revise its taxation strategy by focusing on wealthier sectors like agriculture, real estate, and retail. The move could potentially generate an additional 4% of GDP or over PKR4 trillion (USD1 = PKR280.328) in short-term revenue, as stated by the World Bank's lead economists for Pakistan, Najy Benhassine and Tobias Haque on Monday.
The economists emphasized the role of provincial governments in imposing these taxes to alleviate federal fiscal pressure and enhance services. They proposed strategies such as abolishing tax exemptions and expanding the tax net to include untapped wealth in these sectors.
In addition to this, they suggested improvements to land taxation by establishing reliable land ownership records. Harmonizing the three existing land and real estate valuation systems was also recommended, which could increase the tax-to-GDP ratio by 5%. They also recommended raising property tax rates to match those in comparable countries.
Haque noted that salaried individuals are nearing their maximum taxation potential. Therefore, they called for simplification of the income tax structure for both salaried and non-salaried individuals. However, he clarified that personal income tax reforms are not a priority for the World Bank at this time.
The economists also suggested implementing austerity measures like a 2.7% GDP expenditure cut to ensure economic stability. This comes against the backdrop of Pakistan's revenue collection over the past decade averaging a lower 12.8% of GDP compared to the South Asian average of 19.2%.
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