Former International Monetary Fund (IMF) official Dr. Ehtisham Ahmed has identified governance failures, inadequate domestic resource mobilisation, and the inability to promote investment over the past three decades as Pakistan's most serious economic challenges, despite the country's repeated engagement with IMF programmes.
Delivering the Quaid-e-Azam Memorial Lecture at the 39th annual conference of the Pakistan Institute of Development Economics (PIDE), he said Pakistan lacked a properly integrated value-added tax (VAT) system because of widespread exemptions, citing the textile sector and special economic zones (SEZs) as examples of how tax incentives could be exploited.
He warned that the absence of an integrated VAT system would complicate the digitisation of the economy and called for a fundamentally new approach to tax administration. VAT, he explained, could reduce the cost of doing business, create a unified economic space, and generate valuable information about economic activity.
However, exemptions could also result in implicit taxation. He stressed that a VAT exemption was not equivalent to an income tax exemption, a distinction often misunderstood in Pakistan.
Drawing on his research in Mexico, Dr. Ahmed said high registration thresholds enabled businesses to conceal transactions and tax liabilities by dealing with firms outside the tax net. The movement of businesses in and out of the tax system, particularly in the textile sector, created substantial opportunities for tax evasion.
He argued that the priority should be to bring business-to-business transactions into the tax system rather than target every small vendor. The key, he said, was to capture transactions throughout the business chain.
SEZs could also provide opportunities for tax evasion and therefore required careful scrutiny. Citing Mexico's experience, he said VAT integration, lower registration thresholds, and arrangements for small taxpayers had helped expand the tax base and raise the tax-to-GDP ratio from around 10 per cent to 15 per cent.
A modern VAT system, he said, should lower business costs, facilitate exports, establish a unified economic space, and generate reliable economic information. At a separate session on tariff rationalisation, a heated debate emerged over the implementation of the National Tariff Plan for 2025-2030 and the proposed Auto Policy, with participants discussing the potential contradictions between the two policy frameworks.
Guest of Honour Yuan Jianmin, Senior Advisor to the Xinjiang Government of China, highlighted opportunities to deepen Pakistan-China economic cooperation under China-Pakistan Economic Corridor (CPEC) 2.0. He proposed expanding bilateral trade in agricultural and food products, establishing a green channel at Khunjerab for fresh produce, increasing the use of the renminbi (RMB) in cross-border payments, and advancing cooperation in artificial intelligence, IT outsourcing, and computing infrastructure.
He said these initiatives could help translate regional connectivity into greater trade and productive economic partnerships. Federal Minister for Planning, Development and Special Initiatives and PIDE Chancellor Prof.
Ahsan Iqbal called for a globally competitive, export-driven economy to overcome Pakistan's recurring balance-of-payments crises and strengthen its economic sovereignty.