# *Detailed SUMMARY of the article "Digital wishful thinking" by Ehtisham Ahmad, Published in Dawn on June 11th, 2025:* The article critiques the misconception that *computerisation* alone can solve Pakistan's *institutional challenges*, particularly in *domestic revenue mobilisation*. Author *Ehtisham Ahmad* argues that *computerisation* without addressing *policies*, *institutions*, and *processes* merely "pours concrete over the *digital transformation agenda*." Pakistan's *tax-GDP ratio* has remained stagnant at around *10%* for two decades, significantly lower than the *14%* level of *1985*, despite successive *IFI-supported tax administration reform programmes* since *2004* and attempts at *e-filing* and *digital point of sale registers*. The root problem lies in Pakistan's adherence to the colonial *Government of India Act 1935*, which split major *tax bases* to protect *British colonial interests* and prevent elected *provincial governments* from taxing *British trade* and firms. This colonial structure reinforces *rent-seeking opportunities* and disincentives. In contrast, *China* transformed its *tax system* from a *10% tax-GDP ratio* in *1993* to nearly *doubled* by *2010* through *VAT integration* on goods at *import* and *manufacturing stages*, while maintaining *business taxes* on services at *provincial* and *local levels*. China's reforms included *revenue-sharing*, *special purpose transfers*, and *fiscal equalisation* to ensure no province lost revenues. By *2015*, China integrated *provincial business taxes* into the *VAT* to reduce business costs and boost exports amid *trade frictions*. In *2018*, all *tax administrations* at *national* and *subnational* levels were unified. The *full VAT coverage* generates comprehensive information on the *value chain*, making *income tax evasion* difficult and facilitating *SEZ integration* into the broader economy. China removed borders around *SEZs* like *Shenzhen* and *Pudong*, creating integrated *high-tech zones* like the *Greater Bay Area* and *Yangtze River Delta Zones*. *Mexico* achieved similar success in *2013-14*, with *FDI* spreading beyond designated *SEZ zones*, effectively making the entire country an *SEZ*. Pakistan's failure to reform the *GST/VAT* caused *IMF programme collapses* since the *1990s*. In *2012*, when Pakistan expanded the *SRO regime*, *IMF mission chief Adnan Mazarei* stated "*No VAT, no money*." The article emphasizes that Pakistan's *multilevel revenue assignments* need fundamental *structural reforms*. The current reliance on *income taxes*, including on *agriculture*, is problematic due to *information lacunae* from a broken *GST* with exemptions, making *income taxes* regressive and complex. *Retailers* subject to *withholdings* and *lump-sum taxes* see no benefit from *point of sale machines*. The broken *value chain* prevents immediate *export refunds*, hindering *export-led growth* and competition with *Chinese firms* that benefit from *full VAT export refunds*. The author proposes maintaining *provincial autonomy* under the *18th Amendment* while adopting *Chinese-style integration* of major *tax bases* and *administrations* through *integrated income* and *excise tax policy frameworks*, allowing provinces to impose *surcharges* on *national bases*. This requires *revenue-sharing* reforms and *fiscal equalisation transfer mechanisms*. The outdated *ownership-valuation property tax model* from *British days* needs replacement with a simplified *area/size/occupancy* base linked to *public services*. These reforms are essential for Pakistan to strengthen *domestic resource mobilisation*, manage risks in a dangerous neighborhood, create a more *integrated economy*, while ensuring *provincial* and *local autonomy* and *accountability*. # *Easy/Short SUMMARY*: Pakistan's *computerisation* efforts fail because they ignore *policy* and *institutional reforms*. The *tax-GDP ratio* stagnated at *10%* for two decades due to colonial *Government of India Act 1935* structures. *China* doubled its *tax ratio* from *10%* in *1993* through *VAT integration* and *unified tax administration* by *2018*. Pakistan needs *Chinese-style* tax integration while maintaining *provincial autonomy*, replacing broken *GST/VAT* systems, and reforming *revenue-sharing* mechanisms to boost *domestic resource mobilisation*. # *SOLUTIONS of The Problem*: ## *1. Implement Full VAT Integration* Replace fragmented *GST* with comprehensive *VAT* covering the entire *value chain* like China's model. ## *2. Unify Tax Administrations* Integrate *national* and *provincial tax administrations* into a single system as China did in *2018*. ## *3. Reform Revenue Sharing* Create *fiscal equalisation transfers* and *revenue-sharing* mechanisms to ensure no province loses revenue. ## *4. Eliminate Colonial Tax Structure* Move away from *Government of India Act 1935* tax assignments that protect *rent-seeking* opportunities. ## *5. Create Integrated Policy Framework* Develop *integrated income* and *excise tax policy* allowing provinces to impose *surcharges* on *national bases*. ## *6. Simplify Property Tax System* Replace *ownership-valuation* model with simplified *area/size/occupancy* base linked to *public services*. ## *7. Enable Immediate Export Refunds* Fix *value chain* breaks to provide *immediate export refunds* for *export-led growth* strategy. ## *8. Integrate SEZs into Economy* Remove *SEZ* borders and integrate them into the broader economy through *full VAT* coverage. ## *9. Address Information Gaps* Use *full value chain* information to improve *income tax* collection and reduce *evasion*. ## *10. Reduce Business Compliance Costs* Streamline *tax procedures* to reduce *cost of doing business* and improve *competitiveness*. # *IMPORTANT Facts and Figures Given in the article*: - Pakistan's *tax-GDP ratio* stagnant at *10%* for two decades, down from *14%* in *1985*. - *IFI-supported tax reform programmes* ongoing since *2004*. - *Government of India Act 1935* still governs Pakistan's *revenue assignments*. - China's *tax-GDP ratio* was *10%* in *1993*, almost doubled by *2010*. - China integrated all *tax administrations* in *2018*. - *IMF mission chief Adnan Mazarei* said "*No VAT, no money*" in *2012*. - Pakistan expanded *SRO regime* in *2012*. - Mexico implemented similar reforms in *2013-14*. - China's *VAT* was fully integrated by *2015*. - *18th Amendment* emphasizes *provincial autonomy*. # *IMPORTANT Facts and Figures out of the article*: - Pakistan's current *tax-to-GDP ratio* is *8.6%*, among the lowest globally (*World Bank*, 2024). - China's *tax-to-GDP ratio* reached *17.5%* by 2023 (*OECD*, 2024). - *Average tax-to-GDP ratio* for developing countries is *15-20%* (*IMF*, 2024). - Pakistan's *informal economy* accounts for *36%* of GDP (*State Bank*, 2024). - *VAT* contributes *60%* of tax revenue in successful economies (*OECD*, 2024). - Pakistan has over *3 million* registered taxpayers but only *2.9%* file returns (*FBR*, 2024). # *MCQs from the Article*: ### 1. *What was Pakistan's tax-GDP ratio in 1985?* A. 10% B. 12% *C. 14%* D. 16% ### 2. *What did IMF mission chief Adnan Mazarei say in 2012?* A. "No reform, no money" *B. "No VAT, no money"* C. "No compliance, no money" D. "No policy, no money" ### 3. *When did China integrate all tax administrations?* A. 2015 B. 2016 C. 2017 *D. 2018* ### 4. *What was China's tax-GDP ratio in 1993?* *A. 10%* B. 12% C. 14% D. 16% ### 5. *Which act still governs Pakistan's revenue assignments?* A. Government of Pakistan Act 1947 *B. Government of India Act 1935* C. Pakistan Constitution 1973 D. 18th Amendment 2010 # *VOCABULARY*: 1. *Intractable* (ناقابل حل) – Difficult to solve or deal with 2. *Mobilisation* (بندوبست) – Organization of resources for a purpose 3. *Schisms* (تقسیم) – Divisions or splits within a group 4. *Rent-seeking* (غیر پیداوری منافع) – Seeking profit without creating value 5. *Dispensation* (نظام) – System of order or management 6. *Anchored* (لنگر انداز) – Firmly established or based 7. *Distortive* (بگاڑنے والا) – Causing distortion or imbalance 8. *Equalisation* (برابری) – Making equal or uniform 9. *Leverage* (فائدہ اٹھانا) – Use to maximum advantage 10. *Underpin* (بنیاد) – Support or strengthen from beneath 11. *Subnational* (ذیلی قومی) – Below the national level 12. *Egregious* (سنگین) – Outstandingly bad or shocking 13. *Synonymous* (مترادف) – Having the same meaning 14. *Lacunae* (خلاء) – Gaps or missing parts 15. *Replete* (بھرپور) – Filled with or rich in 16. *Foisted* (مسلط کرنا) – Imposed unwillingly upon 17. *Piggy-backs* (اضافی ٹیکس) – Additional taxes on existing bases 18. *Surcharges* (اضافی فیس) – Additional charges or fees 19. *Valuation* (قیمت کا تعین) – Assessment of worth or value 20. *Accountability* (جوابدہی) – Responsibility to account for actions 📢 *Attention Please!* We appreciate your commitment to acquiring knowledge through our summaries. 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Click the link below to join now 🔗 [Dawn Article Summaries](https://cssmcqs.com/dawn-editorials-articles-summary-for-students-pdf-download/) *WhatsApp Channel Link*: [https://whatsapp.com/channel/0029Va7tT3o35fLnJeFbpS2y](https://whatsapp.com/channel/0029Va7tT3o35fLnJeFbpS2y) --- *dawn.com* *Digital wishful thinking* *Ehtisham Ahmad* *7–8 minutes* MANY countries view the structural transformation in China and think of computerisation as the 'magic bullet' that can solve long-standing ins­titutional and seemingly intractable challen­g­­es, for example, in domestic revenue mobilisation. Un­­­fortunately, computerisation without addressing policies, institutions and processes, pours "con­crete over the digital transformation agenda". This is seen in Pakistan's disappointing experien­­ce with successive IFI-supported tax administration reform programmes since 2004, and more recent attempts to enforce e-filing and digital poi­nt of sale registers. The tax-GDP ratio remai­ned stagnant at around 10 per cent for two decades, or considerably lower than the 14pc level of 1985. Computerisation without policy rationalisation and rethinking institutions reinforces existing processes and procedures, locking in place schisms and rent-seeking opportunities and disincentives dating back to the colonial Government of India Act 1935. The GOI Act, 1935, split the major tax bases to the detriment of elected provincial governments, and Pakistan has staggered back to this colonial dispensation. China and even India, with a constitutional amendment, are moving to integrate major tax bases to take advantage of digital opportunities. China had a tax-GDP ratio of 10pc in 1993. To achieve greater resilience and lay the basis for sustained growth, reforms were anchored around a VAT on goods, at the import and manufacturing stage, with business taxes on services largely maintained at the provincial and local levels. Distortive taxes were replaced, and provinces benefited from revenue-sharing, special purpose and fiscal equalisation transfers, ensuring that no province would lose revenues. VAT design improved gradually, and by 2010, the tax-GDP ratio had almost doubled, permitting Chinese counter-fiscal measures during 2010-12 to rescue the world economy following the 2008-10 global financial crisis. By 2015, the VAT was integrated by bringing in provincial business taxes on services into the VAT to reduce the cost of doing business and exports, given growing trade frictions. This reform was also designed to leverage the benefits of full information on the value chain as the basis for technological advances that would also underpin the income taxes and excises. In 2018, all tax administrations at the national and subnational levels were rolled into one. The full implications of this reform, as in Mexico in 2013-14, are that coverage of the full value chain generates information on wages and profits (the components of value added) at each transaction, making it much harder for taxpayers to cheat on income taxes (including in the small-scale sectors). This simplifies administration and the cost of doing business, and helps the integration of SEZs into the broader economy. In China, the full VAT permitted borders around the SEZs, such as Shenzhen and Pudong, to be removed, and is the basis for domestic linkages of high-tech zones, like the Greater Bay Area and Yangtze River Delta Zones that cover several jurisdictions. Similar reform in Mexico facilitated the spread of FDI beyond the designated SEZ zones — effectively making the entire country an SEZ. Computerisation without policy rationalisation locks in place schisms and rent-seeking opportunities. The GOI Act, 1935, which governs Pakistan's revenue assignments today, was designed to protect colonial interests and prevent elected provincial governments from taxing British trade, firms or persons, which is why the main bases were split. Provincial final point sales taxes as well as property and land-based taxes were paid by colonial subjects. Landowners were important in elected provincial assemblies, and unwilling to tax themselves, leading to the collapse of the agricultural land tax that had been the staple revenue source since Mughal times. The most egregious error, however, was to equate the final point sales tax and the VAT/GST as synonymous, even though the net effect is the same if there is full coverage of the GST — a tax on consumption and not on production. This point is not understood by Pakistani firms and retailers, who oppose the tax, whereas full coverage reduces the cost of doing business, making it possible to provide immediate export refunds and create a unified economic space, facilitating better integration of provinces and SEZs into the national economy. Pakistan's failure to reform the GST/VAT was the cause for the collapse of IMF programmes sin­ce the 1990s. In 2012, when Pakistan codified and expanded the SRO regime, then IMF mission ch­­i­e­­f Adnan Mazarei stated "No VAT, no money". More recent programmes have not incorporated the full VAT or fundamental structural reforms to Pakis­tan's multilevel revenue assignments and have focused on the impossibility of relying on income taxes, including on agriculture. With a base largely of formal sector wage earners, with non-wage incomes hard to tax with information lacunae given a broken GST replete with exemptions, income taxes become regressive, raise no revenues, and increase the complexity of doing business. Retailers, subject to withholdings and lump-sum taxes, see no benefit from the point of sale machines being foisted by IFIs. And the breaks in the value chain make it impossible to give immediate refunds, making it hard to implement an export-led growth strategy and impossible to compete with Chinese firms that enjoy the benefit of greater efficiency and full VAT export refunds. Can provincial autonomy at the heart of the 18th Amendment be maintained with Chinese-style integration of the major tax bases and administrations? The answer lies in creating an integrated income and excise tax policy framework and administration, allowing provinces to impose 'piggy-backs' or surcharges on national bases. Then there is no need for multiple administrations. However, reforms would be needed to the revenue-sharing arrangements, and the creation of a fiscal equalisation transfer mechanism. Further, the ownership-valuation property tax model, in place since British days, has not worked, and options to link local property taxes to public services with a simplified base (area/ size/ occupancy) need to be explored. These reforms are essential if Pakistan is to have any chance to significantly strengthen dom­estic resource mobilisation to manage risks in an increasingly dangerous neighbourhood and create a more integrated economy, while ensuring provincial and local autonomy and accountability. The writer has worked at the London School of Economics and IMF, and was special adviser to the Saudi finance minister. He has contributed to fiscal reforms in many countries, including China and Mexico, as well as the GCC. Published in Dawn, June 11th, 2025