The interim government has finalised its strategy to revive the economy, focusing on increasing taxes on critical sectors, reducing pro-growth and general expenditures, and ending distortions in the energy sector through price adjustments and privatisation.
The Economic Revival Plan, spearheaded by Dr Shamshad Akhtar’s finance ministry, proposes a comprehensive fiscal consolidation of over 3% of the GDP or Rs3.2 trillion for the current fiscal year, per government sources. This consolidation is intended to be achieved by eliminating tax exemptions worth Rs1.3 trillion and realising savings of Rs1.9 trillion in expenditures, including returning government funds to the central bank account. The government has also introduced a wealth tax on movable assets.
In the medium term, the Federal Board of Revenue (FBR) has proposed a plan to increase tax collection to Rs13 trillion within two years by elevating the current low tax-to-GDP ratio to 15% by the end of the fiscal year 2025. The government has identified a tax gap of Rs5.6 trillion attributed to exemptions and weak compliance. The interim government aims to generate an additional Rs5.6 trillion over two years, primarily through indirect taxes, constituting 68% of the plan.
There is a potential to raise sales tax by Rs3 trillion, income tax by Rs1.8 trillion, and customs duty and federal excise duty by Rs800 billion.
The interim finance minister presented her economic revival plan to the Cabinet Committee on Economic Revival (CCER) a day earlier. According to government sources, the committee has endorsed the project, which will now be shared with the Senate Standing Committee on Finance and caretaker Prime Minister Anwaarul Haq Kakar.