The embrace of Nessus

THEY all look the same and for good reason. Every budget over the past 10 years (and more) is pretty much the same with minor differences usually in the gimmickry being advanced in the name of a ‘revenue plan’. And it will be no different this time round when the budget for FY27 is announced. There is a simple reason for this. A little more than a decade and a half ago Pakistan finally abandoned its last attempt to try and get serious tax reform through. Since then, successive governments have been rolling out various gimmicks, from amnesty schemes to ‘point of sale machines’ to do something that cannot be done with gimmicks. They are trying to document the growing services sector of the economy with these gimmicks, which is like trying to measure the ocean with a teacup. Consider a little perspective first. Since the 1980s, the single fastest-growing sector of the economy has been services. It was slightly less than half of Pakistan’s GDP back in those days. Today, it is touching 60 per cent while the shares of industry and agriculture have shrunk. But today, services contributes less than 40pc of total revenues while the share of manufacturing can be as high as 55pc. This is an important crux of the problem. The fastest-growing sector in Pakistan’s economy has made a diminutive contribution to its revenue effort. And there are a number of reasons why. First, successive governments have failed to undertake the kind of tax reforms necessary to keep abreast of the changes sweeping the economy where the services sector is a motor force for growth. For now, the bulk of the revenues contributed by this sector comes from banking and telecom — the low-hanging fruit. Quite possibly, this is the one budget of the past decade or more which will be defined almost entirely by its revenue effort. Documenting the transactions taking place in this sector is the first step to reaching them. And for decades there was one big idea on how to do that. It was called ‘value-added tax’,