Critical Thinking

AIT to be taxed. Besides this, the rate

AIT

Agriculture
Income Tax sector lags far behind as far as its share of collections is
concerned. According to the World Bank Report tax collected instead of
agriculture income tax is below 90 percent of its estimated potential. During the
last five years, the government has shown some improvement in this sector
during the last five years by raising the collection from an inadequate RS.717
million in FY2011 to RS. 1.39 billion in FY 2016, but the estimated potential
remains too high at RS. 14.5 billion.

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Tax on
Profession

This
sector is also underrated in terms of tax collection. Almost one million
professionals are out of the tax net, who are otherwise liable to be taxed.
Besides this, the rate of tax levied is also very low i.e. RS. 475 per person
at an average.

 

 

 

 

Inflation
and Public Debt:

 

The rate
of inflation has been relatively low and in control in the recent years,
however, a perpetual increase in the prices of oil and commodities
internationally is a matter of much concern. The only silver lining is an
increase in productions from agriculture, food supplies coupled with the stable
exchange rate and an effective monetary policy which together can contain the
rate of inflation.

Public
debt is the accumulated quantity of annual budget deficits, it is primarily
owing to government’s extravagant habits of spending more than they collect
through taxes. According to the World Bank report Pakistan owes a net public
debt amounting RS. 18,893 billion. This is a staggering amount and has very
adverse implications in the form of the huge amount of resources being
allocated to debt servicing. In case of Pakistan, the ratio of public debt
servicing is also very high i.e. above 30%, and anything above this is
considered too high.
http://www.finance.gov.pk/survey/chapters_15/09_Public%20Debt.pdf

 If a good chunk of the revenue collection is
ear-marked for debt servicing only, poverty alleviation and social welfare
works remain untouched.

 

Investment
and Business Environment:

Investments
come to a country if the environment is friendly enough for the investors and
businessman to carry out their businesses with ease. Pakistan has been hell to
foreign investment and business particularly in the post-9/11 era, however,
during the last four year, the situation has improved. One of the best
indicators for a business-friendly environment in a country is how the stock
exchange is performing? Pakistan stock Exchange PSX has been termed as one of
the best performing stock market in the world by Bloomberg. Pakistan
Development Update, Growth: A Shared Responsibility

May 2017,
The World Bank

 Some of the factors positively affecting KSE-
100 indexes are; improved security situation, wider reforms undertaken by
Security and Exchange Commission of Pakistan and an overall improvement in
macroeconomic indicators. Resultantly the KSE- 100 index rose to the
ever-highest level of 52,387.87 points in May 2017.

 

Challenges:

 

There are
significant risks to the economic outlook of the country. Pakistan remains
vulnerable to domestic and external shocks. Domestically, the country is
experiencing political uncertainty and terrorism. The recent issue of Panama
papers has enhanced political risks and created some policy uncertainty. The
upcoming national election in 2018 may affect reform momentum and macroeconomic
policies. Slower progress on much-needed structural reforms would weaken growth
and decrease private investment. A stable Rupees/US$ nominal exchange rate
would have to be maintained in order to keep Pakistan’s export
competitiveness. 

 

The global
economic situation such as Brexit can also have a negative impact on Pakistan’s
exports. Falling remittance flows may be a threat to continued growth.
Uncertainty about the course of US economic policy can have a significantly
negative effect on global growth prospects. Pakistan would also be affected by
the decline in remittance flows, particularly from oil-rich countries. Low oil
prices will improve the current account deficit and create an environment conducive
for a reduction in energy subsidies. Low oil prices have been positive for
Pakistan, being a net oil importer. Conversely, a sharp increase in oil prices
will increase the trade deficit and would result in increased energy subsidies.

 

 

Way forward

 

Macroeconomic
reforms are required to bring the country out of this quagmire. There is a need
to build momentum and introduce properly sequenced tax policy and
administration reforms. Several of the taxes discussed in this section share
common reform needs. With respect to tax policy, collections would benefit from
eliminating exemptions, improving definitions and expanding the sectors or
groups covered by each tax. Increasing the consistency and coverage of taxes in
these ways (coupled with effective implementation) could provide the government
scope to reduce tax rates while increasing revenues. To improve tax
administration, the government could invest in gathering and then regularly
update its datasets, including accurate property valuations.

 

Conclusion:

The
population of Pakistan is increasing, yet with this increase, it is providing
us with a window of opportunity, pertaining to the young who are entering
working age group. Some people opine that population growth has a negative
impact on per capita income, but it is also a fact that it’s negative impact is
neutralized by the dividend added by the more economically active population
that comes with it. It is an acknowledged fact that if this young population,
entering the workforce is provided with a conducive environment, the dividend
from it can be enhanced through an increased and improved labor supply, savings
and human capital. Each of these afore-mentioned variables is discussed in the
following paragraphs.

Labour
Supply:

When a
demographic transition passes from one phase to another especially from young
age to that of working-age, it has two benefits. Firstly, it increases the
number of the labor force as more and number of male and female enter the
market.  Secondly, when more number of
women enter the working force, it has a two-pronged effect on economic growth.
On one hand it adds to production and on the other hand, it decreases fertility
rate- leading to fewer consuming younger population. Nevertheless, it depends
upon the market, how it makes able and optimum use of all this.

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