April’s Tax Collections fall 17% YoY. Surely, not the worst!

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April was a month of a universal lock-down. The essential services – with minimum staff – and strategically important local and export industries were allowed to operate. That too was a bare minimum. Some – including myself – presumed a Tax fall of 40-50% YoY. A 17%, therefore, doesn’t reflect a total collapse, thankfully.

The tax collections were rising at a 17% run-rate before the covid 19. Thus, a 17% YoY decline imply that that shock to the economy was ~30% from the base. Given April was the worst, this should start improving as government experiments a “smart” lockdown.

Pakistan’s tax pie is tilted towards indirect taxation. Yes, the incomes would fall proportionally more than the consumption as the economy normalizes. The increase in taxes on Petrol & Diesel are low-hanging fruits & rationally correct.

The government may need to lower indirect tax (GST) marginally to spur consumption in a phased manner, 2% cut till September or 1% till December. The idea is to cover the lost ground and minimise the damage while continuing the documentation drive. Given the construction sector amnesty, other industries would resist too. Meet them half-way.

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