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PTI’s fiscal policy: challenges for 2021  

Huzaima Bukhari & Dr. Ikramul Haq

The Pakistan Tehreek-i-Insaf (PTI) on assumption of power in August 2018 with the help of coalition partners, after general elections held on July 25, 2018, contrary to its election promises, failed to undertake much-needed and long-delayed fundamental structural reforms in all institutions, especially administration, where singularly Pakistan Administrative Service (PAS, still better known as DMG) controls most of the key posts both in federal and provincial governments. The highest judicial forum time and again in the last many years pointed out failure of successive governments in governance, including poor justice delivery system. However, the PTI Government came with tall claims of establishing egalitarian society and providing “justice” to all—the very name of party means “movement for justice”. However, it failed to provide resources and roadmap for reformation of obsolete and outmoded institutions, especially the judicial system. ‘Dispensation of justice is the main pillar of democracy. There is a consensus that delivery of justice is our weakest area.

Though in this article, we are only concentrating on appraisal of fiscal policy of the PTI Government since August 2018 and challenges for 2021, but no country has progressed economically without fixing its justice delivery system and improving all areas of governance. One cannot review or analyse fiscal policy in isolation because oppressive taxes, narrow base, amnesties, money and asset-whitening schemes, huge tax expenditure and monstrous debt with ever-increasing debt servicing, poor social spending and high cost of running inefficient gigantic state apparatus are all interlinked in Pakistan. Foreign lenders/donors and so-called aid agencies try to fund us to reform the tax system but never ever endeavoured that it is not possible in a society where defying rule of law is a national character and expression of power and control.   

The number of ministers, state ministers and advisers itself show that the PTI Government betrayed its promise of having a small and competent cabinet and making all the State institutions efficient. The agenda for 100-days, much before the arrival of Covid-19 endemic, became a dead horse. The claims of inclusive growth and alleviating poverty through revitalizing Benazir Income Support Programme (renamed as Ehsaas) proved ineffective and Covid-19 economic toll is now being used (abused is more appropriate) as a scapegoat to cover up all failures on the fiscal front.

The first and foremost failure of the PTI Government in 28 months is ignoring restructuring of Federal Board of Revenue (FBR) and raising tax to Rs. 8 trillion—the main election promise that was doable. Had it been implemented, we could have obtained required revenue to overcome monstrous fiscal deficit and make Pakistan self-reliant in the coming years. All others, like accountability in 90 days, were nothing but political rhetoric.

In Pakistan, successive governments have been always very keen to make efforts (though remain unsuccessful) for enhancing tax revenues, especially collection by FBR, but never talk about the real problem that is huge tax expenditure and monstrous size of unproductive expenses. If these two are reduced even by 30%, Pakistan can substantially decrease fiscal deficit—nearly 40-50%. The cost of unprecedented tax-free perquisites and benefits available to high-ranking state functionaries cost loss of billions of rupees to the national exchequer [tax exemptions and concessions of Rs. 30 billion were given to the top civil and military officers and judges of superior courts on perks and benefits in the tax year 2019]. In the face of this reality, we keep on hearing from every government that it is cutting “unproductive” expenses and withdrawing tax concessions to improve fiscal management.

FBR in Statement of Estimated Tax Expenditure of Federal Government has admitted that out of total tax expenditure of Rs. 1150 billion in tax year 2019, sales tax was highest at Rs. 519 billion (45%), followed by income tax at  Rs. 378 billion (33%) and customs at Rs. 253 billion (22%). It was 30% of FBR’s total tax collection of Rs. 3828 billion and 3% of the Gross Domestic Product (GDP).

The PTI Government could not reduce wasteful, unproductive expenditure by right-sizing and revamping loss-bearing PSEs. It only resorted to patchwork here and there, thus, fiscal years 2019-20 witnessed obtaining record loans, external and internal, no privatisation or revamping of PSEs, ending of circular debt, meaningful efforts to cut unproductive/wasteful expenditure. On the contrary, further regressive taxes were imposed and in two years tax exemptions/waivers/concessions amounted to Rs. 2.12 trillion.

In fiscal year 2018-19, fiscal deficit was 8.9% of GDP (Rs. 3.45 trillion) and for fiscal year 2019-20, it was 8.1% of GDP (Rs. 3.37 trillion). Had tax expenditure been curtailed by 50% (Rs 500 billion) and wasteful expenses at 40% (Rs. 400 billion), the fiscal deficit of GDP for both the years would have been around 6% of GDP. It was 6.5% in fiscal year 2017-18.

In the pre Covid-19 era, the poor fiscal management, wrong economic policies, and adoption of failed strategies pushed the country into stagflation leading to recession, high inflation and unemployment, closing down of industries/businesses leading to job losses, high interest rates and extremely low growth. It also created disappointment and despair in general public. The reasons for sluggishness in business and lack of any further investment, among many other factors, have roots in oppressive taxes and highly anti-business behavior of FBR and ever-increasing cost of running State machinery.

In the first year in power of the PTI Government, according to FBR Year Book 2018-19, total collection was Rs. 3828.5 billion against original target of Rs. 4435 billion, revised downward first to Rs. 4398 billion and finally to Rs. 4150 billion, showing minus (-0.4%) growth compared to fiscal year (FY) 2017-18.

For the second year in power, the PTI originally agreed with International Monetary Fund (IMF) tax target of Rs. 5555 billion. Even prior to Covid-19 outbreak, FBR was far behind from meeting it despite having a competent man from outside government cadre as pro-bono Chairman of FBR. The target was revised to Rs. 5238 billion after first review of IMF under $6 billion Extended Fund Facility (EFF) programme. Later, it was further reduced to Rs. 4803 billion on the eve of incomplete second review (held prior to Covid-19 outbreak), and after endemic and lockdowns, finally to Rs. 3908 billion. According to FBR’s Year Book for 2019-20, it exceeded the third-time revised target of Rs. 3908 billion by Rs. 88.7 billion, collecting net amount of Rs. 3997 billion—direct taxes (1523 billion), sales tax (Rs. 1597 billion), Federal Excise (250 billion) and Customs: 626 billion). The refunds paid were: direct taxes (68.6 billion), sales tax (92.6 billion), federal excise (nil) and customs (12.2 billion).

FBR officials on September 2, 2020, before the National Assembly Standing Committee on Finance confessed that actual liability of income tax and sales tax refunds as on June 30, 2020 was Rs. 710 billion (sales tax Rs. 142 billion and income tax Rs. 568 billion). If the admitted refunds payable are deducted from the total tax collection of FBR for fiscal year 2019-20, the net figure comes to Rs. 3287 billion or just 7.7% of GDP. It, however, must be highlighted that bulk of the refunds, nearly Rs. 600 billion, were blocked by the economic wizard of previous government, Muhammad Ishaq Dar, now a proclaimed offender and fugitive, facing trial before the Accountability Court, filed by National Accountability Bureau, for having assets beyond known/declared sources.

FBR’s target for the current FY 2020-21 is Rs. 4963 billion (27% increase). It is grossly overstated, as highlighted by PIDE in Budget 2020-21: Highlights & Commentary and all the experts believe that it will not be achieved.

While announcing the budget for FY 2020-21 on June 12, 2020 amid devastating impact of Covid-19 endemic, fixation of irrational target for FBR attracted widespread criticism from all quarters. Interestingly, even Dr. Abdul Hafeez Shaikh, then Adviser to the Prime Minister on Finance and Revenue and now appointed Minister for six months under Article 91(9) of the Constitution, in a statement on June 13, 2020, “advised the provinces not to make their budgets on the basis of proposed Rs. 4.963 trillion tax collection target fixed for FBR for fiscal year 2020-21”. He clearly warned: “The provinces should make their budgets while keeping in mind the Federal Board of Revenue’s past performance and difference between performance, projections and reality”. It was, in fact, an admission that fixation of budget was not based on universally established norms of good fiscal management, especially not to exaggerate as it leads to wider than expected fiscal deficit and further borrowing.

In the first five months of the current FY, FBR collected Rs. 1.69 showing growth of around 4.2%. It needs 22% growth in the remaining 7 months to achieve the target of Rs. 4.963 trillion. In a recent report, it is revealed that the IMF has projected collection shortfall of over Rs. 300 billion and “is asking Pakistan to introduce a mini-budget”. If the IMF prevails, there will be more taxes destroying the revival of an already ailing economy. Strangely, in other countries IMF is appreciating them for giving tax incentives to businesses to recover from the losses incurred due to Covid-19, but in Pakistan insisting on continuing with oppressive taxes and asking to impose further burdensome indirect taxes, rather than pressing for withdrawal of exemptions give to the privileged classes. The irony is that after imposing multiple and higher taxes, FBR has failed to enforce return filing by 7.4 million who, according to its own admission, paid withholding taxes in billions. The problem of fiscal front is not related to inadequate revenues, but also to the quantum of debt servicing, tax expenditure and wasteful expenses to run the gigantic and inefficient government machinery.

The FBR contributes around 80% of the total revenues of the federal government; therefore, any miscalculation or misstargeting can severely cripple the budget, not just of the federal but the provincial governments as well”—Budget 2020-21: Highlights & Commentary, Pakistan Institute of Development Economic (PIDE)   

In Annex-II appended to Economic Survey 2019-20, tax expenditure[1] is shown at Rs 1,149.95 billion. The PTI in its first two years incurred tax expenditure of Rs. 2.12 trillion—an amount equal to cost of two Mainline One (ML-I) projects of the China-Pakistan Economic Corridor (CPEC). The estimated cost of the ML-1 project is Rs1.1 trillion or $7.2 billion and the government has given Rs2.2 trillion in tax concessions!

The Government of PTI from the very beginning of assuming power has followed a faulty/flawed fiscal policy. Contrary to its election promises, it failed to bring necessary reforms to boost growth in all sectors and restructure FBR that could have yielded required revenue to overcome fiscal deficit and would have made Pakistan free from further borrowing.

In fiscal year 2019-20, debt servicing by federal government was Rs. 2620 billion (domestic Rs. 2313 billion and foreign Rs. 307 billion) against net revenues of Rs. 3278 billion after transfer to the provinces. Debt servicing was 79% of total net revenues of the federal government and 65% of tax collection of FBR. This is the real dilemma and challenge on the fiscal front faced by Federal Government.

The PTI Government, even prior to Covid-19 epidemic, due to wrong policies had been pushing the country into stagflation leading to recession, high inflation and unemployment, closing down of industries/businesses, job losses, high interest rates and extremely low growth. It created utter disappointment and deep despair in the public. The reasons for economic sluggishness and lack of investment, among many others, remain excessive taxes and highhandedness of FBR.

The PTI Government is using Covid-19 endemic as a face-saving device, but the facts remain that from the very beginning its fiscal policy was a disaster. The ex-Finance Minister, Assad Umar, while presenting the Finance Supplementary (Amendment) Bill 2018 on September 18, 2018 in the National Assembly showed the traditional bureaucratic approach to balance the books. He failed to include the key areas of Theme-3—‘Revatilise Economic Growth—part of First 100 Days Plan of PTI after forming Federal Government, unveiled during the election campaign.

In its two years in power, the PTI Government incurred ‘tax expenditure’ of Rs. 1149.95 billion in FY 2019-20 and Rs. 972.4 billion in FY 2018-19 (total of Rs. 2122.35 billion (shown in Annex II of relevant Economic Surveys), but ignoring impact of asset-whitening schemes of 2018 and 2019 and many other items which FBR in  ‘Statement of Estimated Tax Expenditure of Federal Government’ says could not be quantified for lack of data! The total tax expenditure, according to independent estimates, was not less than Rs. 3 trillion. 

The PTI Government lacked a roadmap to fulfill its election promise of collecting Rs. 8 trillion. On the contrary, FBR’s target was reduced by Rs.169 billion, reduction of 3.5% over the original target. The shortfall of Rs. 606.5 billion in collection led to historic high fiscal deficit of 8.9% of GDP leading to unprecedented indebtedness! The PTI Government had nine months in FY 2018-19 for initiating reforms for revenue mobilisation—both tax and non-tax—but its economic managers did not bother to implement even its own tax reform agenda unveiled/promised during election campaign. The speech of Prime Minister in Parliament on June 25, 2020 could not explain/justify it, though he admitted his failure to reform FBR! This had nothing to do with Covid-19 endemic’s toll as rightly confessed by the Premier.

Instead of blaming FBR’s officials alone for inefficiency, the PTI Government must admit lack of will to reduce exemptions, concessions, waivers and amnesties to powerful segments of society. If only 40% of taxes waived/forgone in fiscal year 2019-20 were recouped in Finance Act 2020, there would have been a fiscal space of Rs. 600 billion to reduce taxes. But the PTI Government, like its predecessors, showed apathy towards the weaker sections of society and small and medium enterprises (SMEs), facing the unbearable toll of Covid-19 outbreak/lockdown, by not reducing exorbitant sales tax, withholding taxes, advance tax, and high cost of utilities as well as oppressive 12.5% advance income tax from mobile users, no matter whatever their quantum of income. The latest data[2] at website of Pakistan Telecommunication Authority (PTA) shows the total number of subscribers as on August 31, 2020 were 169 million, out of which 85 million are 3G/4G subscribers, 3 million basic telephony users and 87 million broadband subscribers[3]. They all are also paying 19.5% sales tax on services to provinces and 17% federal excise duty, if based in Islamabad Capital Territory (ICT).

In the Finance Supplementary (Second Amendment) Bill of 2019 presented on January 23, 2019 once again no steps were announced for making FBR efficient, simplify taxes, making them fair, low-rate and broad-based to harness the real potential, drastically reduce wasteful expenditure and accelerate growth.

Taxes are the backbone of a country’s economy as these help to meet day to day expenses for running the government’s machinery (which in our case needs rightsizing and reforms to be efficient), for developmental projects, for maintaining the profitability equilibrium of commercial enterprises to discourage monopolies and create a level playing field for all types of entrepreneurs, to enable equitable distribution of wealth so that the rich do not get richer and the poor, poorer. The generous tax exemptions, concessions, waivers and amnesties, especially to privileged ones and tax evaders/avoiders must end as these are destroying the entire fiscal system and retarding business growth/investment. 

In budgets for FY 2019-20, presented on June 11, 2019, and for FY 2020-21, on June 12, 2020, burden on businesses and common citizens increased manifold by enhancing indirect taxes, while extending asset-whitening/amnesties/exemptions/waivers/immunities to the rich and mighty. Before coming to power, PTI labelled tax amnesties as “immoral” and “unlawful” and a “slap on the face of honest taxpayers”.

FBR admitted before the Standing Committee on Finance & Taxation of National Assembly on November 7, 2019 that governments of Pakistan Muslim League (Nawaz) and PTI in their amnesty schemes of 2018 and 2019, respectively, extended benefit of Rs. 61.4 billion to 191 billionaires, caught concealing undeclared/untaxed offshore assets. FBR revealed that definite information was available against them under Automatic Exchange of Information (AEOI) initiative of the Organisation for Economic Cooperation and Development (OECD), yet amnesties were given keeping their names “confidential”. It belies tall claims of accountability and transparency of Prime Minister, Imran Khan.


For The PTI Government the main challenges on the fiscal front for 2021 are not only revival of economy amidst rising human and financial toll of Covid-19 endemic, but also how to manage mounting debt burden and meeting revenue targets fixed for the fiscal year 2020-21. According to a recent report, the PTI Government has “added Rs. 397 billion more in public debt during first four months of current fiscal year, which is contrary to a claim” allegedly made by Prime Minister Imran Khan and Finance & Revenue Minister, Dr. Abdul Hafeez Shaikh. It is claimed in the report that public debt of Rs. 35.1 trillion in June 2020 “increased to Rs. 35.5 trillion by end-October, reported the State Bank of Pakistan (SBP)”. “There was an increase of Rs. 397 billion or 1.2% in the debt stock, which was lower than the pace of increase recorded in the previous months”.

The Government of PTI borrowed over $13 billion in foreign loans in the fiscal year 2019-20. The burden of ever-increasing national debt during the tenure of PTI Government is also highlighted by the Institute of Policy Reforms (IPR) in its report, “Pakistan’s debt and debt servicing is cause for concern”.

At the time of assuming power in August 2018, the PTI Government inherited public debt of about Rs. 24.2 trillion—the Government of Pakistan Muslim League (Nawaz) during its five-year rule added Rs. 5.65 billion a day to public debt, but the record of PTI government is even more worrisome as it has been adding “on average per day Rs13.2 billion”, according to the report. The federal budget deficit was Rs. 894 billion or 2% of GDP in the first four months of the current fiscal year due to double-digit growth in expenditures despite a squeeze on both defence and development spending.

It is high time that the federal and provincial governments chalk out a national plan for long-overdue second Green Revolution in Pakistan by increasing productivity and quality, reducing costs and establishing agro-based industries capable of meeting local demands and producing value-added exportable surplus. Our emphasis should be on growth, productivity and enhancing exports through diversification and value addition. The IT sector is highly ignored and heavy taxation of telecom sector is proving to be anti-growth

Managing high fiscal deficit coupled with massive debt burden is the toughest challenge faced by our economic managers in 2021. The obvious and undisputed solution is substantial increase in resources and drastic reduction in spending, but it is easier said than done. For the last many decades, Pakistan’s fiscal policy has remained under immense pressure owing to perpetual failure of underperformance of FBR, continued security related outlays, rise in wasteful expenditure and greater than targeted subsidies, losses of PSEs, circular debt, especially in the energy sector.

In the days of international recession due to Covid-19 endemic, the first and foremost priority should have been to take measures to ensure survival, revival and growth in all sectors. Till today, no concrete steps have been taken by the federal and provincial governments for meeting this emergent situation. Resource mobilisation should be given preference to build infrastructure, facilitate growth of small and medium sized firms in the industrial sector and small farms in the agricultural sector for an employment intensive and equitable economic growth process. There is a need to run PSEs with equity stakes for the poor through public-private partnerships. This would set the stage for a structural change that could help achieve economic growth for the people and by the people which is presently confined to the elites, for the elites and by the elites only.

There is still time for the Prime Minister to realise that the iniquitous prescriptions of World Bank/IMF of high taxes, complicated laws and enormous cost of doing business will not solve our fiscal woes. These will bring more miseries as economy in recession cannot grow due to economic toll of Covid-19 endemic. The viable solution is simple/low-rate taxes, reduce the huge tax expenditure by withdrawing exemptions available to the rich and mighty, give relief to taxpayers as they suffered heavily during lockdown due to Covid-19 endemic and pay all outstanding refunds, which is their right and not a favour.

If the PTI Government wants to restore Pakistan on the path to prosperity, it must drastically cut wasteful expenditure, eliminate circular debt, get rid of loss-bearing public sector enterprises and improve efficiency and productivity in all sectors of economy. State lands, situated in the heart of cities, should be leased out for business and commercial ventures which would generate substantial funds, rapid growth and new jobs.

For progressing, Pakistan must end anti-growth/anti-business taxes, dismantle all elitist structures and empower masses at grass root level by implementing Article 140A in letter and spirit ensuring social service delivery and prosperity for masses. No other plan will work, including the recent $ 400-million loan from World Bank for Pakistan Raises Revenue Project by the Federal Government and following its footstep the Punjab Government also decided to borrow $304 million from the World Bank for tax reforms. Such loans, though not at all required, are being taken when debt-to-GDP ratio reached an alarming level of 87.2% by June 30, 2020—15% increase is by the PTI Government in its two years’ tenure which is against the promises of Premier, Imran Khan, during election campaigns that after coming in power, his Government would not take foreign loans, but would raise revenues with own efforts to the extent of Rs. 8 trillion.


Ms. Huzaima Bukhari, Advocate High Court and Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has to her credit over 1500 articles on issues of public importance, printed in various journals, magazines and newspapers at home and abroad.She has also coauthored with Dr. Ikramul Haq many books that include Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis). She regularly writes columns for Pakistani newspapers and has contributed over 1500 articles on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.


Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS). He has also coauthored with Huzaima Bukhari many books that include Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis). He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

[1] ‘Tax expenditure” defined by Atshuler and Dietz in a study [‘Tax Expenditure Estimation and Reporting: A Critical Review’, Rutgers University, New Brunswick/Piscataway, Department of Economics]  as “revenue losses attributed to tax laws which provide for a special exclusion, exemption, deduction, tax credit, preferential rate of tax or a deferral of tax liability.”

[2] https://www.pta.gov.pk/en/telecom-indicators

[3] Ibid

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