Fiscal year 2019-20 proved to be the second year under the current government when the country’s fiscal deficit stood above 8% of gross domestic product (GDP).
It was a percentage point lower than expected. The reduction is attributed to underutilisation of the Prime Minister’s Economic Relief and Support Package.
Lower fiscal deficit may economically be good for a country but in this case, prompt spending by the government to help struggling people of the country would have been better in the aftermath of the coronavirus pandemic and economic crisis that followed.
However, the fiscal deficit has become normal for Pakistan even before the pandemic. Perennial fiscal deficit is not good for a country. It has to be balanced with borrowed money. The country has to pay more than it takes as capital and interest and subsequently a cycle of circular debt begins.
But why does the country incur the fiscal deficit in the first place? The reason is that the country spends more on paying salaries to government employees, armed forces, on development projects, etc and collects lesser revenue in the form of duties and taxes. The difference between spending and government reveanue is the fiscal deficit or surplus, in case government revenue is more than what it spends.
Last year, the fiscal deficit was the highest in at least four decades at 8.9%. There is no denying that the present government inherited a lot of economic challenges. But it was the same case for the previous government as well.
However, if the present government wants to do something differently, it must also address the fiscal deficit.
To deal with this, the government either spends less or increases its revenue. But the increasing population, the importance of spending on defence needs to protect sovereignty of the country and the need to develop will always see government’s spending rise.
The best thing the government can do is to increase its revenue and the Federal Board of Revenue (FBR) has a crucial role to play. It shouldn’t burden the common people by taxing essential goods in trying to increase tax revenue.
It should be taxing progressively, meaning the rich, either individuals or businesses, should be paying more taxes. Moreover, the businesses that evade taxes should be the ones under immediate FBR radar for tax collection. For instance, Pakistan’s tobacco industry is marred by tax evaders. Illicit cigarette trade in Pakistan is being carried out with impunity. According to a report, non-tax-paid cigarettes increased up to 50% of the total market.
One question that comes to mind is how they operate with impunity and how can one put an end to this menace?
The large undocumented part of the industry is hurting the country on two fronts. Firstly, it is depriving national exchequer of Rs50 billion annually by evading taxes according to an estimate. Secondly, it is also flooding the market with low quality cigarettes with higher levels of health hazards. This can be one such industry which the FBR should focus on to not only increase tax revenue by documenting it and bringing it under the tax net but also to prevent people from accessing low quality cigarettes.
This may also perhaps ease pressure, although slightly, on the stressed health sector of the country as lesser people may get ill due to smoking low quality cigarettes. It is expected that if the undocumented part is documented, then it will also be obliged to follow health guidelines.
A report compiled by the Centre for Disease Control and Prevention mentions some ways in which illegal tobacco trade can be eliminated by authorities. For example, an effective system can be used to track tobacco products throughout the supply chain via a national information database. Heavy fines can be imposed on manufacturers and retailers that deal in illegal cigarettes and tobacco products.
Coordination should be boosted among intelligence agencies to keep a lid on smuggling and manufacturing of illicit cigarettes. Public awareness campaigns should be launched that educate and inform consumers about the risks associated with illicit tobacco trade. Illicit tobacco trade is rampant in Pakistan. Authorities should not look the other way and let it continue unabated. Such businesses are damaging the country economically as well as the health of people.
The writer is a freelance journalist
Published in The Express Tribune, November 30th, 2020.
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