ISLAMABAD: The World Bank has underscored critical challenges and recommended significant tax reforms to stimulate economic growth in the region.
These recommendations come as a response to ongoing constraints in economic activity, import controls, and low investor confidence.
The primary areas of concern highlighted by the World Bank for improving the economy first and foremost is broadening the tax base.
The World Bank emphasizes the need to broaden the tax base by incorporating individuals and individually owned businesses into the tax system. Retailers, in particular, should be brought under the tax umbrella.
Income tax restructuring simplifying the tax structure, the World Bank recommends merging the tax schedules for salaried and non-salaried taxpayers. This measure aims to eliminate opportunities for tax arbitrage.
Property tax collection should be strengthened by increasing property tax rates to align with those applied in peer economies. The example of Punjab is cited, where the current UIPT rate represents a capital value-based tax rate significantly lower than in many low-income countries.
To achieve fairness and transparency, the World Bank advocates harmonizing the three valuation systems used for various land-related taxes. Tax rates should be based on capital values reflective of market prices.
The establishment of reliable records of land ownership linked to Computerized National Identity Cards (CNICs) and National Tax Numbers is recommended to enhance accountability and streamline tax collection.
The World Bank suggests increased taxation on agriculture, retail, and property to broaden the revenue base and promote fiscal sustainability.
Regulatory constraints impacting private sector activity should be addressed to facilitate economic growth.
High costs and inefficiencies in the energy sector are identified as hindrances to economic progress. Reforms in this sector are essential to ensure a reliable and affordable energy supply.
The World Bank emphasizes that without these necessary reforms, the region will continue to face exceptionally high risks. The current economic climate remains constrained due to import controls and wavering investor confidence, which, in turn, hinders medium-term growth potential.
These World Bank’s recommendations aim to address these challenges comprehensively, laying the groundwork for sustainable economic growth and fiscal stability in the region.
