Q&A
S. Akbar Zaidi
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Source: Getty
Other
Pakistan's Roller-Coaster Economy: Tax Evasion Stifles Growth
Pakistan's economic instability stems in large part from low government revenue due to the elite's use of tax evasions, loopholes, and exemptions. Without tax reform, Pakistan will continue to run an unsustainable debt and be forced to rely on Western donors for bailouts.
Published on Sep 15, 2010
Unable to sustain solid growth, Pakistan’s economy is teetering on the brink of collapse, with one-third of the population living below the poverty line. S. Akbar Zaidi writes in a paper that Pakistan’s economic instability stems in large part from low government revenue due to the elite’s use of tax evasions, loopholes, and exemptions. Without tax reform, Pakistan will continue to run an unsustainable debt and be forced to rely on Western donors for bailouts.
Policy Recommendations
- Eliminate exemptions. Fewer than three million of Pakistan’s 175 million citizens pay any income tax, and the country’s tax-to-GDP ratio is just 9 percent. By eliminating tax exemptions for the rich, politicians can fund essential social services.
- Increase tax revenue. Pakistani legislators must build a consensus to tax the rich and elite if they want to match growth rates in nearby developing countries.
- Spend more on development. Pakistan has spent twice as much on defense during peacetime as it has on education and health combined—this needs to change.
- Stop the bailouts. Donor countries must put conditions on funding and should emphasize tax and economic reform to help Pakistan develop long-term economic plans for sustainable growth.
“Pakistan’s lack of a proper tax and revenue regime has resulted in high rates of tax evasion, burdening the country with unsustainable debt and undermining its development priorities,” writes Zaidi. “The key to the country’s economic prosperity—even its survival—is a far-reaching program of tax reform.”
About the Author
S. Akbar Zaidi
Former Visiting Scholar, South Asia Program
Zaidi was a visiting scholar in the Carnegie Endowment’s South Asia Program. A visiting professor at Johns Hopkins University’s School of Advanced International Studies (SAIS), his research focuses on development, governance, and political economy in South Asia.
- Rethinking U.S. Aid to Pakistan
- Who Benefits from U.S. Aid to Pakistan?Other
S. Akbar Zaidi
Recent Work
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
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