Islamabad, August 26

Despite recent optimism surrounding Pakistan’s economy, the country is facing an ‘existential crisis’ stemming from its woeful tax collection rates and inability to finance itself, a report said today.

Pakistan’s economy grew at 4.24 per cent during last fiscal with per capita income rising a significant 9.25 per cent, markers that come as investor confidence in long-underperfoming South Asian giant have also increased.

But according to the report by non-profit organisation Raftar, funded by Britain’s Department for International Development (DFID), Pakistan’s economy continues to rely heavily on ‘commercial loans, concessionary donor loans and aid’.

The country’s tax-to-GDP ratio of 9.4 per cent is among the lowest in the world, leading to a public debt of 17 trillion Pakistani rupees ($163 billion). This is an almost three-fold increase since 2008 for the $232 billion economy, with 44 per cent of tax revenue going toward interest payments.

The report blamed the lack of a ‘tax culture’ on non-revenue sources of funds the country has historically enjoyed in the form of foreign aid and loans.

It said 68 per cent of tax revenue was being generated from indirect taxes on fuel, food and electricity, which unfairly penalises the poor.

The lack of revenue collection also negatively affects infrastructure development, including power generation, with the country facing a massive shortfall of up to 4000 MW in the summer that shaves about $15 billion off the country’s GDP.

Pakistan is currently in a $6.6 billion loan programme with IMF, which was granted on condition that Islamabad carried out extensive economic reforms, particularly in energy and taxation sectors.