Energy and tax reforms: firm-level analysis from Pakistan

Energy and tax reforms: firm-level analysis from Pakistan

Pakistan’s economy has been confronted with low growth equilibrium since 2008. The national income has been growing at a dismal average annual rate of 2.9% since 2009. The investment to GDP ratio is one of the lowest across the Asian countries and was recorded at 14.8% in 2013. While there have been recent analyses on the binding constraints to economic growth, however most of these point out towards the country’s inability to design and execute important structural reforms related to energy, taxation, loss making public sector enterprises, deregulation, and privatization.

This paper captures the business community’s perceptions about key economic reforms particularly in the context of taxation and energy sectors. The main objective of the survey exercise is to gauge the firm-level business appetite for reforms and the type of reform effort they would be willing to support. The survey reached out to 300 firms. These include both formal and informal sector entities across the country. The timing of this survey is important as it was carried out immediately after the 2013 elections. This exercise, therefore, provides a good benchmark against which the people’s expectations from the government can be traced as the tenure proceeds.

The key findings suggest that trust deficit continues to be a primary reason as to why people evade taxes. The government at the highest level needs to demonstrate fiscal responsibility and accountability which, in turn, will persuade the taxpayers to register and fulfill their liabilities. On energy reforms, the business community was in favour of revising power tariffs to cover full economic cost of generation, transmission and distribution. However, in return, they demanded load-shedding to be gradually eliminated (particularly daytime outages) and load-shedding to be scheduled and announced in time.

A stronger outreach programme should be structured by the federal and provincial tax authorities, which should highlight the improved tax administration measures put in place. There was fair knowledge among the respondents on energy thefts in their localities and its role in aggravating energy crisis. In order to improve this situation they favoured greater accountability of the ground level staff as well as privatization of power distribution companies. The respondents also anticipated that private management will be better able to clamp down theft as well as other transmission and distribution losses.

  1. How good is this research?

    Assessing the quality of research can be a tricky business. This blog from our editor offers some tools and tips.