Leading Issues in the Economy of Pakistan: Agenda for Reforms 5.1 Memorandum of Economic and Financial Policies There are seven sections in the memorandum of economic and financial policies including the following: The key policies and reforms agreed to by the Government in each section are listed below • Tax Policy along with their likely impacts. • Management of Expenditure Tax Policy: There are seven areas of reform • Monetary, Exchange Rate and Financial and action as shown in Chart 5.1. Two Sector Policies measures have already been implemented • Energy Sector Policies in the budget. The complex and difficult • State-Owned Enterprises(SOEs) reform to implement is the harmonization • Improving Pakistan's Competitiveness and Business Environment of the federal sales tax on goods with the provincial sales tax on services. In addition, a • Poverty Reduction and Social Protection commitment has been made that there will be no future tax amnesties and concessions. If there is a shortfall in FBR revenues, a contingency plan has also been identified. Chart 5.1: Tax Policy ACTION/ REFORM IMPACT • Taxation Proposals in Budget 2022-23 • Raising the Petrol Levy to Rs 50 per litre in Motor Spirit by April 2023 in HSD Oil by January 1 2023 • Additional Revenue of over Rs 600 billion • Total Revenue of Rs 855 billion in 2022-23. Depends on the extent of reduction in demand following the big price hike in POL products • Increasing the Customs Duty on Crude Oil from 3% to 5% • Additional revenue of Rs 30 billion • Harmonization of the Sales Tax on Goods and Services between the Federal and Provincial Governments • Preventing a Cascading of the tax and‘ Race to the Bottom ’ by Provincial Governments through lowering of the tax rate. Difficult reform to implement • No future tax amnesties• Reduce tax evasion • Contingency Measures: i. Restoring GST on fuel products at appropriate rate • A GST on petroleum products will further contract demand and negatively impact on revenues from the Petroleum Levy ii. Increase excise duty on cigarettes • Reduce Stock of Income Tax Arrears. Existing• Will improve liquidity of enterprises, but imply Stock of Rs 366 billion to be reduced to Rs 225 less revenues of Rs 145 billion in the first billion by end-September quarter of 2022-23 • Increasing the number of income taxpayers by • Tried before with little success 300,000 62