IMF calls for tax revenue at 15% of GDP

Pakistan should lift tax revenue to at least 15% of GDP to pay for human capital, infrastructure and investment, the IMF's country representative said on Thursday, adding that the country remains well short of that level.

Dr Mahir Binici was speaking at a session titled "Where Reforms Matter the Most for Growth?" at the 29th Sustainable Development Conference of the Sustainable Development Policy Institute, which the Ministry of Finance organised.

"Our fund's research has shown that emerging developing economies like Pakistan need, at least, as a threshold, somewhere around 15% of GDP in revenue so that they can actually have a strong, well-functioning state and capacity that can provide services and enable better living standards," he said.

Binici said Pakistan had already done the hard work of stabilisation and that the debate should now move past taxation to how reforms turn into investment, economic activity, exports, employment and better living standards. He described the past two to three years as a strong achievement given the war in the Middle East, recurring climate-related shocks and global uncertainty driven by trade, tariffs and geopolitics.

He set out five areas he said would improve the country's growth prospects. Among them he named preserving macroeconomic stability and strengthening the foundations needed to carry the economy from stabilisation to sustainable growth. Fiscal and external sustainability, with adequate buffers, he said, were essential to that base. He also called for continued fiscal discipline, backed by price stability.

Governance, the national tariff policy and the cost of doing business were the areas he said Pakistan must address to secure a growth dividend, calling them central to the reform programme in energy and governance. He said governance should be treated as an economic policy, and praised the authorities for completing the Governance and Corruption Diagnostic and for preparing an economic governance reform plan.

"We need a broader, simpler, fairer and more predictable taxation system for generating the resources that the country needs, whether for human capital, infrastructure or investment," Binici said, adding that stakeholders broadly understood the need for a wider and more predictable tax regime.

He said considerable work remained before Pakistan was on a stable and sustainable footing, and that the fiscal system should be built to support growth rather than only to raise money.