Country should chalk out pension reform plan: WB

Global lender asks Pakistan to revamp personal income tax system

ISLAMABAD:

The World Bank has stressed the need for Pakistan to introduce immediate parametric reforms to reduce the fiscal liability arising from federal and provincial public sector pensions.

In its recent Pakistan Development Update report, the WB has recommended that the country should develop and take initial steps to implement a longer-term pension reform plan to ensure sustained fiscal affordability.

“[Pakistan should] take initial steps under a reform plan to rationalise public sector compensation, including through simplification and monetisation of benefits,” it added.

The global lender also suggested that Pakistan should continue its electricity and gas sector tariff reforms to align them with the cost of supply to constrain mounting energy sector circular debt.
In term of the rising electricity and gas sector tariffs, it called for aiding the poor through enhanced social protection.

The WB also pushed the country to revamp its personal income tax system to reduce complexity by aligning schemes for salaried and non-salaried workers.

It further called for reforming personal income tax schedules to “increase equity by eliminating privileged treatment of specific income sources and by harmonising rate structures across taxable income sources”.

The global lender suggested that the country should increase taxes on socially harmful goods, including increased taxation of tobacco, other unhealthy products, and environmentally damaging goods.

It added that Pakistan should eliminate personal income tax withholding charges on consumption of energy products, telecommunications, financial services, and others to reduce the burden on poor and vulnerable households.

The WB also further urged Pakistan to reduce average tariffs and do away with the anti-export bias of the existing trade policy.

It continued that to achieve this goal, the country could develop, publicise, and begin implementing a tariff rationalisation strategy.

“Phase out import duty exemptions under the 5th schedule of the tariff code to level the playing field and reduce tax expenditures.”

The WB called for opening export financing schemes to firms in all sectors, focusing on new cones or those exporting new products or to new markets and gradually link interest rates with those of the market to increase cost-effectiveness and financial sustainability.

"Simplify requirements and documentation for firms to access the Export Facilitation Scheme (EFS). Digitise and automate EFS processes and verification checks through the Pakistan Single Window to allow risk-based audits" it added.