The economic meltdown in Pakistan can best be correlated to three main factors: Tax evasions, subsidies and failed corporations.

While most of the benefits of economic growth are shared by the elite in a disproportionate manner, its contribution to the tax-generating capacity of the country is negligible. Taxation is the essential instrument to promote equity and finance the priority investment needs of the state. In Pakistan however, taxation remained adequate and regressive for seventy years since its birth.

The tax-GDP ratio of 14-15 percent is the lowest among countries of identical income levels. It is largely derived from indirect taxes affecting all income classes. Direct taxes account for only 2 to 3 percent of the GDP and its coverage extends to the minimal population of the country.

Autonomous taxpayers account for a very small fraction of the total tax collected. Excessive use of selective tax incentives and discretionary exemptions from customs duties has deprived the state from much-needed revenue and few individual entrepreneurs got substantial benefits at the expense of the state.

Subsidy is an important tool of the government to promote the welfare of the less privileged segment of society and underdeveloped areas but unfortunately in Pakistan subsidies became a tool for the accumulation of private wealth of the ruling elite at the expense of a large segment of the population. The implicit and explicit losses of large state corporations like railway, Wapda and Steel Mill by increasing budget deficit have put serious constraints on the functional capacity of the governments to spend on public welfare along with reducing financial reserves of the country. For economic revival, it is mandatory to expand the tax net abolishing all subsidies to the elite along with privatization of failed corporations.

  1. ALI FURQAN,

Lahore.