Fiscal Policy Response to COVID-19 Pandemic in Pakistan

Abstract

This study aims to explain the macroeconomic and welfare impacts of changes in indirect taxes brought about in response to COVID-19. We study whether the tax relief provided for in the federal budget for fiscal year 2020-21 was effective in providing relief to private enterprises and the trade sector. We also study whether production subsidies granted during the first wave of COVID-19 were effectively able to support firms in the agricultural sector. This assessment allows us to draw lessons that may be useful for designing tax benefit policies amid future waves of the pandemic or during other emergency times.

As the pandemic continues and post-pandemic recovery is delayed, the sustainability of tax relief or subsidies is becoming uncertain – this is an additional area of interest that we focus on in this research. We worked closely with relevant policy makers at the Ministry of Planning & Development, the Ministry of Commerce, and the Federal Board of Revenue in Pakistan when pursuing this last area of interest and designing our simulations.